Tuesday, November 1, 2011
Stocks Form Major Top, Destruction Just Beginning; Euro Topped, Headed Much Lower: plus Wednesday's Addendum
Wednesday's Addendum: I've posted my thoughts on where we're at in the market in yesterday's post below, but right now I just wanted to put up a quick update on today's action. Although the rally was fairly strong as far as price is concerned, internally it did not exceed the intensity of yesterday's decline. For example today's S&P advancers were 448 vs. yesterday's decliners at 479, today's up volume was 90% of total volume while yesterday's down volume was 93%, and most importantly in my view today's total volume was a weak 955 million NYSE shares vs. yesterday's 1.3 billion shares. So this rally has the internal makeup of a correction, suggesting the larger trend remains down and this week's lows will be broken soon. This corrective rally either finished at the high today, or might do so with one more leg up to a new a brief new high. But either way, 1292.66 should remain intact, giving the bears a clear risk level.
Usually I refrain from making bold statements like that in today's title since usually when I do it the market does the opposite of what I say, stamping the word "fool" on my forhead. But I want it to be crystal clear what my outlook is now for the market looking ahead. I will try to analyze the short term movements of the market in the coming weeks/months, which means anticipating relief rallies, but I want to drive home the "bottom line", which is the big picture. And the big picture tells me that as long as 1292.66 remains intact on the S&P cash index, stocks are extremely vulnerable to a major selling phase in the coming months which could result in over 50% of value lost. And although the greedy little monster in my head will whisper in my ear constatnly to leverage every penny I have in derivative-type trade shorting stocks, I also need to always keep in mind that no matter how sure I am of the market's direction, I could be wrong, and I need to always protect myself.
Now to the markets. So another failed attempt for a "man-made" stock market recovery from the government....this time in Europe. Last week the Dow popped 400 points on government intervention. Some common investors I know were giving me jazz because the day prior I suggested they protect their retirement accounts by putting them in all or mostly cash. But with a rally based on government intervention it was nothing more than a sell signal for me, and I told them that. This week now has me giving those same people jazz back, lol. It's all in good fun. Governments around the world will attempt to stop the implosion, and will cause short term pops only, and in the end they will all fail. Primary wave ((3)) will do what it wants to do and only stop when it is done destroying almost everything in its path. There's nothing any person or government can do to stop that. The crowd is in control, and the crowd always overpowers governments and individuals, i.e. Warren Buffet, et al.
The internals today were very bearish in that 84% of NYSE stocks traded lower, 479 S&P stocks traded lower, and 93% of total NYSE volume traded to the downside. Total volume was just under 1.3 billion NYSE shares, which is not jaw dropping, but volume should increase as Intermediate wave (3) progresses downward. So overall, a very bearish day in price action and internals. When combined with the wave count and other technical indicators, it looks like a major top is in.
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With that said, the hourly charts show that the S&P probably has to make one more new low to complete a nice 5 wave decline from 1292. This will probably occur tomorrow morning. It's possible a sharp recovery rally will then take place. But as long as it stays below 1292, I will be aggressively shorting that rally, IF IT EVEN OCCURS.
Bottom line: if the above count is correct, it means that over 50% of the value in the stock market should get erased in a very short period of time. Needless to say, I'm short. My stop is just above last week's high at 1293.
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The euro is getting destroyed. The European "save the day" news only lasted about a day. And now, as usual, the markets realize the financial system as we know it is still doomed. So the dollar is back on fire again, crushing the euro in a 5 wave move as you can see in the above chart. Here too I will be aggressively shorting rallies as long as last week's high remains intact.
Free Trader's eBook Until November 7th, 2011 from EWI
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.