Friday, January 15, 2010
We Got the Sell Off; Now we Need Continuation and Acceleration
The NDX and Russell 2000 managed to just stay under their recent highs before selling off sharply as you can see in the attached charts. This keeps their 5 wave impulsive decline intact and on course. The significance of this is that it may be the first signs of a major top and trend change. This of course cannot be confirmed at this very moment, but it's a starting point. Also note on the 5min S&P cash index chart attached that today's decline traced out a nice 5 wave impulse move. Again, the markets are telling us the trend has changed. Now whether this is just a short term trend change, or if it's THE trend change, will have to be answered later on as market movement plays itself out. One thing I will say is important for the longer term bearish picture is that we need to see continuation of this sell off into this afternoon and next week, and we also need to see some acceleration of the decline. Those of you who've been following this rally waiting for a top like I have for the past several months know real well how many times we've seen promising declines only to see them hit a wall, reverse, and rally to new highs. So if we get continuation and acceleration of this decline, it will instill confidence in use patient and bears.
In January 5th's post I listed key levels in the S&P I wanted to see broken to start raising those alerts to a possible major top being in (click here for that chart). The 1115 level is not that important anymore, but it will break the series of higher lows we've seen the past several weeks. Breaks of 1094 and 1082 are the real key levels. If the market can manage to continue and accelerate in this decline to break those levels sometime next week, it would be very promising in projecting that the big wave 2 or B top is in. But we have a long way to go to get to those levels so we'll have to wait and see. I just want to let you all know what I'm looking for at the moment so we're all on the same page.
If I were to have placed a short trade a couple days ago when I mentioned the great risk/reward opportunity after the 5 wave drops and rallies in the NDX and Russell, I would move my stop loss to at least the most recent swing highs that occurred either today or yesterday depending on the index, or even move the stop loss to break even if it's close to thos swing highs anyway. A break of 1115 in the S&P next week would probably allow me to lower my stop even more and lock the trade into a profit.
As for the EUR/USD, it declined nicely overnight but has found its footing this morning in the US session. Again, I'm looking for a drop to a new low for a 5th wave.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.