Tuesday, September 7, 2010
Market Rollover Appears Imminent
Internals were quite bearish today although nothing to get excited about. The key takeaway from what I see here is the volume today. It was very low, coming in at 829 million shares on the NYSE. Looks like investors got bored with the big rally last week already. This also coincides with the VIX sell signal for the stock market that was in fact confirmed today with a close above the lower bollinger band. This doesn't mean the market will tank ferociously tomorrow immediately. But it does suggest the easy money to the upside is over.
In my opinion, this evidence suggests that the rally last week was a "panic buy". It was a rush to the buy buttons to jump into stocks as fast as possible since they were all convinced the all clear on the economy and market were sounded. But with that sharp, deep and fast move comes exhaustion, and now there's no one left to buy so the market's path of least resistance should soon be down.
The decline today does not look impulsive yet, and it wasn't necessarily a ferociously strong decline, and volume was light, so it's not out of the question for the stock market to perhaps eek out another high, or just flop around sideways for a day or two, before reversing to the downside. But I think the bearish potential here with the setups I've been talking about bring about a good opportunity to start getting aggressively short this market in preparation for a short term decline in the coming days.
I'm using a Dow chart above since my charting software has a bad tick in the S&P today and it's skewing all the data. I just wanted to show you this very basic indicator to keep things honest. You can see on the 2hr. chart, and many other intraday charts, that the RSI had reached an overbought area Friday. An area that the last time it was reached led to a strong decline for a while (see red circles).
However notice that the last time this occurred, the market recovered and grinded out a few more highs in what looks like an ending diagonal. So the same thing can happen again.
So playing the market for a short term decline is how I'll approach it at this point. Once the decline gets underway, we can hopefully get a better idea of the bigger long term picture and align our longer term positions accordingly.
FRIDAY'S EURO CHART
Above is Friday's chart suggesting that a top was forming in the euro since a 5 wave rally completing a wave C with a 4th wave triangle it appeared to be in its final stages since the RSI was diverging from price drastically.
Judging by today's chart of a nice solid impulsive decline, it appears the wave count and bearish indications were correct.
Breaking below 1.2625 would confirm that the rise from 1.2586 was in fact a 3 wave corrective rally and that the odds are high that a major top is in at 1.2918.
FRIDAY'S USD/JPY CHART
Above is the USD/JPY chart I posted Friday that had a nice reversal formation in the middle of it which suggested a short term top at least was in for the pair.
So far the pair is moving in line with the forecast. The bigger picture wave count for this pair is not clear, but the reversal I pointed out Friday does suggest lower levels should be acheived in the coming days while Friday's high remains intact.
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.