The internals today were quite bullish but not nearly as bullish as I felt we'd have today. Volume was very strong relative to the past several weeks but NYSE up volume was only 77% of total volume, the S&P had over 100 down stocks, and the VIX actually closed higher on the day. Not exactly what I expected on such a feverishly big up-day with everyone doing cartwheels over their favorite Fed chief's decisions lately.
Today's late day surge in the VIX resulted in it closing back above the lower bollinger band which makes it the second stock market sell signal in less than two months without the first one being resolved with a meaningful market decline. As I said yesterday, this is either very bullish or very bearish. It might be very bullish because this is the type of behavior that would occur in third waves which would suggest we're in a big wave 3 up. But it could also be very bearish because we now have two overbought extremes like this in such a short period of time with no pullback. The other evidence in wave counts, momentum indicators and sentiment extremes suggest the bearish view is more probable. A major market selloff is near. I can't emphasize that enough at this point.
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While on the subject of bollinger bands; notice that just prior to the start of Primary wave ((1)) one down in the Nasdaq Composite, it closed above its upper bolling band. Immediately after that the market underwent several months of declines that was what most people call "the credit crisis" that slashed 50%+ of value of the major indices. Us wavers called in Primary wave ((1)). Now notice today we have another daily Composite close above its upper bollinger band after a strong uptrend. Will history repeat itself only this time in Minor wave 3 of Primary wave 3 down? We'll know soon enough.
I'm not done with the Nasdaqs just yet. Today the Nasdaq 100 exceeded its April high. This may be the final move that sucks in even more people into the bullish camp of the overall market which is good for the bears in creating an even stronger optimistic extreme. But the Composite is still far from exceeding its April high like the Nasdaq 100 has. If that divergence holds, it may be significant...
...and here's why: look at the move into the March 2009 low in the Composite. You can see that in March 2009 it went below its November 2008 low. Now look at the Nasdaq 100 at that time period. You can see that the Nasdaq 100 failed to break below its November 2008 low (see blue lines on the COMP and NDX charts). So this divergence led to the massive 13 month rally (April highs) us wavers are calling Primary wave ((2)). That's a huge rally, and the divergence in the Nasdaqs signaled that move.
Now notice the red lines on the charts. Now we have the opposite occuring. The Nasdaq 100 has made a new high above its April 2010 high and yet the Composite still lags far behind. Could this divergence between the Nasdaqs be another signal of a massive selloff on the horizon? The surrounding evidence sure supports it. We'll see if it holds.
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Also, a huge warning sign for this market is the financials which are lagging the overall market badly. They haven't even exceeded their July highs like the major indices and on today's big surge higher they barely made it into positive territory. Also of note, Goldman Sachs, often seen as a market leader, traded down most of the day and actually closed the day negative. And all this despite JP Morgan posting a good earnings report. Financials lagging this market so badly is a huge warning sign for the bulls and as long as it continues it spells trouble for this market.
I'm having a problem with my charting packages today and cannot post a new chart of the euro with recent action. But the counts still remain valid in both counts above so I'm posting them again. The euro is trading slightly higher around 1.3960 currently.
The euro has still not made a new high throughout last night's Asian and European sessions and as I said yesterday that may be very telling. And even if they do make new highs, it looks like it will be a 5th wave that will end the entire ABC rally I have charted above on the daily count. Also the AUD/USD looks to have thrusted from a triangle which is a finishing move so it's also poised to fall hard soon.
So the stars are lined up more so than I've really ever seen, suggesting the major top and reversal we've been looking for keeps getting closer and closer. Every move higher lately seems to make the markets even more and more extreme and signaling a big reversal. With that said, there really no solid signs of that reversal occurring just yet. So we still have to be patient. The short term euro count suggests a top is in, but it's far from confirmed. So we wait. If the market continues higher, it will just make it more "shortable". My opinion.
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.