After reviewing the charts and indicators it's hard to get past the strength of the rally today and breaking to a new high. However there are two corrective waves that can account for the strength of the move today, and they are waves C and 2. Both are very strong and both result immediately in a strong reversal to new lows. It's possible today's rally was just a wave C of a 2 wave. However as you can see from the above chart, the correction is quite elongated compared to the intial five wave drop making this wave count ugly. What's good to know is that the market is currently near the beginning of that 5 wave drop, and if it rallies above that next week then we know we have much more rallying to go. But as long as the market trades below that level, it's immediately bearish. The above chart is very busy, I know, but it is what it is. One thing I did notice on the bigger time frame chart is that despite today's huge rally on solid up volume, the NYSE advance decline ratio still failed to come close to making a new high. Plus, two things that have been trading in line with the stock market were down today, i.e. gold and the euro against the dollar. Both look to be immediately bearish and have heavy selling ahead. So this may signal heavy selling for the stock market too.
If the wave count above is correct, it means a wave 3 at multiple degrees should get underway immediately Monday morning which means a straight line down right out of the gate. So if that were to occur, I expect to see the futures down big on Sunday or early Monday morning. So watch for some big news event this weekend possibly to trigger that.
To sum it up, the market's nice short term bearish pattern has been rocked, but not destroyed. As long as the indices stay below last week's highs, the market is immediately bearish.
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