Bullish Non-Confirmation in Place

Although I know I'm a fool for trying to call short term bottoms when a big wave 3 is probably underway, but I like to keep profits when I get them. And exiting some or all my positions now is fine when I can simply just add them back on when the S&P makes a new low. The market is oversold on the daily charts and momentum lower has been weakening as discussed yesterday. Now the Dow and S&P have both made 5 wave declines today, but the big problem is that the Dow made a new low and the S&P has not. This again shows a weakening of the downtrend as not all indices are even able to make new lows together. I would be cautious here if I was an aggressive bear, and if anything I would keep that caution on unless the S&P and the Nasdaqs confirm the Dow's new low. If that occurs then I'd simply put my shorts back on. So I'd only be missing a few S&P points of profit to perhaps save myself from a possible huge rally into the close, or early next week. So the risk of missing profits is small and the potential to safe already existing profits is great. Again, if the S&P and Nasdaqs make new lows to confirm the Dow's new low, I'd simply put my short positions back on.

Just a thought.


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.

Short Term Bullish Setup In Play; Precious Metals Broken

S&P IN OVERSOLD TERRITORY




So today we had a nice morning with stocks cascading lower and making the bears even more happier on the week. But when the Dow shot back up to be down only 80 points, and the VIX went from up 8% to flat, despite the heavy selling on the day, it raised a flag with me. Why would the VIX tumble that hard while the Dow was still down 80 points? I smelled a rat, or better yet, I smelled a bull. I've made so much profit so quick on the short side that I wanted to take profits off the table first chance I got. And that little peculiar event with the VIX was all I needed to close my short term short positions at a nice profit.

Internals were negative today, but again they continue to get stronger than the day prior, which has been the trend the past couple days, again signaling that the downtrend is weakening. We also had a nice volume spike today with NYSE volume exceeding the 13 day moving average, so perhaps the bullish reversal today had some strength to it. And still, despite the crazy volatility lately and jobs number coming out tomorrow, the VIX closed down almost 5%. I have a dozen theories as to why this happened, but for a bear who's made a lot of money really quick, I took it as a sign to get on the sideline for now, at least in regards to my short term trades. There is also a bit of other evidence, such as most momentum indicators like the daily RSI showing the market in oversold territory that has marked bottoms in the past. So this decline may be getting a bit extended, and perhaps some bearish caution is warranted.


S&P CASH INDEX COUNTS






Above are my two top counts (click here for yesterday's larger wave count). And although my short term short positions are out, I still have my core long term short positions in. And since we might be in a wave 3 of [3] or C, then oversold indicators are almost meaningless since wave 3s, especially of this size, can go on as long as they want. So I'm giving my top count to the more bearish version on top. This calls for some meandering around sideways type action that stays below 1067.89 for wave 'iv' which will then lead to another sharp decline to new lows for wave 'v'. Although 1067.89 is the max retracement that can happen for this count to remain valid, the S&P will have a very difficult time getting solidly above the previous support shelf level of 1040 it recently broke through. So I'd expect a ton of resistance in that area if the top count is correct.

The second count is immediately bullish, and there's plenty of other evidence to support this as well. The only reason this count is not of equal weighting with the top count is because in a wave 3 at this degree, the larger trend is so strongly down that trying to call a bottom not particularly wise. But I still want to be mindful of it if 1040, and especially 1067.89, is broken soon.


CRYSTAL BALL


Lastly, I wanted to talk about what my crystal ball is telling me. Most of this is just an educated guess on my part, so take it for what it's worth. Tomorrow is another big jobs number. And if anyone has watched or read the financial media this week, everyone is planning for the number to be horrible. Seeing as that the market has already sold off so much going into this number, and everyone is expecting a bad number, I can't imagine a big selloff on the data announcement tomorrow. Anything short of absolute armaggedon in the jobs market will probably lead to a sideways wave 'iv', or a sharper wave '(ii)' rally; both would be supported by the two counts above. But I doubt any big sustained selloff will occur into the long weekend. Plus, many short sellers have made a lot of money this week and won't want to go into a long weekend holding short, so they will use any chance they get to cover their shorts tomorrow to reduce risk into the weekend.

So the bulls seem to have the "theoretical" advantage, along with one wave count and momentum indicators showing oversold levels on their side. But in a wave 3 of this magnitude, anything is possible and the market can just keep tumbling lower. Regardless, the evidence and setup was compelling enough to get me to close my short positions on my short term positions today. We'll see soon enough if that was foolish or not.


