1085 Taken Out Decisively, Advantage Bears

S&P Cash Index Daily Chart




Above is a daily S&P cash chart showing the bigger picture we're watching. We see that there's a high probability of a significant reversal of trend this past Monday as the market reversed sharply into the close creating a bearish reversal candlestick. What's more notable is that it did so at the 50% fibonacci retracement level. The market opened right on that level, then rallied, reversed and then closed firmly below it. So the daily chart suggests a larger trend reversal occurred on Monday and that further selling is ahead.


Internals




Internals today were fairly weak with NYSE downside volume closing at 91%, and 75% of NYSE stocks closing down on the day. This is not as weak as yesterday, but as you will see in my wave counts below, today's action probably represents a 5th wave which is usually accompanied by diverging momentum relative to that of the previous wave 3. So things are well in line in that respect. Another internal aspect that might become an issue later on is the fact that volume still remains less than stellar on this decline. Although today's NYSE volume did kiss the 13 moving average, I'd like to see bigger volume numbers coming in on this decline quickly. The size of down volume, total decliners and total volume will become more and more important as the days go on. If this is a wave 3 at various degrees, then all these things should be increasing.


Bear Wave Count 1




Today's push made it decisively below the key 1085 level I mentioned yesterday, and then even closed strong well beneath it. This action eliminates yesterday's potential bullish count that had the entire decline from 1131 as a 3 wave corrective affair. The bears appear to be in firm control now. And now that we have 5 waves down from the 1131 high, the bears can comfortably place stops just above 1131 in my opinion.

Above is one of my two top interpretations of the short term wave structure. Although we have a 5 wave decline already, it could be useful to recognize what any bounce may imply if it comes in the future since it can bring about a great trade for the bears with a stop just above 1131. The count above has us in an extended 5th wave which means that very small wave [iii] got underway at the close and should continue down sharply into tomorrow's open. That should be followed by a flat wave [iv] rally that should stop short of 1074.63 before falling to one more new low to complete wave [v] of v. of (i) of 3 of [3] or C. So if that type of behavior occurs tomorrow, then we'll have our only top count above.


Bear Wave Count 1




The other top count I'm watching is that of a flat correction shown above. Today's late day decline represents wave 'b' of a "flat correction". And with the strong momentum at the end of the day to the downside, I wouldn't be surprised to see another pop lower in the morning. But under this wave count it would mean that a sharp wave 'c' rally would then quickly occur to finish off wave ii.

So these are the two counts I'm watching. The first one has us in an extended 5th wave which should result in more heavy selling tomorrow and perhaps flooding over into next week. The second wave count might result in a rally right at the open for wave "c" of ii, or maybe a short pop lower and then the wave 'c' of ii rally. Either way, the larger trend remains down and any rally would seem to be a good opportunity to get short with stops above 1131.



PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.