Friday, February 3, 2012
Line in the Sand....the Rubicon 1370.58
February 9, 2012: I don't have anything new to add. The Dow made a new high while the S&P has so far lagged behind, failing to exceed 1370.58. If a reversal occurs with the S&P failing to make a new high above 1370.58, then there would be a major intermarket divergence in place suggesting a major top had formed. But entering short prior to that is purely speculation in my opinion. I'm waiting for a reversal pattern to form, and if it occurs before the S&P can exceed 1370.58, then I'm jumping in big on the short side. Until that happens, I'm simply waiting, doing nothing but trying to determine if it's possible to twiddle my thumbs long enough to burn off the two donuts I ate this morning, and to see if I can twiddle them fast enough to break the sound barrier.
Internals illustrate a typical Friday behavior where volume is fairly soft and a large majority of up volume accompanied the rally relative to down volume. Nothing conclusive here since price moved right in line with these internals as would be expected.
I thought today would be a great day for a nice reversal to the downside and hopefully leave a setup to either short today, or early Monday. But Mr. Market wanted to annoy me today, and he succeeded. The rally remains intact and I see no reason to "guess" and just short here unless you're a gambler. I'm waiting for evidence of a reversal, and will load up on the short side upon confirmation of a reversal if it's not too late when that happens. The market is moving higher, contrary to what the evidence I see suggests it should be doing. When this type of thing happens, I want to simplify things and focus on the bottom line. The bottom line is that 1370.58 is key to the bearish wave count, and the bearish case as a whole. The Dow came within just a few points of exceeding its wave ((2)) high today, so things are a bit shakey for the EWP bears right now.
But as along as 1370.58 in the S&P cash index remains intact, the bearish wave count remains valid and so any good sign of a reversal on the short term charts is worth taking a shot at the short side with a stop at the day's high, or just above "the Rubicon" level at 1370.58. A perfect scenario for the bears would be for the Dow to exceed its wave ((2)) high Monday while the S&P stays below 1370.58 and then a big reversal occurs. This type of divergence in two major indices would be deadly bearish.
Learn Elliott Wave Principle (EWP)
Although the euro has been able to make a new low and has not been able to make a new high, there has been no follow-through to the downside. As a result, there has been a net sideways action the past week or so. This consolidative pattern conveys a similar message that an EWP triangle conveys; which is that the euro is pausing from its uptrend before it thrusts higher in a sharp and deliberate move to new highs. Now since this is not an official EWP triangle the euro has formed, so I can't say the thrust to a new high will happen with any level of certainty. But I will say that the odds are slightly tilted toward the bullish side for right now.
Technical Indicators: A Love-Hate Relationship
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.