S&P VS. the EURO






I know there's been some concern about the affects of a monster euro rally on the stock market since Prechter thought the euro would be in rally mode for a while. For the past several months the euro and the stock market have moved relatively together. So a big euro rally would lead to a big stock market rally, right? As I said a few weeks ago that wouldn't necessarily be true. I was concerned about it, but I wasn't making any trades based on it. As you can see from the two charts above, the S&P and the euro can in fact move opposite each other. The euro rally today I'm sure helped stocks to some degree, but the fact that they still closed down tells you that the euro is NOT the all and powerful determinant in whether stocks rally or fall. This is why R.N. Elliott told us to analyze and count each market independently. Markets remain correlated usually for only certain periods of time. And lately, the euro and the S&P have not been correlated all that well. Speaking of which, did you see the euro rally and compare it to gold's massive selloff today. Again, another reason to analyze a market independently and not rely on a correlations with another market to determine where it is going.



PRECIOUS METALS' UPTREND APPEARS COMPLETELY EXHAUSTED






And lastly, although I hate trading precious metals because they usually kick my butt. I am short silver and today's action in the metals looks extremely bearish in my view. This bearish picture is so compelling that I wanted to post it here. Notice that gold, represented in its ETF (the GLD), has been eeking out new highs with a recent "ending diagonal" pattern at the end while the momentum indicators at the bottom have been making new lows. An ending diagonal is a pattern showing extreme weakness in a market, and they are finishing moves that usually result in sharp reversals. Well that sure happened today with the GLD down 3.8%. Now look at silver's ETF (the SLV) and notice that silver did not confirm the GLD's new highs recently, and then both declined sharply today with the SLV getting the worst of it at a 4.2% decline. This divergence between the two metals, along with the sharp downward reversal, EVEN THOUGH THE EURO RALLIED BIG, tell me that the rally in precious metals the past several months is probably at an end. Look for the metals to move lower in a hurry.


Also, please note that I updated my daily S&P chart count on the right side of this blog.


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.

Shelves Breaking Down

S&P CASH INDEX WAVE COUNT




The market continues to have a very hard time mounting any significant or sustained rally. This morning I was a bit bummed out because I really would like to have seen some follow-through to yesterday's decline and see the indices take out those shelves I mentioned yesterday once and for all. But this morning the market internals were fairly positive and the market was trying to push higher. However as the day moved on it was clear that the bulls were having a very hard time pushing the market higher. It seems like every inch of gain they made took a lot of effort, only to be completely reversed in less than half the time. I pictured the bulls being like that skinny guy at the gym lifting a big barbell over his head and his legs are shaking violently from all the weight. Eventually the bulls' shakey legs gave way by the end of the day and the major indices broke through their shelves solidly, and closed beneath them. This is a big dagger right through the hearts of the bulls. The short term count from the wave '2' high can be interpreted a few different ways, but with today's continuation to complete what looks like another 5 wave decline, I feel comfortable labeling the count this way for now. The minor nuances of the very short term are a bit irrelevant to me though because we're probably in a wave 3 of [3] or C. And that means heavy selling for a long time.


PUTTING A LARGE WAVE THREE INTO CONTEXT




Once in a while I like to post the above chart for new readers, folks new to EWP, or just for a reminder to long time elliott wavers. The chart shows the absolute price destruction of a wave 3 on a large scale. We are probably in an even larger wave [3] right now, and within that wave [3] we are in another wave 3. So even though the market may seem oversold in the short term, as the above chart shows, wave 3s often ignore technical indicator logic and what might just seem like "common sense" at the time, as they can just keep going and going and going.


INTERNALS




With that said, there are a few things to watch for, merely for mental preparedness, not for trading, in my opinion.

The first one is that the financial media, and even non-economic savvy people I know, are all talking about the "double dip recession". Others are talking widely about the head and shoulders pattern in the market right now. All are signs that there may be just too much pessimism too early for this decline to be the real deal. My arguement to that is that it's a wave 3, so that means many people will know that the bull market hasn't returned and so everyone sells since everyone knows the market is headed lower. This is essentially what wave 3s are made of. Everyone finally giving up and selling. And despite the non-financial savvy people I know talking about the "double dip recession", none of them have pulled the trigger and voluntarily closed any of their long positions to my knowledge. So the bulls are still in the market, and one by one they're being picked off as the market moves lower.

