Triangle Most Likley Finishing Up, Then Big Thrust Down

Daily S&P Cash Index




So the market ignored the news of a "glitch" yesterday and continued selling today. If it was all or mostly just a technical glitch causing the big selloff midday yesterday, I would expect a nice bounce back today, especially after a good jobs report for the most part. But that's not what happened, and us elliott wavers knew better, and were skeptical of the whole glitch from the beginning since we've been waiting for massive selling in a wave [3] or C. Today the market continued lower, taking back a lot of yesterday's supposed "glitch" territory. Yesterday I wasn't sure about the whole "glitch" scenario being fed to us by the media, but thought that today or Monday would tell us for sure. The fact that we didn't go flat or rally big today and in fact had a triple digit Dow decline most of the day tells me that there was probably no substantial glitch at all yesterday and that in fact, the market wants to go lower to those levels established then. And the wave count I labeled in the second to last chart shows the perfect setup for yesterday's lows to be taken out too.

With that said, just look at the above daily S&P chart. Doesn't it look ugly? If I were a bull, I'd be nervous this weekend.


Russell 2000




Just to add to what I said earlier regarding the supposed "glitch" I wanted to post the Russell 2000 chart as well. You can see that this chart is even more ugly and worrisome to the bulls than the blue chip indices. This index wants to go lower, and fast. This thing isn't messing around at all. And you can see the long candlestick wick left from yesterday's supposed "glitch" movement that has more than half of it reclaimed by the index today. So again, if it was just a glitch and all the big shots believed it, why is the market going back down to those levels that the supposed glitch caused? After seeing today's action, I don't think there was a glitch at all, I just think the market tanked. But that's just my opinion.

One more thing; you may have noticed that the financial news is reporting that the Nasdaq is now officially in "correction territory" because it's declined more than 10% from the highs. The reason they only mention the Nasdaq is because it's the only one of the Dow and S&P that has reached the 10% mark. In fact, the small cap Russell 2000 index has also reached that territory, down about 12% from its highs. The fact that the high risk Nasdaq and small cap indices are leading the market lower is another sign that a large top is probably in since these indices lead on the way up, and lead on the way down.

So, is wave [3] or C underway? It sure looks like it. But in order to have confirmed that today I'd like to have seen the market get down to yesterday's intraday lows. It got somewhat close, but closed way up off of them. I'd say it's highly likely that a significant top is in, but only a break below 1045 and thus solidly breaking the uptrend of higher lows would confirm that wave [3] or C was in fact underway. A meltdown Monday that takes the S&P below today's lows, and especially below Thursday's will create a 5 wave down pattern from the highs, either on a closing basis and/or on an intraday basis. So if that happens Monday then I'd jump the gun a bit and state that it's highly likely wave [3] or C is underway whether or not 1045 is broken or not.


S&P 4th Wave Triangle




Above is an updated chart of my proposed 4th wave triangle I put out midday today. It's possible the triangle has already completed and the wave (v) thrust is now underway. But the choppiness of the decline leads me to believe it might just have been a wave 'd' of the triangle, which means another modest wave 'e' rally to complete the wave (iv) triangle. What this means is that when the wave (iv) triangle is complete, the market will thrust sharply lower beneath Thursday 1066 low. So there's a good opportunity for the bears to get aggressive for a short term move with tightly controlled risk. I'd like to see the wave 'c' high of 1129 remain intact for this particular triangle scenario to remain probable, but ultimately only a break above 1138 would negate this triangle as a 4th wave.


Alternate Wave B Triangle




One more note: even if 1138 is broken, I still think it's possible that wave [3] or C is underway. If 1138 is broken then we can just flip the triangle and make it a 'B' wave of an ABC correction; probably a fairly large wave 2. Now this is less likely since the triangle is getting quite long for wave 'c' and 'd' already, and making it into a wave 'B' triangle would make it even longer. But I just wanted to throw this out there as a less likely alternate count if 1138 is broken in Monday's trading.


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.

Possible 4th Wave Triangle

Just a quick midday note: if you look at my count in yesterday's post you'll see we should be in a wave (iv) today and so far it appears a triangle might be forming as you can see above. If correct, when the triangle completes wave 'e', then it will thrust sharply lower in wave (v) to beneath yesterday's lows of 1066. To keep this triangle count a possibility, 1138 cannot be broken, but preferably the 1129 level will remain intact.


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.

