Sunday, August 1, 2010
Big Move Coming
The market is flip flopping all around, confusing even most of the pros out there who seem to recommend "getting smaller" in this market because it's so tough. The VIX is quite low and could signal complacency in the options market which can often mean a major top in the stock market is occurring. The behavior of the market with it's wide directionless swings the past week or so signal that a major move is coming. Seeing as that it's possible we're at the top end of a trading range which is around 1113, the wave count suggests that a wave 3 at various degrees might be getting started, a series of new lows and highs has started on the 15min charts, and that the VIX is at levels of complacency that has marked major stock market tops before, I'm going to give a slight advantage to the bears. This means that this "big move" in the market should be to the downside.
What sticks in my head when I see these charts is the Dow's new high that was not followed by the S&P or Nasdaqs on Thursday, then the Dow's reversal to close beneath the open from the day before. This is a topping reversal pattern. With that in mind I can rest assured that the bearish side should be favored as long as that high in the Dow is maintained at 10,463, no matter what the wave structure might be; the short term should should favor the bears. So I'm short term bearish as long as the Dow trades below 10,463.
But all is not perfect, that's for sure, for the bears. The decline from the 10,463 high is not impulsive looking at all. That doesn't mean the market won't tank hard from here, but it's not a good start for a big decline from an elliott waver's perspective. Also, on the above 15min chart, it looks like the market MIGHT have failed to make new lows with that latest drop then sharp rally. It created what looks like an inverse head and shoulders pattern, which is of course very bullish. But the pattern was not completed as the market failed to close above the neckline and instead reversed into the close. So it's inconclusive, like many other things in this market right now.
Despite the bullish potential, the Dow is not far away from the 10,463 level I just mentioned earlier. I think it's safe to stay bearish with a stop just above that level. A strong shot through that level would negate that topping reversal pattern and therefore severely weaken the short term bearish case. Depending on the strength and structure of that rally I would consider getting long since we might be in a wave 3 at various degrees to the upside. But the rally must be sustained, because another shot higher that's reversed would be even more bearish. At this point, a short term trader needs to be very vigilant and nimble. I can't emphasize that enough right here.
I remain short term bearish as long as the Dow trades below 10,463.
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.