Sell Off in 5 Waves, but Beware of Another Fakeout

The market had some follow-through to the downside around mid-trading day, but at the close it found quite a strong bid to higher levels. This is the same behavior we've seen in past sell offs where the major selling occurs in one day, but is bought up at the close and then maybe another down day and then rally to new highs. I'm not saying this is happening here at all, as you can see it's possible on the attached Dow 5 minute chart to count the decline as a 5 wave affair. But I'd like to see a break away from the usually decline patterns before getting excited about a major top being in.

Next week will be crucial. Like I said in my post this morning, we need continuation and acceleration. We didn't get that today as the action into the closing hour was firmly bullish, so we'll look to early next week for it. Watch the 10,571 level in the Dow and 1132 in the S&P. A break below both those levels will make the rise a correction at this point, and open the door to more heavy selling in the near future after that happens. Until then, we wait to see if this was just another sell off where bulls sell off on options expiration and reshuffle their positions only to buy the market up elsewhere to new highs in the coming days, OR if this is truly the big sell off so many of us have been waiting for.

With at least a short term top occurring as projected, and the sell off today in 5 waves down, the evidence supports the fact that the market should fall further into next week, and possibly much more.

Have a great long weekend!


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.

We Got the Sell Off; Now we Need Continuation and Acceleration

The NDX and Russell 2000 managed to just stay under their recent highs before selling off sharply as you can see in the attached charts. This keeps their 5 wave impulsive decline intact and on course. The significance of this is that it may be the first signs of a major top and trend change. This of course cannot be confirmed at this very moment, but it's a starting point. Also note on the 5min S&P cash index chart attached that today's decline traced out a nice 5 wave impulse move. Again, the markets are telling us the trend has changed. Now whether this is just a short term trend change, or if it's THE trend change, will have to be answered later on as market movement plays itself out. One thing I will say is important for the longer term bearish picture is that we need to see continuation of this sell off into this afternoon and next week, and we also need to see some acceleration of the decline. Those of you who've been following this rally waiting for a top like I have for the past several months know real well how many times we've seen promising declines only to see them hit a wall, reverse, and rally to new highs. So if we get continuation and acceleration of this decline, it will instill confidence in use patient and bears.

In January 5th's post I listed key levels in the S&P I wanted to see broken to start raising those alerts to a possible major top being in (click here for that chart). The 1115 level is not that important anymore, but it will break the series of higher lows we've seen the past several weeks. Breaks of 1094 and 1082 are the real key levels. If the market can manage to continue and accelerate in this decline to break those levels sometime next week, it would be very promising in projecting that the big wave 2 or B top is in. But we have a long way to go to get to those levels so we'll have to wait and see. I just want to let you all know what I'm looking for at the moment so we're all on the same page.

If I were to have placed a short trade a couple days ago when I mentioned the great risk/reward opportunity after the 5 wave drops and rallies in the NDX and Russell, I would move my stop loss to at least the most recent swing highs that occurred either today or yesterday depending on the index, or even move the stop loss to break even if it's close to thos swing highs anyway. A break of 1115 in the S&P next week would probably allow me to lower my stop even more and lock the trade into a profit.

As for the EUR/USD, it declined nicely overnight but has found its footing this morning in the US session. Again, I'm looking for a drop to a new low for a 5th wave.


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.

Make or Break Time for the Bears

Quite an unusual couple days for the stock market. It seems like the bulls should be tearing apart the bears here as they are virtually non-existent, yet the market just barely floats higher. Perhaps all the bulls have already invested what they've wanted to invest and now it's just a matter of time before the bears get out of hibernation and smack this market back down to reality. The wave structure does tell us that it's make or break time for the bears to wake up. The Russell and NDX did not make new highs today as you can see from the attached charts, but the S&P did make a new high and both the NDX and Russell are basically completely out of room to push any higher. If they do make new highs, it will mean the bears have to sit back and let this rally run its course until the next bearish signs resurface. One thing that gives me pause as to how much further, and longer, the rally would go is that the S&P made a new high today with a 5 wave rally. Normally we interpret that as the trend now being up. But in the case when we're looking for a major top, a 5 wave rally to a new high may mean that it's the final impulse move before reversing sharply. Tomorrow is options expiration day so perhaps we'll see some volatility so we may get the answer to the short term bull/bear question soon.