Financial Thunderdome Back on

Quite a crazy day in the markets and there's a lot to go over even though the possibile explanations and theories about today are endless, and all that matters is tomorrow and Monday's price action anyway. Above are hourly charts of the S&P cash index with the candlestick chart charting the complete intraday moves in the market, and the line chart just printing the index on a closing basis to ignore the wild swing in the middle of the day. You can that under both counts we had a big selloff today with it obviously composing some type of wave 3. So "glitch" or not, today's action was very bearish and fits into the current wave count, which I labeled in the simplist and easiest way possible for now. I can easily see wave (iii) extending further down on the line chart tomorrow and/or Monday to complete better looking subdivisions for the wave though. We'll see.

So what the heck happened today? Well the selloff had 2998 stocks on the NYSE close down with only 173 close up. So that's over 17 stocks closing down for every 1 closing up. Volume was also huge at 2.5 billion shares when we've been seeing about just above 1 billion shares traded a day prior. Of that total volume, 95.6% was to the downside. So it was "crazytown thunderdome" on steroids today.


THE "GLITCH"


So the chatter on the financial news is that it was a "maching glitch" or a "fat finger" that made a mistake on a trade which triggered a domino effect across the markets for the 1000 point Dow selloff today. This is possible, but I'm not fully buying into that just yet. Ultimately, tomorrow and Monday will let us know what the market really wants to do: if the market takes back today's losses and rallies higher and higher, then it was probably just a glitch or trading error that caused today's steep selloff. But if the market charges lower and especially if it breaks beneath today's lows, then I highly doubt any error was made at all. I wouldn't doubt if a big fund(s) or bank bailed out of large positions because they see the wave [3] or C coming and the public is being told this "glitch" story to prevent public panic and Congressional and/or SEC scrutiny. But I have no evidence of that, it's only the conspiracy theory part of my brain thinking that. Tomorrow or Monday we should know the answer to this great mystery.

But if you're like me, then tomorrow is an eternity away, and you want to think about what happened and come up with your own conclusion beforehand. So let's logically run through this. The reason I have doubts about a glitch or fat finger causing the ENTIRE problem today is because of the following reasons:

1) The market was already under a lot of pressure from Greece and China and other European drama (PIIGS - Portugal, Italy, Ireland, Greece, Spain) before the selloff. It's not like this happened just out of the blue on a normal trading day.

2) I've heard mixed data in CNBC articles stating originally it was a Proctor and Gamble (PG) trade through Citigroup that caused this, and I've also heard that Citigroup made an error selling S&P futures contracts. But other articles state that Citi cites no trading errors, NYSE cites no errors either, and the volume numbers from Citi don't match up right with the selloff in question. So what's the real story here? And with all the technology and tracking we have today, how is such a huge trade that would cause a 1000 point selloff so hard to track down? It shook the financial world there for a while, don't you think they'd be able to track that down? So why is it all such a mystery even hours after the fact? Very suspicious.

3) It's a little too much of a coincidence that this "glitch" occurs at the same time Greece is in turmoil, China is struggling, Portugal, Italy and Spain are next in the debt monsters crosshairs, and the European Union is imploding? I mean of all times for a "glitch" selloff to occur it occurs now? Possible, but a bit too convenient perhaps.

4) If this was just a glitch then why wasn't it identified by the market and prices bid up to "pre-glitch" levels. Let's not forget the Dow still closed down 350 points, and the futures are still down. If it was a glitch, wouldn't this be a great buying opportunity? But so far, the big shots and smart money aren't participating. Why not? If it's just a clitch and it's now all but confirmed to be, why isn't the market skyrocketing higher?

5) Notice the below charts of some of the currency majors. They too fell with the stock market. Why did they fall with the "glitch", and more importantly, why haven't they fully recovered to pre-glitch levels now that everyone knows it's an error. The currency market should be much more resilient to a glitch than any stock market due to the massive size and liquidity. So what's going on here with currencies?


I'm not an expert on how the minute details of market functioning, so please tell me where I'm wrong on any of the points above. These are merely things that raise doubt in my head as to this whole "glitch" thing we're being told. It may be true, sure, but the markets will give us the answer soon enough. I'm sure Prechter already has his answer. I remain short and cannot confirm that wave [3] or C is underway since the market did recover substantially into the close. However, if we revisit and exceed today's levels in the coming days, and especially if we break 1045 soon, then I'd be comfortable stating that it is highly likely that wave [3] or C is underway and I'd be looking to get aggressively short at that point. So let's see what tomorrow and Monday bring us.

I welcome anyone's thoughts, opinions, criticisms, and data on my post today as well as on today's market action. Thank you!


