Friday, July 16, 2010
Strong Selloff on Options Expiration Day
The economic data continues to reverse and disappoint with consumer sentiment dropping much more than expected, and banks are selling off after earnings reports as many investors are concerned about the amount of loan availability in the economy and the fact that a lot of earnings was generated through tapping into reserves. The internals of the selloff this morning are very bearish with only 10 stocks in the S&P trading up, and 94.5% of volume on the NYSE on the sell side. Volume is big but it's options expiration day so we can't read too much into that.
As for the wave count, from an objective viewpoint, looking at the short term here it definitely looks like a corrective setback from the highs of the week. The waves are very choppy and composed of 3 wave moves. So I'm still expecting this to be an X wave of a triple combination. That means one more 3 wave rise for wave Z and then wave (ii) will be complete.
The very bearish internals, failure of the S&P at the 1100 level, the break-away gap this morning, and the sharp nature of today's decline after yesterday's big rally into the close has me looking at an immediate bearish option. I looked at the Nasdaqs and other indices and it's really tough to get a good 5 wave decline from the high that I'm confident in. And I'm already trying to shove a square peg into a round hole with the above count, but I do want to be aware that wave (iii) MIGHT have started today.
Going around the EWP forums and blogs it's obvious that everyone is on the lookout for the next be wave 3 down, so I know that it's likely the market will again do something to fool us at the highs to keep the elliott waver masses hesitant. Perhaps this current structure is it. The fact that the market subdivided in 3 waves from the high and then failed to make a new high in a sharp spike that was completely reversed the next day perhaps is the market's way of "fooling" us. If so, wave (ii) completed yesterday with a "truncated 5th wave" (failed 5th wave). This means that wave (iii) is underway now and should be composed of extremely heavy selling to well below 1000 in the S&P before bottoming. If this is the case, then we should have little patience for the market to flip flop around sideways or undergo long time consuming deep rallies; in my opinion. The market should be headed very firmly down if this count is to take precedence. Otherwise, I'm counting today's decline as part of an X wave with new highs still to come.
Also, I mentioned a week or so ago that the precious metals uptrend appeared broken. Well today silver has sold off sharply again today, and all while the euro has been surging higher. Also the USD/JPY (US dollar vs. the Japanese yen) has sold off sharply as well. This suggests that risk aversion is coming back to the markets. And that doesn't bode well for equities going into next week.
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.