The bottom line is that as long as the NDX and Russell stay beneath their highs shown in my attached charts, I remain short term bearish. A break of those highs would only point me towards the S&P's 5 wave rally and keep me on the lookout for a quick reversal of the ensuing rally. Any signs of top and reversal would get me back short again. I'll try to post that here as soon as possible once I determine it if it's not too late. I would definitely not get long at all in this period as it's possible that a major top is forming right now. Be ready.

The EUR/USD did nothing and I have nothing new to add. If the stock market is about to form a major top and reverse sharply, it should take the EUR/USD down with it in a wave 5. But if the stock market continues to rally then the EUR/USD has probably already completed its first wave down and has been in a prolonged large wave 2.

Hopefully some more clarity will come tomorrow in all the markets.


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.

Stock Market Should Decline Immediately if Count is Correct

The stock market went on a sharp rally today, but this could be expected since the Russell 2000 and Nasdaq 100 both sported 5 wave declines coming into today (see attached charts). Notice that there is little room left to the upside in both these indices, so we all know exactly where I'm wrong and it isn't very far away. These two indices basically need to fall almost immediately from current levels for this count to remain on track, otherwise they are clearly extending their gains for the unforeseeable future.

Of another note is the action in the Dow. Notice that the Dow made a new high today but the S&P, and most other indices, did not make a new high (see attached charts). As long as this non-confirmation remains in place, and the five wave declines in the NDX and Russell remain intact, the market should decline immediately. Retail sales and unemployment data are coming out first thing tomorrow morning, as well as some earnings reports, so tomorrow is poised to be a volatile day perhaps. With the evidence I see right now listed in this post, I think that volatility will be a strong move to the downside. The risk of trading this is very tight and small.

The EUR/USD rallied to a new high overnight but is back to where it was yesterday. The 4th wave is getting quite extended in time compared to the wave 2 of the same degree. However 4th waves can tend to be long sideways affairs. A sharp decline in the stock market should coincice in a wave 5 decline to a new in the EUR/USD as well. But overall structure and risk is not that clear in this pair right now so I have no position in currencies at the moment.



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.

Stock Market Waking up, Showing Breakout Will be to the Downside

Yesterday I mentioned that the stock market has been a consolidative borefest and will break out soon. The fact that it didn't rally sharply the past few days severely weakened the wave 3 of C up scenario. Today's weakness appears to be the start of a larger decline that should last at least a few days. The attached Nasdaq Composite chart shows a clear A-B-C rally, finishing with wave C composed of a nice 5 wave rally. This of course can morph into an extension, but we'll make the market prove that before expecting it.

For very aggressive traders, it might be a good trade to short the S&P now with a stop just above yesterday's high of 1150 (cash index). I just put on a very small options put spread on the SPY with Feb expiration to try and catch a quick move to the downside in the coming days. Risk is tight and well defined so whether this trade works or not, it's still worth taking because the profits may really snowball into something big seeing as that we're looking for a major top to occur soon. Regardless, the very short term structure looks bearish.

The EUR/USD declined in the Asia and European sessions but has battled back in the US session. I'm looking for a wave 4 top of a double zig-zag as illustrated in yesterday's post (click here).



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.

Stock Market a Borefest; EUR/USD Broke Key Levels to the Upside

I wish I had something interesting to say on the markets but I really don't. The stock market has done almost nothing the past week. It has not soared aggressively higher in the proposed wave 3 of C of Z of 2 (or B). But it also hasn't broken below the key levels I cited January 5th of 1115 or below (click here for chart from January 5th). It seems that the bulls are out of gas but yet the bears are still in hibernation, so the market just floats sideways or higher on mild buying interest. One thing of note is that the EUR/USD shot higher in what is probably a wave c within a larger wave 4. This rise allows the EUR/USD to now fall in a wave 5 for over 300 pips. When you combine this with the extreme complacency of the stock market, the fact that it's not shooting higher in the projected wave 3 I mentioned last week, and that the market has been awfully quiet the past week or so; it makes the market ripe for a sell off soon. A break below 1115 will open the door to an almost certain break of 1100. From there, we'll look at the structure to determine what might happen next.

So the evidence suggests that the EUR/USD and the stock market are setup to decline in at least the short term in a decisive manner sometime this week.