Looking at the futures and the euro last night I was prepared to wake up this morning to another big surge higher in equities and was surprised to see a somewhat flat market. Not only that, but the internals of the market are bearish with a lot of down volume entering the market, and so far the S&P has almost the same amount of decliners today as it had advancers on yesterday's big rally. So there seems to be some profit taking ahead of options expiration and the Bernanke's speech tomorrow.
The main problem with the ending diagonal count is the speed and strength of the current decline so far. After such a huge "melt up" rally and an ending diagonal, the market should be declining very rapidly. But it's not. It's just doing a stair-step decline. So I don't have high confidence in this count right now, but a sharp move to the downside at any moment can change that.
So far, there is a series of lower highs and lower lows on the short term intraday charts, which is the key characteristic of a downtrend. But I'm far from convinced at this point that the larger trend has reversed downward. But as along as the series of lower highs and lows continues, the above count is my top choice. A break below wave ((4))'s low at 1155.57 will be a good sign that a top is in and lower levels will rapidly be achieved.
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Of all the bearish evidence out there, I think the lagging financials is the most compelling. The overall market cannot sustain a long term uptrend without financials participating. The financials have continuued to fail to make new highs with the main indices over the past few months, and today they are struggling big time again. When the blue chips went into the positive early this morning the financials were down almost 1%, and Goldman Sachs, often a market leader, was also down just as much. This is a huge warning sign for the long term bulls as long as this behavior exists.
Normally I don't do counts on the VIX since I'm not sure how much it can be tied accurately to large crowd psychology, but the rally it's had off the low with a bullish reversal bar is something to watch. A completed impulsive rally in the VIX would suggest that the larger trend was now up, and that would mean a decline in stocks. And stocks can make a new high and the VIX not make a new low, keeping the VIX impulsive rally count intact and signaling ahead of time that a top is at hand. Keep in mind that we're getting this impulsive looking rally right after the VIX closed outside then back inside the bollinger bands this week. Perhaps a big warning sign for the bulls here.
But just to clarify, these are my ALTERNATE counts. My primary count is listed up top and is extremely bearish in the short term. Any strong sustained rally above yesterday's highs would put these two bullish alternates in higher standing.
The euro lagged equities in making new highs the other day. While equities surged higher in the US session the euro stayed flat. But once the Asian session kicked off last night, the euro blasted to new highs eliminating my short term bearish count. The delayed move higher looks like Minuette wave (iii). The choppy overlapping grind lower in today's US session is Minuette wave (iv). So one more new high to complete Minuette wave (v) is likely to complete Intermediate wave (2). The result will be a sharp and massive selloff shooting the euro to parity with the dollar and probably much lower. Once the decline in the euro starts, equities should fall as well. But yesterday equities led the euro, so we'll see if it leads the euro lower again.
Should be an interesting Friday.
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.