Well the bearish divergence I spoke of in prior posts finally had an impact on the market today with the S&P shedding almost 9% today. When the market rallies that much that fast and is accompanied by a divergence of momentum indicators it almost surely results in a snap-back in the opposite direction. A healthy bull market would move up gradually with minor bumps along the way; not 18% in 5 trading days.
Today's decline was extremely ferocious, almost like some type of 3rd wave. Out of the S&P's 500 stocks, only 1 stock closed up on the day. I've never seen that before. Also, 98.6% of NYSE volume was to the downside. So today, everybody sold everything. It makes it a possibility that some other more bearish wave count is unfolding that I'm not seeing and the market will head to new lows on the year very soon. Tomorrow will be very important in determining that. Another day tomorrow with big declines and very weak breadth all the way into the close could mean that the market is falling much further and sooner than expected. And as you can see on the above chart updated from this morning, as of the close today we have a nice strong bearish candlestick formation and the stochastics have crossed down. So the very bearish scenario is a possibility. We should see follow through to the downside tomorrow, and possibly most of the week.
The market structure and short term trend is a bit unclear right now from an elliott wave perspective, but we know the larger trend is still down, so I'm holding the core of my short positions until at least 800 in the S&P is hit, depending on the internals when that happens. I closed about 25% of my short positions today and all my call options early this morning as well.
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