Tuesday, September 6, 2011

Stocks and Euro Tank

Stocks fell hard today, but volume was modest and advancers vs decliners data was fairly bearish.  But looking strictly at internals here, they are not exactly supportive of a resumption of the larger downtrend.  That doesn't mean the larger downtrend hasn't resumed, it just means that this piece of data isn't all that supportive.

I think various longer term counts are in play here, although all the major ones I'm tracking have the market heading to a new low before bottoming out.  It's because of that fact that I don't want to get too caught up in solidifying a longer term count, and measuring corresponding waves, and looking for exact points of movement.  In my opinion, that's a waste of time.  It works for a lot of people though, but not me.  I just stick to the bottom line and simplist analysis.  In that light, the market needs a new low so I'll trade for that to occur and deal with the bigger picture once we see the structure and strength of the move AFTER the new low.

Above is one valid way of counting the decline.  Here, Minor waves 2 and 4 are much more proportionate to each other, yet it means the S&P topped much earlier than the Nasdaq 100, and the discrepencies in wave counts will result in serious problems to at least one of the two counts over time.  But looking at the S&P on its own, this count above is very much in play.

Learn Elliott Wave Principle

Here is another possible count I'm tracking at the moment.  This falls more in line with the top in the Nasdaq 100, which tends to lead the overall market, or at least signal major turns.  The problem is that Minor wave 4 is much longer in time than Minor wave 2, making this count a bit undesirable, yet still valid.

This count basically follows the Nasdaq 100 exactly and suggests Intermediate wave (1) actually completed at August's low and the rally that completed last week was Intermediate wave (2).  This count would put the Nasdaqs and blue chip Dow and S&P indices right on track with each other.  The big problem right now though is volume and internals.  If we were now in Intermediate wave (3) down I'd expect to see volume well above 2 billion shares and around 98%-99% down volume.  We're not even close to that right now.  So this count is also merky at best right now.

The bottom line is that we can go forever developing scenarios and counts that may seem likely what I want to focus on is the bottom line, and what's the simplist way to approach this.  The bottom line is that the market should be headed lower to a new low and we have to let the market action play out a little more before we get married to a longer term count.  Playing the short term while leaving the longer term open for interpretation for the moment is certainly a viable strategy right now.

The S&P traced out a nice 5 wave decline from the Minor wave 4 high.  So the big corrective rally that occurred today was expected, and it might also explain why the internals were only modest at the close since the whole day's data is averaged out, and the big corrective rally diluted the bearish internals from the open.  Regardles,  once this correction is over, the market should continue its way lower in a hurry, regardless of what the longer term count is.

Those Steely-Eyes of J.P. Morgan: Could They Help Us Today?

The euro is continuing to breakdown, and it's doing it in an orderly fashion as it closed a gap left from Sunday's open before resuming its downtrend.  I suspect 1.3800 should be reached rather quickly.


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