Friday, September 25, 2009

Long Held Target of 1067 Reached!; September 25, 2009

One more quick note. For those of you who have been viewing my blog for some months now know that I've long held an S&P futures topping target for this big wave 2 rally to be at a prior 4th wave at 1067. Prior 4th waves are often stopping points for countertrend rallies and the way the market rally was setting up it sure appeared that was the level to watch. With the futures making a high this week of 1076, just 9 points above my target level established many months ago, it's sure primed for a major top to be underway.

Next week should be interesting.

Similar Decline Structure Warns Aggressive Bears; September 25, 2009

As I said in my previous S&P post, the decline from Wed. is clean and healthy and with a 5 wave drop a rally is expected. 1076 futures and 1080 cash in the S&P remains the critical bearish levels for the short term bearish move. Although the decline is looking good for the bears, I just wanted to point out a potentially bullish development on the hourly S&P cash chart above. Notice that the past 2 declines sported the same type of structure that this current decline is undergoing (see yellow arrows). Each time the market tanked hard with weak breadth and advance/decline volume, but then just hit a floor and formed a "bowl" which led to sharp rallies to new highs. I'm only mentioning this to keep things balanced and to report them as I see them. Wave 3 down is NOT confirmed yet, and until it is caution is warranted against extreme aggressive bears, especially with the current "bowl" pattern that has formed.

Monday will prove to be a critical day. If the S&P, Dow and both Nasdaqs can make new lows beneath those established today, then it will put the wave 3 scenario up top to serious consideration. Until that happens, I'm cautiously bearish against 1076 S&P futures and 1080 S&P cash.

Today's lows that need to be broken to solidify the bearish case are:

Dow 9641
S&P 500 1041
Nasdaq Comp. 2085
Nasdaq 100 1690

If all four indices break today's lows early next week, the chances of "THE TOP" being in will significantly increase.

Gold and Silver Declining in 5 Waves; September 25, 2009

As I mentioned in earlier posts, silver's daily RSI was at the oversold level that has marked several major tops in the past. It reversed sharply ever since, and now it along with it's partner gold are tracing out 5 wave declines. Above is a 1 hour gold mini futures chart.

With 5 waves being traced out so far in the metals, the indices falling healthily in unison, the EUR/USD looking like it's formed a top, and the british pound breaking down from a big head and shoulders pattern, the evidence is building that "THE TOP" may be in. Still waiting for confirmation. We're not there yet, but it's looking encouraging across the board.

All Indices Confirmed Lows!; September 25, 2009

The Dow just fell to a new low on the day and confirmed the S&P and Nasdaqs new lows. This helps chop down the "bowl" bottoming formation I've been talking about, and makes the decline look much more healthy in the short term. With 5 waves down in all the major indices, a bounce is expected, but not required.

Stay tuned

5 Waves Down in the Futures; September 25, 2009

The S&P futures and Nasdaqs sport 5 waves down, but it's not as clean or tidy in the cash markets as the Nasdaqs made new lows from yesterday but the Dow did not. Plus, breadth is flat and the market is forming a "bowl" which according to the prior few selloffs, marks a bottoming structure. With 5 waves down and the EUR/USD looking like it's formed a top, I'm staying short term bearish but cannot conclude what degree of decline we're in right now. The key level is the beginning of the 5 wave drop whichis S&P futures 1076 and 1080 in S&P cash.

I'm bearish and I'm fully short.

Thursday, September 24, 2009

Bottoming Structure? Need New Lows Fast!; September 24, 2009

Attached above is the S&P cash 5 minute 3-day chart. it shows a very familiar structure I've seen in the past several selloffs. It's a bottoming structure. The sellers get exhausted and the market just floats around the bottom sideways until a swoon of bulls come in and launch the market to new highs. The EUR/USD, gold and especially silver, have all been extremely weak today, however they appear to be trying to find their footing now as I write this. The Nasdaq 100 did not make new lows as all the other indices did late this morning, and the Dow is not confirming slight new lows by the S&P. When you add all this up, it suggests a big snap back rally is about to occur. This can all be negated if the market turns lower and brings the Nasdaq 100 to new lows and solves the "bottoming-sideways action" we're seeing right now.

