Thursday, August 19, 2010
Market Continues to Unfold in Nice EWP Form
The internals of the market were quite bearish today and volume was strong relative to the past few weeks as it made it above the 1 billion share mark, but was still fairly light overall. But the trend continues of having higher volume on declines and volume disappearing on rallies, which is very bearish in my view. Today everyone was a seller basically with 91% of volume to the downside and only 21 S&P stocks trading higher. So the market action today was very bearish.
Looking at the bigger picture it's possible to count the decline from the highs on the year as an unfolding impulsive move. It's not perfect how it started off by any means, but the structure from the past couple weeks is looking quite perfect so far. The market has followed the forecasts laid out by EWP but the market has still not really "broken down". The market is running out of 1 and 2 waves to explain why it hasn't really accelerated downward. So if the above count is correct, we should soon see relentless selling to well below the recent low of 1011.
Looking at the short term it looks like we need another drop lower to complete a small 5 wave decline which could be followed by a correction higher before the next wave of selling ensues. As I said earlier, the market is running out of 1 and 2 waves to explain this slow chug lower, if the counts listed above are correct then this market needs to get moving to the downside fairly soon.
With today's bearish action, and the EWP waves starting to unfold more clear, I don't want to get too caught up in trying to catch every little pop and drop. The main focus I want to have is the wave count on the daily chart posted above which shows an extremely bearish potential for the market in the coming weeks.
The only viable alternate count I have for the short term is that wave ii is still unfolding and today's decline was just a "b" wave. This by no means suggests I'm getting long or taking any drastic action to reduce short risk. I just bring this up because it's a possibility, and it might give some bears with cash on the sidelines to consider holding it for a possible pop higher so they can add to their shorts at a higher level. With that said though, this count is less likely to me because it would mean quite another long and drawn out sideways corrective wave which is a bit rare in what should be a 3rd wave of various degrees it might be in. A sharp rally Friday or Monday may easily put this count as top choice. But it would still only mean a short term rally that shoudl not be sustained for any long period of time and should eventually roll over hard in the near future.
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.