Wednesday, August 11, 2010
Big Kickoff to Big Decline
Just a follow up to the internals from this morning. The same dreadful numbers carried into the close; a bearish sign. 84% of NYSE stocks closed down and only 5 S&P stocks closed up. But one day doesn't make a trend, so we need to the subdivisions of the market break into 5 wave impulse moves and volume remain solid on the way down. Speaking of volume.....
As I've been mentioning the past few days, volume on the latter end of the recent rally has been falling of a cliff with NYSE volume getting into the 700 billion area this week, which is quite amazingly low. But yesterday's decline and today's big selloff brought the volume back into the market. Both days saw an increase in volume with today's volume bursting through the 13 day moving average at 1.16 billion on the NYSE today. The trend of contracting volume on rallies and increasing volume on declines is a clear sign that the larger trend is down. And since it's pretty much been occuring for months now, one can conclude that we are in a very large downtrend.
Lastly is the S&P count. Blog reader, Rob, noted that today's decline looks a lot like that pesky structure we called the "Wolf Wave" (I know there is actually a wolf wave that is something else, but I don't care, this is my slant on it). This structure has burned us bears quite a few times. It's composed of a sharp straight line down, followed by an immediate choppy slow grind lower. This has oftentimes led to sharp rallies and new highs. Today's structure doesn't quite fit that scenario, YET. The choppy grind is not immediately after the big decline, there are some sharp pops that could easily be small 4th and 5th waves. We need more time to be sure, but right now I see this as a nice healthy decline that has further to go. Tomorrow we should see follow through to the downside at least in the morning. That should eliminate the possibility of the "wolf wave" altogether.
But just in case, I wanted to post the possible structure to watch out for tomorrow that might warn of a bottom and sharp rally to new highs. If the market just does a slow grind lower like I projected above in red, then we might want to be a bit cautious on the bearish side. But if there are any more sharp declines that are sustained, it will eliminate this from contention.
In summary, the market looks very bearish overall in the short term at least. I'm short and will remain short until the market tells me convincingly that I shouldn't be. I expect follow through to the downside for at least tomorrow morning. Any rallies at this point will be sold into on my part.
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.