Thursday, May 20, 2010

Market in Wave 3 and Various Degrees, Still More Downside to Come

Above are the internals showing the insanely bearish foundation of the market move today. Volume as a whole was huge on a big down move which is basically bearish in and of itself, down volume represented 98.6% of total volume, and 18.6 stocks were down for every 1 stock up, and the S&P only had 3 stock advancing. So it was a broad based 'sell everything' decline today. This is textbook EWP wave 3 internal structure. It also means that further declines are to come. Tomorrow is options expiration day so it could be another wild day. Today's late day selling and the financial news in panic mode right now, I can see a sharp decline tomorrow morning and then perhaps a rally to end the day. But this absolutely no time to get cute on trying to catch bottoms in my opinion. If anything I would be ready to where if there is a bounce higher, it might be an opportunity to sell into it. All my key levels I've mentioned over the past week have bee destroyed so I think this market is headed lower....much lower. The evidence that wave [3] or C is underway is very high right now. I'm looking to sell into any significant rally the comes about, but most likely that means I'll be waiting for wave (1) to end and will get short on the big wave (2) once it gets underway.

Above is a cleaned up chart with proper degrees of waves I feel are likely at the present time. This also fits in with my guess that tomorrow will give us a sharp selloff early and perhaps a rally at the end of the day since this count has us in a wave 'v' of '(iii)' of 3. So wave 'v' may shoot down tomorrow and lead to a somewhat muted or flat correction for wave (iv). This is merely a guess and in no way am I taking an short positions off the table in preparation for that, and I'm definitely not getting long this market at any time. All it means is that I'm ready and prepared for the volatility coming.

The market should be heading lower and I'd only be looking for short entries.



Anonymous said...

Hi Todd

Just wanted to say I love your blog and you are one of my favourite Ellioticians.

I am glad that Yelnick picked up on your work at times in recent months as your analysis is invariably well considered and compelling.

Anyway just wanted to say thanks.

Have a good weekend .

Craig from Malta

Todd said...

Hi Craig,

Thanks for the nice note!

Best of luck to you.


Dave427 said...

Todd - Novice question - In the larger sense, what will it take to answer the question, was the decline to March 2009 Primary Wave 1 or corrective wave A? Or, in other words, when, how will we know if we are in Primary 3 or C? Is it essentially if P3 declines in clear 5-wave movements below the March 2009 low? P3 cannot be the shorted wave, so it is reasonable to expect it will at least equal P1?

Thanks again for your blog!

Todd said...

Hey Dave,

As you probably know, Prechter is solid in thinking it's a wave 3. I'm just not as convinced and so I'll be a little more cautious once March 2009's lows are broken. The wave count at that point will be crucial in determining if it's going to subdivide much lower for a wave 3, or if it might possibly be ending as a wave C.

Both waves C and 3 tend to have similar strength and structure, although C's can be ending diagonals. I think the best way to determine which wave is unfolding is by how it subdivides lower, as well as its strength. If the subdivisions unfold in a manner that require the S&P to get far far below March 2009's lows, AND the speed and strength of the decline is fierce, we can probably conclude it's a wave 3. So perhaps in the coming weeks, or months we'll have a better idea.

As far as trading goes at this point, it's a pretty irrelevant because an ending diagonal is not occuring right now and so we can expect a nice clean large 5 wave drop for wave C or 3.

Hope that answers you questions.