Why did currencies fall victim to the "glitch" too, and more importantly, why haven't they recovered to pre-glitch levels?









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.

Wow!

Wow, Dow down over 700 and S&P down over 100. I've said in previous posts that 1045 in the S&P was where we'd be able to strongly say that wave [3] or C was underway, but with the intense selling pressure today I'm going to pull that statement and put in a new one: as long as the market stays "heavy" and around current levels without a monster rally into the close, I'd say that it's highly probable that wave [3] or C has already started right now. It may be tough to get short now with a 700 point selloff, but just look at the steep decline from September 19, 2008 to October 10, 2008 and see how many entry opportunities there were; very few. I think over time it's quite possible for there to be good opportunities to enter anyway, but I just wanted to let you all know what I feel about today's selloff and that I've adjusted my entry point to get more aggressively short. So, barring a monster rally into the close, I think it's quite likely that wave [3] or C is currently underway.


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.

Selling Continues, but Getting Choppy

The market continued to sell off early in the morning, then some indices bounced into positive territory before tumbling again into the close. Overall, the decline from the S&P 1220 high is a bit sideways for my liking if the big wave [3] or C is underway. But that can quickly change as the structure unfolds. If wave [3] or C were underway, I would expect more of a sharp downward trajectory instead of all this swaying back and forth we're seeing here. But that's just a "feeling" and therefore almost meaningless when it comes to trading. What is of meaning is what can be illustrated and proven with data. Above you see an hourly S&P cash chart. Since I don't like the nature of the way the index is unfolding to the downside, I wanted to point out what's important; and that's the fact that the 3 declines from the 1220 high have all been composed of 5 waves. So this is elementary EWP telling us the larger trend is still down. Also, the series of lower highs has remained intact. So regardless of whether or not we're in wave [3] or C right now, as long as the market continues to decline in 5 waves and make lower highs, the short term trend is down. The most recent high that should remain intact is the one at 1205.13. Under the current structure here, I see little chance of 1205.13 being exceeded, and still being able to count a larger impulsive decline from the 1220 high as part of wave [3] or C. So a break above 1205.13 would make the chances of wave [3] or C being underway extremely unlikely. As I said yesterday, as of right now only a break below 1045 would confirm that wave [3] or C was underway.

Another thing to note in the short term is the price action today. Yesterday I stated that, "...I expect a drop to at least the 38% fibonacci level and prior congestion area of 1150-1160." The S&P dropped to 1158.15 this morning, right in the range I mentioned yesterday, and then reversed where it wasn't touched again for the rest of the day. This type of behavior when reaching a target range, along with the fact that it is possible to count the most recent decline as five waves complete (see above chart); it leaves the possibility for a larger rally tomorrow, and/or perhaps Friday when the jobs number comes out. A good target range for a short term bounce would be the 1180-1185 area. From there I'd be looking for a top and reversal with a stop level just above 1205.

So there you have it. The market is not declining as sharply as I'd expect from a wave [3] or C, but evidence still supports the bearish view for the short term at least. I won't trade based on "feeling", I'll trade based on what the market tells me. And right now the market is telling me the larger trend is down as long as the S&P stays beneath 1205.13 and it keeps declining in 5 waves. Hopefully the market can continue it's overall up-down sequence and I can continue to trail my stop loss downward. In doing so, it won't matter whether wave [3] or C has started or not because I'll make money on the short term analysis anyway.


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.

Market Fulfilling Yesterday's Forecast; Look for 1150 in the S&P Soon

Well the market finally listened to what I had to say finally, lol. The market sold off sharply today, fulfilling yesterday's forecast for a sharp selloff composing a wave iii of (iii). Internally, the market was extremely bearish with only sellers showing up for today's trading. The NYSE had 6.09 declining stock for every 1 advancing stock, and 93.5% of NYSE volume was to the downside. So the bears woke up from their slumber, crawled out of their caves, and kicked some bull butt today. Normally when such a heavy sell off occurs like this, the market will spend a day or so snapping back from the losses. Probably because everyone who wanted to sell already sold today. So the following day or so might have the market float higher on light volume. We'll see if this holds true tomorrow and the rest of the week. I wouldn't bank on it, and I definitely wouldn't get long here. The mere magnitude and internal composition of the selloff tells me that the bears are now in control as long as 1209, but preferably 1205, remain intact. So any rally that stays below 1205/1209, I'd consider a great opportunity to get short.