The second issue is that although today's price action was nice for the bears since the bulls could get next to no progress from the market even though internals were so bad yesterday that you'd think everyone out there who wanted to sell already sold, leaving no other direction for the market to go but up. But despite all that, the market barely managed a rally, then rolled over fiercely through many indices' support shelves. Unfortunately this was done on slightly stronger internals than yesterday, and although volume kissed the 13 day moving average on the NYSE today, it was still well below yesterday's volume numbers. So today's decline fits well with a 5th wave within wave 'iii' of '3' as seen in my count above. But with the very weak rallies we've seen since wave '2' ended, I'm not going to make any trade expecting a big bounce anytime soon.

Lastly, with such significant support shelves broken in the major indices and sectors, it's quite possible an attempt will occur to retake those levels soon. If it doesn't happen tomorrow or Friday, it may mean that a retest of the underside of the shelves will occur sometime in the future. But let's not forget these levels because oftentimes when the topsides are broken, they are then later tested on the undersides before continuing lower.


BROKEN SHELVES












Above are updated charts showing the impacts of today's action on the shelves of the major indices and the XLF I showed from yesterday. I added the biggest index of them all, the DJ Wilshire 5000. Since this index is the best representation of the entire stock market, I thought I'd show you that it too has broken down its shelf and appears to be headed much lower. Now it is possible for a false breakdown scenario to occur where we get a day or two below the support shelves only to have it recaptured right after that. But right now the evidence doesn't support that happening so I'm not going to plan on it. I'll deal with it when the market actually does it. And even if it did, the erosion of support at these levels are so broken down by this time that any reversal again downward would be met with very little resistance. So all in all, the market looks to be breaking down and lower levels are ahead of us. The real key level for the bears is quite far away at 1131.23. That level should not be broken if the bears want to remain in good control.



SPEEDBUMPS AHEAD ON THE WAY TO NEXT MAJOR SUPPORT AT 870




Lastly I just wanted to show you that after the market's support shelves have broken down, there's really very little support holding the market up above 870. There is some congestion and "speedbumps" along the way, but the market's next major level to be targeted should be the 870 area of the S&P cash index. If my wavecount is correct, it should get there in a hurry.


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.

Shelves

WAVE COUNT




So the 4th wave triangle played out with a sharp thrust lower this morning that held into the close. Although it seemed to track well with one of the counts I had yesterday, the fact that the thrust did not reverse upward toward the apex of that triangle is a bit odd. It also lessons the likelihood of the count above being accurate. It's possible the formation I labeled a wave 'iv.' triangle was just a series of 1s and 2s instead. If the market doesn't rally strong tomorrow to take back today's losses and reverse the thrust, then I'll have to relabel the above wave count to somehow fit in a series of 1 and 2 waves in place of the triangle. That would complicate the short term count considerably. So I'm posting this count above tentatively since it's the best one I have right now. Once the market plays out a bit more in the coming days, I should be able to have more confidence in my current count. But regardless of the little nuances of the short term structure, the market action and technicals do suggest the larger trend still remains down. I expect lower levels to be acheived over the coming days/weeks.


MARKET INTERNALS




Today was a bloodbath internally for the market. As you can see, the numbers were extremely bad; so much so that it is not really conducive of a 5th wave thrust that the triangle count I posted yesterday would suggest. A 5th wave should be composed of diverging internal strength and momentum compared to the previous wave 3, however these internals show that it's more parrallel to the previous wave 3 than anything else. So again, my wave count at the top is in question. 89.7% of NYSE stocks closed down on the day, 98.2% of all volume on the NYSE was to the downside, and only 2 stocks in the S&P closed up today. So the bears ruled the day big time today.


INDICES AND SECTORS




Above is a list of the major indices and sectors' closing numbers. I noticed a pattern here of rotation out of higher risk assets and either put into a form of cash as yields suggest, and some into lower risk assets. Notice that the high risk indices like the small caps and technology traded down the biggest, while the safer indices, like the Dow, had less damage done. Also notice that the more speculative sectors like financials and consumer discretionary were down big while safer sectors like utilities and health care were far less damaged. So this wasn't a fluke today. Above average volume came in today and sold everything, and removed risk off the table.

And lastly, we got a nice spike volume as well on this decline which is one of things I wanted to see if in fact we are in a wave 3 of [3] or C. Today's NYSE volume exceeded the 13 day moving average convincingly, and kept the trend alive where rallies are done on lessening volume while declines are done on increasing volume.

So all-in-all, quite a bloodbath today for the bulls.


