Friday, October 2, 2009

Still No Demand to Buy Stocks Despite Big Mid-day Rally; October 2, 2009

Despite today's big rally after the opening bell today, internals' data tell us it was done on weak breadth and volume suggesting it was only a few areas making a recovery from yesterday's broad based selloff. As you can see from the above snapshot from Scottrade, NYSE and S&P internals were solidly weak and showed no real signs of strong demand for stocks. The dollar weakened early this morning which fueled a lot of the commodity related assets to rise and banks rallied most of the day seeing as that they dropped the biggest yesterday (4.5%). So a broad based across the board selloff yesterday was met with some cherry picking and rallying on dollar weakness today, which in the end resulted in another mild selloff into the close today, making all major indices closing down for the day, with the S&P and Nasdaq Composite getting the worst of it, and the XLF (financial ETF) closed almost flat. So today's action was very bearish.

The market remains bearish, and barring some slight rallying (although not required), I expect this market to charge lower and start testing that trendline resistant at the S&P 1005 soon.

1005 Represents Key Trendline Resistance; October 2, 2009

Above is a daily S&P cash chart showing an ascending trendline that is key for the bullish case. A strong break and close beneath this trendline will be a very strong indicator that the big wave 3 was underway. Today, that level crosses at about 1005 and will increase slightly every day. So let's wait for a break of this level and see the accompanying structure before we confirm a wave 2 (or B) top in the stock market has occurred.

S&P Futures Declining Impuslively; October 2, 2009

For whatever reason, the past several months the market has rallied when the jobs numbers are reported, no matter what the number was. Despite the horrible job numbers, today is no exception to that rally trend. But looking at the S&P futures we can see that it's declining impulsively and in a small degree 4th wave right now within a larger wave 3. And despite the market being flat right now, NYSE breadth and volume is decently negative right now showing little buying demand across the board the day after an across the board sell off. I expect the market to glide higher, mostly due to dollar weakness, before charging lower in the next phase lower.

Thursday, October 1, 2009

Market Falling as Planned, Internals Support Wave 3 Possibility; October 1, 2009

The market closed on its lows and sold off sharply in the last 15 minutes capping an extremely bearish day. The evidence is piling up that a top is in and a new trend has formed; a downtrend. Let's review what happened today that made it so bearish:

1) (most obvious) The market sold off sharply with the Nasdaqs and Russell 2000 getting hit the hardest at over 3%. These are high risk indices and it illustrates the fear out there to dump the high risk assets here.

2) The financials have led the market lower and higher so it's key to watch them for direction. Today the XLF sold off almost 4.5%, and it did so impulsively.

3) The S&P, Nasdaqs, Russell 2000, DJ Wilshire 5000, and others all confirmed the Dow's new low yesterday, eliminating the bullish non-confirmation I spoke about yesterday.

4) The internals of this selloff were extremely weak. As you can see from the above snapshot from Scottrade (click on pic to enlarge), almost 95% of all volume on the NYSE was to the downside, there were 5 stocks down for every 1 stock up, and the S&P had only 22 stocks trading to the upside. This is extremely bearish and fits the internal characteristics we'd expect from a wave 3.

5) Today was a broad based selloff with everything declining essentially but the US dollar.

The possiblity that a major top to wave 2 or B is in has increased signficantly after today's action. With the market tanking into the close, it's quite possible we'll see some follow through early tomorrow morning. If wave 3 or C has started, rallies may not be big and/or long, so playing for a bounce is not wise.

I'm working on key levels that will confirm wave 3 down and will post them as soon as I can. Nothing has changed as of yet as far as risk levels at this point, 1078 should not be broken any time soon, let alone 1070.

Be back shortly....

All Requirements Met for Short Term Bearish Case; October 1, 2009

The market fell hard today and did so impulsively (5 waves) as you can see from the above 5 minute S&P cash chart. More importantly, all the major indices confirmed the Dow's break to a new low from last week which eliminates the bullish non-confirmation I mentioned yesterday.

Internals are extremely weak with the NYSE sporting 4.47 stocks trading down for every one stock trading up, and a whopping 93% of volume is trading to the downside. The dollar also strenghthened last night and silver and the Nasdaqs are falling hard, and all sectors are getting hit. This is a broad based selloff and characteristic of a wave 3. I will post key levels that, if broken, will confirm wave 3 down being underway. But right now, it's looking good so far.

Wednesday, September 30, 2009

Short Term Bearish Case Still Intact, But Wobbling; September 30, 2009

Today was the last day of the 3rd quarter and many fund managers were jossling around their portfolios to have a good look for their quarterly statements. As a result, the market sold off sharply early in the morning but then rallied into positive territory only to sell off again and rally again. This has made the short term EWP count messy. Also, the Dow made a new low (see prior post below) from last week while no other major index did, creating a bullish non-confirmation. On top of this, the market has been able to alleviate some of its extreme bullish measures while only falling slightly from its highs last week. We've seen this before. Indicators reach extremes, the market falls slightly then moves sideways, alleviates the bullish extremes, then rally to new highs. So it appears that this is what may be occuring right now as well.

