Thursday, November 10, 2011
Stock and Euro Rallies are Weak, Larger Trend is Down
Today's price action was strong in that we got a triple digit Dow rally, but other than that, the move today looks quite weak. The S&P lagged the Dow slighty, but the Nasdaq lagged big time as it struggled to just close in positive territory. Also, the rally never really got any legs to push higher and hold itself higher, and as a result it so far looks weak and choppy on the hourly charts, which is corrective. But this is subjective I suppose, but what's hard fact is that the internal composition of today's rally was quite weaker than what accompanied the decline yesterday. Here's what I mean:
Today's up volume was 71.8% of total NYSE volume while yesterday's down volume was 98.5% of total volume. Total NYSE volume today was 895 million while yesterday's was 1.1 billion. Today had 409 S&P stocks closing higher while yesterday had 499 stocks close lower. And today, the NYSE had 2.3 advancers for every one decliner while yesterday had 9.6 decliners for every one advancer.
So clearly, the data we have from the last two days suggests today's action is simply just correcting the extreme bearish move from yesterday. The larger trend is down.
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The wave count supports the internals' analysis above. Minuette wave (ii) ended right at the 78% fibonacci retracement level of the previous decline and sold off sharply after doing so. Today's bounce is choppy and internally weaker than the previous decline, and when you combine it with the fact that the price action looks choppy and weak so far, it has me concluding that today's move high is corrective.
Tomorrow is Veteran's Day so volume will probably be light. And looking at the price action is seems there is a little more work to do to correction Wednesday's massively bearish selloff. So I can see tomorrow being an up-day on light volume. But that is fine with me, just another opportunity to add to my shorts with tightened risk at 1277.
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I'm getting close to developing a confident wave count for the euro, and it is aggressively bearish as you might guess. There is no reason to think the euro's larger trend is anything but down at this point. After the last large euro decline it could only manage a weak 38% retracement while US equities made a 78% retracement. So I'm not expecting fireworks to the upside for the euro in the coming days either. Regardless, the 1.3850 level should act as a solid ceiling to cap euro rallies, leaving a good clear and somewhat close stop loss level for the bears.
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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.