SHELVES










Today we again flirted with the important support shelves that have been holding this market up for the past few months. We started to break down below these levels near the end of trading today but a sharp rally into the final minutes brought them all to close just about right on their shelves. There have been so many attempts to take out this support that it appears these shelves will be taken out in just a matter of time since each attempt to do so erodes the barrier more and more.

If we are in a wave 3 of [3] or C, I'd like to now see continued price destruction conducive to such a move. Especially now that perhaps we're getting good volume numbers back into the declines. In my humble opinion, the best case scenario for us elliott waver bears is for the market to just blast through these support shelves with another big down day tomorrow that closes on or near the lows of the day. Although the market may appear oversold at that point, it would mean that the wave 3 of [3] count is probably correct, and then the oversold condition everyone sees would be irrelevant as wave 3 at various degrees can remain in extremes for a very long time. So let's see that follow through blast through support tomorrow and finally destroy the bulls will in the short term finally.


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.

Bears Firmly in Control This Morning

I called for a triangle yesterday and the result was a sharp thrust lower which is well aligned with one of my counts. The fact that the move was so sharp this morning, and not just a meandering move lower makes me feel more confident in the triangle scenario. It was a nice trade since risk was so tight. The only problem is that if it was a true triangle and thrust lower this morning, then that means today's move is a 5th wave at some degree. But the internals don't necessarily support that because they are extremely weak as you can see in the above screenshot. Normally a wave 5 would diverge a bit from what happened in the previous wave 3, but in this case it seems to be sporting the same characteristics. So it's possible this may be the kick off to a much larger move to the downside.

Regardless, if I put in a short term trade based on the triangle yesterday, then I would at a minimum lower my stop to breakeven now, or perhaps take half profits off the table and move the rest to a stop loss at break even. If it is a triangle and thrust today, then the move will be completely reversed soon, and the S&P will rally back to the apex of the triangle rather quickly. The larger trend would still remain down though. Also, watching CNBC this morning it appears everyone is bearish and talking about a double dip recession. So the news is quite negative, which also may be conducive of a short term low forming.

The word of caution I want to stress here in trying to get too cute with trying to catch bottoms is that we might be in a wave 3 of [3] which means the market can keep going down for a very long time. Exiting too early could cause one to miss a great shorting opportunity. If anything, I'd use the knowledge of a possible rally back to the triangle's apex as mental preparadness in case it happens, so I'd be able to confidently hold onto my larger longer term short positions with more ease.


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 Probably Finishing up a Triangle

S&P CASH INDEX DAILY CHART




Above is just a daily S&P cash count to keep focus on the bigger picture. The market should be in a wave 3 of [3] or C. So the market should actually be just getting destroyed day in and day out. That's not happening, but the market is working its way lower and rallies continue to be unenthusiastic, and cannot get any sustained momentum. Today is yet another example of that as the market was positive most of the day, only to get killed in the final minutes of trading to where the major indices closed negative, along with the NYSE internals, yet volume again remains quite light. Although this meandering decline and sideways action is not at all what I'd expect from a wave 3 of 3, it's still possible, and there's no reason to be encouraged by any bullish action as the bulls are almost non-existent lately, and the ones that do show up go home wounded by the end of the day. So the larger trend appears down, with more new lows to come.


POSSIBLE SHORT TERM COUNT




The above chart is a closeup of the action the past few days. It shows us finishing up a 4th wave triangle to where we'll be in a sharp thrust decline that will lead to a quick move below 1067.89 soon. As long as we stay below 1083.56, I have confidence this count is well in play.


S&P ALTERNATE COUNT




Unfortunately, the above triangle is also possible. This triangle has the market in a wave 'b' triangle that will lead to a sharp thrust higher. It should then be the tail end of wave ii of 3 of [3] or C which will then lead to a very sharp decline lower. A break above 1083.56 will put this count up at top choice.

Also, keep in mind that we have several factors coming into play this next couple of weeks that might influence the way the market moves. We have an important jobs number coming out the end of this week, the end of quarter jossling will probably still be occurring, the 4th of July holiday is this weekend, and many people might be going out of town for summer vacations. So things can get a bit wierd in coming days.


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 Triangle Forming

Just wanted to show that a possible triangle is forming and should be at an end, leading to a sharp thrust lower. Above is the triangle illustrated in the Dow. A break above the Wave 'a' high will negate this count. As is, it can bring about a great trading opportunity to get short with a stop just above the wave 'a' high.


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.