However, there is plenty of evidence to suggest "The Top" is in right now as well, and the only bullish elements to this market right now are the fact that we had a wild and crazy day on the last day of the quarter. So this may all be resolved in a few days as trading gets back to normal. Also, at major market tops, there tends to be wild up and down swings in the market as the exhausted bulls desperately try to fight off the bears who eventually win.

So let's give the market some time to work out this unclear structure it's laid before us. Hopefully within a few days I'll have a better idea of what's transpiring.

I remain aggressively short term bearish as long as the S&P cash remaains beneath 1078.

Decline Looking Good; September 30, 2009

Last day of the quarter and the market sold off sharply while staying under my key bearish level of 1078. This decline is well in line with what the wave count called for, which was a wave 3 at some degree. The bullish non-confirmation between the Dow and S&P I spoke of yesterday was immediately erased this morning, however the big decline created another bullish non-confirmation. See above the cash Dow and S&P 15 minute charts. Notice that the Dow made a new low from last week but the S&P (and Nasdaqs) have not. This non-confirmation needs to be erased soon in order to keep the decline on strong footing.

The S&P cash needs to break below 1041 to confirm the Dow's decline, otherwise it opens the door to a sharp snap back rally, or a rally to new yearly highs. I'm still aggressively bearish as long as the S&P cash stays below 1078 but I want it to break 1041 soon.

EUR/USD Sells off in 5 Waves This Morning; September 30, 2009

After floating higher all day yesterday and last night, the EUR/USD tanked hard in a clear 5 wave drop (see above 5 min chart). I expect a small rally that will not exceed 1.4673 before it resumes its downtrend.

I said the stock market has been following the EUR/USD (opposite the US dollar) so if this is correct, the stock market should follow.

Tuesday, September 29, 2009

One Slightly Bullish Aspect; September 29, 2009

One slightly bullish development to be considered from today's action that should be considered with my bearish blog post below. The Dow and S&P and Nasdaqs did make a very slight bullish non-confirmation today. Late in the trading day the Dow made a new daily low by 1 point while the S&P and Nasdaqs weren't really even close to making new daily lows. Even though it's one point, it's still to be considered. The overwhelming evidence is still bearish, so I expect this non-confirmation to be erased early tomorrow with an S&P and Nasdaqs decline beneath today's lows.

Tomorrow is an important employment number that I expect to move the market lower and break this bullish non-confirmation I'm speaking of. The heavy selling into the close today suggests little confidence in a good employment number tomorrow. Early tomorrow morning should bring selling pressure.

Dow and Nasdaqs Lagging S&P; September 29, 2009

Above are 5 minute Dow and S&P cash charts. The Nasdaqs sport very similar structure to that of the Dow. You can see a clear head and shoulders bearish pattern in the S&P chart, as well as the fact that the Dow's right shoulder lagged the S&P's right shoulder significantly, and is now dragging much lower than the S&P. The Nasdaqs are trading lower with the Dow. The head and shoulders pattern along with the lagging nature of the Nasdaqs and Dow tell me that this market is severely exhausting to the upside. We already know this is the case in the bigger picture daily charts, but now we're seeing it in the short time frame 5 and 3 minute charts. It appears that the Dow and Nasdaqs are leading the S&P and overall market lower.

I'm holding firm being aggressively bearish as long as the S&P cash stays below 1078.

ALTERNATE COUNT is Bullish; September 29, 2009

The failure of the market to selloff as expected so far has caused some problems in the short term bearish case. With the consumer confidence number being so horrendous the market had every reason to sell off sharply but did not. It is now rallying strongly and internals are moderately positive. But as long as 1078 in the S&P cash not exceeded then I'm still aggressively short term bearish.

Above is an ALTERNATE COUNT which shows the five wave rally the start of the next leg in the bigger bear market rally. It shows a clear 5 waves up, and we just completed a 3 wave A-B-C correction. If correct, a wave 3 rally is underway which should take the market to new highs on the year and probably eventually target the 1100-1110 area in the S&P cash before meeting resistance.

Even if this ALTERNATE COUNT comes true, it does not eliminate the overall bearish call for a crash. It will just, once again, postpone it a little longer.

Right now we wait though, and I'm watching 1078 to remain bearish.

Flat Completed, Now Heavy Selling; September 29, 2009

The market rallied hard and strong yesterday, and the "bottoming structure" I pointed out in two posts ago proved correct. However, it's easy to label the entire move down from last week as a 5 wave decline and the rally being a flat correction (see above wave count). It should concern the bulls that yesterday's move was done on very light volume as it was a Jewish holiday. Light volume rallies have been the routine as of the past several months and does not suggest a new bull market is underway. Today's consumer confidence number came well under expections which were to be above Augusts, and in fact September's number was not only well below the forecasts, it was lower than August's as well. So it was a very bad report and the market sold off sharply becuase of it. If the wave count above is correct, it means a wave 1 and 2 has unfolded and a wave 3 at some degree should be underway right now. If correct, today should be a big heavy down day. If not, then I'll have to review the count and perhaps open the door for a bullish move to a slight new high above 1078.

1078 in the S&P cash is crucial to the short term bullish case. As long as the market trades below that number, I remain aggressively short term bearish.