So what degree of trend are we in right now? Still too tough to call with any certainty at this point. The above chart assumes that this current slide downward is just an ABC correction. If so, I expect a drop to at least the 38% fibonacci level and prior congestion area of 1150-1160. But we could see the correction decline all the way to around the 1085 level perhaps. Breaking below 1044 will be the breaking point. A break below that level would be an extremely strong indicator that wave [3] or C has begun, and that the big top all the wavers have been waiting for is probably in. One thing I'll be looking for as the days go on here is where the market is moving in 3 and 5 wave moves. In other words, is the market moving down in 5 waves, and up in 3 waves? If the market continues to fall hard with little letup, and declines are composed of 5 wave drops and rallies are in 3 waves, or combinations of 3 waves, then it will add to the larger bearish case the farther it falls and longer it does so. So even though we're far from 1044 being broken, by looking at the EWP structure of the decline, we can still make good short trades and control risk. Only a rally in 5 waves on strong volume and internals would make me cautious.






The above charts show the Nasdaq 100 with two different basic technical analysis views. The first chart shows a head and shoulders top I originally pointed out last Wednesday (click here for original post). This is of course a classic topping formation and clued us into this top and reversal a day or so before it really started getting underway.

The second chart illustrates the battle between the bulls and the bears. Notice that the bulls kept charging higher quite strongly but was met with fierce bear resistance every time around the 2050 area. The bullish push was persistant as it kept rallying on every selloff, but the bears had seen enough and met the buying with even more selling. This is evident by the later established series of lower highs and lower lows we're currently in right now. This illustrates that the bears were starting to gain the upper hand on the bulls, and that the market's uptrend was ending and rolling over. Then, like we saw today, the bears wore out the bulls and finally took control of this market and gave us a nice big selloff today as the bulls retreated in full. So this is typical topping process behavior. The bulls keep trying to push the market trend further and further but the selling pressures eventually prevent it from doing so until eventually the bulls give up. Today they gave up. The only question now is when they'll regroup and return again.

Tomorrow will be very telling. In the past few months we'd get these big selloffs like we did today, only to see them reversed and new highs made in the following days. So if we can get some good continuation through to the 1150 level and test the 1100 level in the coming days, it would be very encouraging for the long term bearish case, and inch us closer toward possibly being in wave [3] or C. So the action the rest of the week will be very important.


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.

Market Should Enter wave iii of (iii) Down on Tuesday

S&P CASH INDEX




Well the market took us on another wild ride with a sharp rally right out of the gate this morning carried into the late morning into a another surge higher, then maintained those gains all day. Not a surprise for a Monday, as most Mondays over the past several months have brought us strong rallies. Also, with the end and beginning of month jossling around it's also no surprise we've been quite volatile the past few days.

The above 15min chart of the S&P cash index shows that today fits well with the bearish wave count posted last week. Today's surge was a 3 wave move of wave ii. Today's late day rolling over is the start of wave iii of (iii). We've been in this position before. This is an easy tradable structure because we know that if a wave iii of (iii) is about to unfold then we should have heavy and aggressive selling soon; like tomorrow. If the market floats around for a while, or especially if it breaks above wave (ii) at 1209 then we know something is probably wrong with this count and the bears should be real cautious.

So right now I'm looking for heavy selling tomorrow to fit into the current wave count above as long as 1209 remains intact. A break above 1209 doesn't necessarily negate the immediate bearish outlook, but it would certainly make it much weaker.


NASDAQ 100




The above Nasdaq 100 chart shows that the bears are trying to gain control of this index. Each push higher to the 2050 level has resulted in sharp selloffs composed of 5 wave declines. So the bears are waking up here and the bulls may be running out of gas. Last week's close in the Nasdaqs set up a bearish picture anyway, as I stated in Saturday's post. So the bearish setup is in place. Although right now I feel the larger trend has turned down anyway, a close beneath 1988 would all but confirm that a substantial decline was underway.


NASDAQ 100 TRIANGLE




There is one less likely alternate count that shows a bullish picture according to the Nasdaq 100. And this may be especially important since the NDX is what clued us in to the head and shoulders structure last week. It's possible that a 4th wave triangle is unfolding right now which should give us one more decline for wave 'e', which is usually done due to some news event, then a sharp upward thrust for wave 5 to new highs on the year. One of the main reasons this triangle is unlikely is because triangles are composed of 3 wave movements, both up and down, and this proposed triangle has mostly 5 wave moves within it. Therefore it's a less likely scenario than the bearish one I mentioned earlier, but is still something to watch. A break below 1988 in the NDX would negate this alternate bullish count.


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.