I'm still bearish, but caution is warranted with the current structure unless we shoot to new lows into the close.

Wednesday, September 23, 2009

Bearish Reversals Confirmed, Some Degree of Top is in; September 23, 2009

Although too early to call for wave 3 to be underway definitively, when it's late in the rally and wave 3 can start any day and a big reversal and bearish day happens like it did today; you've gotta pay close attention.

The S&P, Dow, and Nasdaqs all closed well beneath their daily lows. The market's internals turned hugely bearish during the decline, saying that everyone was selling, and doing it ferociously. The EUR/USD closed right at the daily low at 1.4732, but has since broken well through that level and appears to have declined impulsively, suggesting a top in the EUR/USD has a high probability of being in right now.

The fact that the EUR/USD, and all the major stock indices made new highs today and rallied sharply on the Fed announcement, then reversed sharply to break and close beneath their daily lows (with the exception of the EUR/USD which closed on it), tells us that a significant top is in place and the market will decline further in the coming days. Obviously if these markets rally to new highs it will negate the short term bearish call, but until then I will be monitoring this decline very very closely to confirm whether or not wave 3 down is underway.

To sum up: today's market action was extremely bearish and strongly suggests that a top of high significance is in the market. Whether or not that top was that of wave 2 we'll have to wait to see the market's behavior and structure in the coming days. But right now, I'm very bearish all the major indices, and the EUR/USD (bullish the US dollar).

Possible Big Reversal Day for S&P; September 23, 2009

On the 3 minute S&P cash chart above you can see it's traced out a 5 wave decline after the Fed announcement. If today's highs hold, and somehow the market close beneath the low of the day at 1067, it will result in a huge reversal day today and could signal that wave 3 has begun today. And if the EUR/USD can do the same and close beneath 1.4730, it will only solidify this outlook.

We'll see what the next 40 minutes has in store for us.

EUR/USD Daily Close Beneath 1.4730 Will Signal Top; September 23, 2009

The Fed announcement spiked the EUR/USD to the 1.4840 area and again it was rejected at that level and began to selloff. If the pair can trade below where it was before the Fed news came out (around 1.4770), and more importantly close on a daily basis beneath the daily low of 1.4730 level, then it will be the first signal that a top may be in place. However if the pair continues higher through 1.4850 then it will probably target the 1.5000 area from there.

Again, a top in the EUR/USD will probably signal that a top in the stock market is occuring. I'm looking for the EUR/USD to close today beneath 1.4730 on a daily basis to signal that top may be in.

How do we Know the Market Will Tank? September, 23, 2009

Here is a question asked by a reader:

Hi Todd, how do we kow from a tecnical point of view that the stock market is ripe to fall off a cliff? Could you pls expand on this

The answer to that can be quite long and in-depth, but I'll try and sum up with the following bullet points. The technical reasons are addressed in the first two bullets, and I followed them up with fundamental reasons as well:

- the market previously declined in 5 waves (see right side of blog "Long Term S&P Futures Chart"), so the larger degree trend is down. This means it was either an A wave, or wave 1, which means once the correction is over then either a C wave or wave 3 will occur. Both waves' characteristics are that of fierce strong moves. (I will post an updated version of that long term S&P chart soon).

- optimism is at an extreme higher than at the October 2007 top. Sentiment measures, such as the Daily Sentiment Index is at a level that is higher than where it was at the 2007 top, yet the market is 500 S&P lower than where it was then. Bull markets climb a "wall of worry", and with less than 10% bulls surveyed, there is no wall of worry. Plus, just watch CNBC for 20 minutes everyone's doing cartwheels over the market. The most bearish person you'll find on their says the market will pull back 10%. But no one questions the rally or whether the March lows will be tested. This type of blind optimism is what formed the October 2007 top, and it will form the wave 2 top here soon as well.

