Saturday, February 13, 2010
Up Down Up Down, Where's the Market Headed?
There is plenty of bearish and bullish evidence at this point for the short term and instead of grinding out both sides, I'll just sum up the core of each side.
The bulls can claim victory because after 13 days of a sell off that shed 106 points off the S&P, the bears have failed to gain any momentum to continue selling to new lows. We've seen quite a few "fakeout" sell offs to the downside this week, only to have the bulls them up to new highs. This has also created numerous bullish daily candlestick wicks on the charts. So the bulls are holding their ground, and it's making this possible wave (iii) down looking a bit unlikely since it's taking so long to get going.
The bears can claim victories too. There are three core elements to the bearish case that keep me short term bearish:
1) the market has been declining in 5 waves and rallying in 3 waves, or pairs of 3 waves, telling me the larger trend is still down.
2) so far the market has rallied and reversed at a common fibonacci retracement level of 61.8%.
3) after 13 days and a 106 point decline, all the bulls have managed to recover from that in 5 1/2 days is a meager 31 points. That again tells me that the larger trend, and path of least resistance, is still down.
Other elements that add to the bearish case are the fact that most of this week's rallying has been extremely choppy which is characteristic of a correction, NYSE volume has been quite tame on the rally compared to the sell off prior to it, the EUR/USD has made new lows appearing to have resumed its downtrend, the stock market has been very wild and volatile throughout the day which is characteristic of a bear market (many of you remember the March 2009 rally was mostly just a steady float higher), and the XLF still failed to break and hold above the key $14 level. All this is very short term bearish in my view.
Instead of getting too caught up in the little ups and downs of the market, I'm choosing to align myself with the bearish side with comfortable risk levels and just letting the market play itself out. I think the evidence does favor the short term bears here, but I don't want to get too aggressive until 1059 is broken in the S&P. The ultimate breaking point is the 1105 level for the bears so I'd like to be comfortably bearish with a stop above that level, and/or get short with a break of 1059.
My currency stance remains the same, I'm looking for US dollar strength to resurface and still have a sell stop position to enter the GBP/USD with a break below 1.5555. I'm not comfortable shorting with a market order at this point though as the currency picture is not clear enough to eliminate further upside from current levels.
....one more thing, I thought I'd try posting some polls at the top right of the blog to see if we can get some value or entertainment out of them. So please participate! :)
Have good weekend!!
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.