Tuesday, October 19, 2010
The Bears' Time is Now
For those of you who read my post yesterday afternoon you should have picked up that I felt the market was at the "make or break" stage in regards to the longer term bearish count, and whether Primary wave 2 already topped. With the S&P trading well into the 1180s it really is the last area of resistance and the Nasdaq 100 already making a new high on the year, the bears needed to come in today and smack this market down to keep the Primary wave 3 count alive, in my view. Otherwisde we'd need to look at some more bullish alternates suggesting Primary wave 2 had a little further to go.
So far, the bears are acting like they know this is where they have to do their last stand for Primary wave 2 to have topped. Today's decline in the Dow is a nice, clear and sharp 5 wave impulsive decline and there are breakaway gaps in some of the major indices as well. This is the type of behavior I'd like to see at a Minor wave 2 top. What's also signficant is that when I was watching CNBC last night regarding the response to Apple and IBM being so negative, ALL, and I mean ALL the analysts and traders I saw there were only discussing and arguing about where to buy those stocks. None of them talked about being careful here with the big run up they've had recently nor did they exercise any caution as to why the response to good earnings was so bad. I mentioned last week that we knew Apple would blow out earnings, and they did, but what was important was the reaction to the good earnings report. Today's negative reactions speaks a lot, and it speaks to the bears favor. And according to CNBC last night, people are falling over themselves to "buy the dip" right now. This again is good topping behavior for market participants because the blind optimism that stocks are stop lossed by the Fed and we should only be discussing buy points is what happens at major tops.
The key for the bears here is to hold onto these losses today, or even better - accelerate the losses into the close. Now is as good a time as any to get aggressively short with a tolerable stop loss above yesterday's highs.
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Another piece of good news for the bears is the action in the euro. After completing five waves down it rallied about halfway back and had a sharp reversal into the last night's Asian session. Again this is exactly the behavior I'd like to see in a wave 2 top. Then, the sharp selloff into this morning's US session is also what we'd like to see if a wave 3 is underway. The pair looks like it has further to fall so we should get more downside in the short term. Only a break above the Submicro wave (2) high at 1.4005 would negate this short term bearish call.
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.