- the market is undergoing huge credit deflation established over the past 30 years. Asset prices collapse during this period as the only thing driving the market and economy higher (credit) dries up and becomes almost non-existent.

- the housing market mania is over, and most likely for the much foreseeable future. So consumers can no longer use their homes as ATM machines, putting pressure on consumer based businesses. Despite the spin put on recent housing data, the housing market for the average American family has had next to no recovery.

- unemployment is not easing and there are no real industry leaders to hire the unemployed. So where's the employment going to come from? With their home equity gone, and their jobs lost or at risk of being lost, how much are consumers going to spend? Who's going to push this economy up?

- where's the recovery? outside of government stimulus, which stimulates nothing, there has been virtually no recovery based on fundamental data. Firms have been able to squeeze out good earnings and outlooks due to price slashing and downsizing. But these are short term solutions based on a recovering consumer, which as I stated above looks unlikely to occur soon. When investors see that there is no recovery and their highly inflated speculated wave 2 rally is all "fluff", they will sell massively, giving way to wave 3. Most housing bought was done by speculators and investors planning to flip the homes, not new families moving in, and most of the houses bought were done at foreclosure sales with drastically reduced prices.

- banks are bankrupt. Most banks are technically bankrupt due to rotting worthless loans that they just continue to repackage in order to create the window dressing of a successfull financial institution. The fact of the matter is that they are failing miserably and their rotting assets are not turning higher. Despite the Fed's efforts to capitalize banks to open the credit markets for them to lend, most banks have not done so and instead of decided to hoard the money on their books.

There is plenty more to fuel the thesis that the market will crash soon, but above is the core of it. In the end, EWP analysis rules the day, and with 5 waves down since October 2007 it is screaming at us ellioticians that either a wave 3 or C will destroy this market soon.

I welcome any questions and/or critiques.


All Eyes on the Dollar; September 23, 2009

As I've been saying for a couple weeks now, it appears that the stock market is following the dollar (inversely), so when the dollar bottoms then the stock market will top. Seeing as that the EUR/USD is essentially the "anti-dollar", or the opposite of the dollar, it should have a good positive correlation to the stock market. Therefore, it makes sense to watch the EUR/USD for a top and reversal for a signal that the stock market is topping and reversing.

Above is a weekly chart of the EUR/USD and wave count. It too is setting up for a huge decline. The rally is in its finaly stages and is exhausting. Of course, extremes can be held for a long time, so there's no guarantee it will top now or at current levels. But this is no time to be long. The best thing is to wait until the pair is ready to collapse. It will take the stock market and precious metals with it. Speaking of which, gold and especially silver are down quite a bit today even though the dollar is relatively flat. Silver is especially a risk indicator and when it sells off without the dollar moving it, it can warn of something bigger happening because high risk appettites are waning. This can be held true also for the China index which appears to also be at the early stages of a major collapse. When the high risk assets start faltering and giving way, it can signal that the topping process has begun and the raging high risk spirits that have surged this market irrationally higher are now exhausting.

Bottom line: I'm waiting for signs of a top in the EUR/USD to signal that the stock market has probably topped as well.

Monday, September 21, 2009

Today's Early 5 Wave Drop, so Far Just Part of ABC Correction; September 21, 2009

Today the market dropped in a clear 5 waves right at the open, but has since rallied hard and the Nasdaq (higher risk index) is leading the way higher and is in positive territory as I'm writing this. As you can see, the above chart labels the decline starting from last week as an ABC correction, with this morning's 5 wave drop being wave C. So as it stands now, as long as the S&P trades above 1057 then the decline should be considered corrective, and new highs will follow. IF the S&P breaks below 1057 then it will signal that possibly something bigger is occurring. The EUR/USD has appeared to have formed a top, or is real close, and China's index continues to selloff sharply with it down over 3% on Friday and did not recover today. I'll assess the bigger picture when 1057 is broken.

In summary: the stock market is bullish as long as the S&P stays above 1057. A break below 1057 may signal that a larger decline is underway and I'll assess at the time to try and determine the magnitude.