The market showed huge signs of exhaustion all day today. The market opening higher this morning as a true gift. It was like the S&P was yelling at me through my computer, "SELL ME!! SELL ME!!" So I did. In the futures, the S&P made a new high but the Dow didn't, creating a bearish divergence. Plus, carry trade currencies were weaker this morning despite the stock market's apparent strength. This was all bearish and told me the rally into the open was bogus. The market sold off right after the open and didn't recover until the last 30 minutes of trading where it failed to make a new high on the day. Again, this shows exhaustion of the bulls as they are really struggling to inch the market higher now whereas before it was so easy. On top of that, breadth declined significantly from the past two trading days, and the Nasdaqs closed significantly lower than the S&P and Dow. The Nasdaqs have riskier tech stocks and the fact that they were so much weaker today tells me that people were selling their riskier assets and taking profits. The Dow and S&P should follow soon, as they usually do.
The above chart shows the elliott wave count I have. Tomorrow, or very soon, we should undergo a strong decline in a wave C. My target for the S&P is the 800 area as there is a small chart gap that will probably want to be closed. The one thing that can screw up a perfectly good wave count and technical setup is a holiday with light trading volume. Tomorrow and Friday should be met with light volume meaning just a few traders will be around and they can shoot the market all over the place. This can benefit the bulls or bears. But the setup I have now shows that the bears will be the benefactor of this. Regardless of what happens this week, the rally is exhausting and momentum indicators continue to show bearish divergence and are now crossing down on the bigger time frames which all tells me that we are in for a big decline soon. If the market manages a new high above today's, I will short again, and continue shorting until a big selloff relieves this overbought condition and bearish divergence on the momentum indicators. I predict tomorrow will be a big down today, and quite possibly Friday as well as just a few amount of traders shoot this market down as they take profits at the end of the month.
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