Market Finished up Wave ii This Afternoon, or Should do so Early Next Week

TOP WAVE COUNT




Above is a 5min chart of the S&P cash index. The failure of the market to selloff sharply by breaking through 1170 led to a rally in the second half of the trading day. This makes me feel that the flat correction count I mentioned yesterday is unfolding. The smaller waves within wave 'c' of ii do not appear complete though, and yet the market got pretty volatile and sold off a bit into the close. So perhaps wave ii is over. In addition, the financials were on fire today, up close to 3%, and despite the bullish reversal this morning and large volume seen today, the indices ended the session mixed-to-flat on the day. This is bearish in my view and would suggest more selling early Monday morning. The bulls just can't get any momentum. And the fact that wave 'c' could not make it above the wave 'a' high, like in most flat corrections, it tells me that there is extreme weakness in the market if it can't even adequately complete its corrective pattern. The problem with this scenario is that if there is extreme weakness in the markets as the wave count suggests, then I'd expect to see noticable divergences between other indices when this happens, and today there weren't any of significance. Also, the XLF looks like it has a few more waves upward to complete its correction as well. So lets look at the even shorter term and get a close up of what we can expect early next week.


CLOSEUP OF THE LAST TWO DAYS OF TRADING




If wave 'c' of ii is over, then wave iii of 3 of [3] or C is underway and should move down in a hurry on Monday according to this setup. If not, then wave 'c' of ii is not over, and the S&P may push up to the 1100-1110 area I previously cited before wave 'c' of ii tops and reverses. The key for the bears remains the 1131 level. As long as that level holds, I'm bearish.


FINANCIALS (XLF)




Above is a chart I thought was interesting since its wave structure looks quite clear. The financials' rally today fits well with a wave iii of c of ii. The current count suggests a little more upside before completing the correction and then reversing much lower. I'm not sure of the larger wave count as the waves in this sector overlap quite a bit on the daily chart. But the short term picture traced out a nice 5 wave decline as shown above, and in accordance with the major indices, it appears the XLF should also be on the verge of a major decline.

So Monday we should see a heavy selloff across the board in a wave iii of 3 of [3] or C, or we might get a push to the 1100-1110 area in the S&P cash index before topping and then selling off sharply.


POSSIBLE INVERSE HEAD AND SHOULDERS PATTERN




Lastly, I just wanted to point out the fact that the market conveniently closed right at the base of what could be the left shoulder of an inverse head and shoulders pattern. So this could mean we'll get a sharp shot upward Monday morning. But as I said earlier, all it would mean is that wave 'c' of ii is continuing into the 1100-1110 range and that it's just the final move of a correction before massive selling commences. Keep in mind that ever since the June 21 top, rally attempts have been hard faught and have failed usually by the end of the day. So a sharp shot higher on Monday may just lead to more of the same. Until the bulls are able to sustain their gains and get real momentum behind their moves, and especially take out 1131, then I'm still firmly bearish.


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.