Wednesday, July 28, 2010
Regardless of Larger Trend, the Recent Market Rally is Ending
So the market's structure has cleared up a bit, at least in the short term. The larger picture still looks like a choppy mess on the daily charts and I don't have confidence in a solid count.....yet. The short term appears to have two possibilities, both of which could have a quick pop to new highs tomorrow, followed by a large drop for a few days at the least.
The above count is obviously very bullish and should have the market reaching a new high soon, probably tomorrow, before correcting the 5 wave rise we're completing. Seeing as that it may be part of a wave (iii), corrections downward might be quick and shallow. So I'd just use a pullback as an opportunity to get long, instead of trying to outright short this thing. A good bottoming point right now looks to be the 1100 level which is round number psychological support as well as the level just beneath the previous 4th wave, which is where corrections often end. A break below 1088.96 would severely damage the likelihood of this count, and a break below 1056.88 would completely eliminate it. I'll wait to see the structure and strength of the upcoming decline to determine if I will get long, or aggressively short as the count below would suggest I do.
Now this count is slightly less likely at this point because if it's just a 3 wave rise then it must correcting an impulsive decline somewhere. The nearest impulsive decline starts just a few points away from the current high here, so that's very deep of a correction, and therefore it makes this less likely. But as long as the S&P stays below 1131.23, and the Dow and Nasdaqs stay below their equivalent June highs as well, then this count remains on track. A break below 1088.96, especially before yesterday's high is broken, would raise this count's likelihood substantially and hoist it to become my most preferred count.
This count also suggests another pop higher before topping out and perhaps undergoing an absolutely massive decline. The euro and precious metals also appear to be on the verge of major declines as well, so this stock count above fits well with other elements of the market too.
So if you're a bull, I would look to start shorting on any pullback while using extreme caution if 1088.96 is broken, and definitely exiting outright if 1056.88 is broken, in my opinion. If you're a bear, then I'd be looking to aggressively short right now and hold those shorts unless the Nasdaqs, Dow and S&P all break above their June highs, in my opinion. Right now, I still have half my long positions in but will stop out if today's low is broken (1103.11). The behavior of the market tomorrow and/or Friday will help me determine which way I trade this market in the short term.
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.