Wave iv. Finishing up, then Wave v. to New Lows

So the market continued selling off hard this morning like I said in yesterday's post. It gave the bears another opportunity to take some profits off the table which I did right at the open. But the market didn't rally nearly as much as I thought it would after that drop. I thought today would be a flat, or possibly up day. With so much volume coming in yesterday, relative to prior days, and only 5 S&P stocks trading higher yesterday, I thought the bears would be just about done for the short term. But the market's trend remains so firmly down that it couldn't even manage a short squeeze rally after such a bloodbath yesterday. So in 3 days the Dow has lost 376 points and has erased the last 12 days of the previous uptrend.

So where is the bottom, whether the short term or long term? I get hate mail all the time when I try to project and call any degree of bottom. I'm often told I'm a fool for trying to pick a bottom in a big wave 3. Those people obviously haven't been trading EWP the past year or so to see how many fakeouts we've had, and how valuable it is to remain objective and protect yourself no matter how sure you are that the big wave 3 is underway. After the past several months of having promising big wave 3 declines get completely reversed and blowing me out of the water, I learned to be a bit more skeptical, and many times I've been right in calling a significant bottom when we're supposed to be in a big wave 3 down. So I'll continue to call the market as I see it. And I can comfortably jump in and out of the market on short term trades since I have long term put options in place that will profit from a big wave 3 anyway, just in case I do miss it with the short term trades I make.

Looking at the CNBC front page today (left click on the image above to enlarge) it doesn't seem like there's much worry in the market right now. If you recall, over the past year or so whenever we'd get a big selloff we'd get the armageddon news headlines fairly quickly; and bottoms have formed with new highs following shortly. It seems optimism is quite entrenched now, and it's harder to break down that optimism, which contrarily is good for the bears. Looking at this afternoon's CNBC.com front page posted above I see a lot of optimistic stories which I put red arrows next to. There are some pessimistic articles there too, but the optimistic headlines far outweigh the pessimistic ones. And for the most part the headlines are about people recommending to buy something, or that some type of economic data has improved. Hardly the type of headlines we'd expect to see if a major bottom were to be put in today. That doesn't mean we won't get a short term pop rally tomorrow, but the larger trend appears down for the time being.



Also looking at the Dow's daily RSI you can see that it is still far far away from oversold territory. So the market is certainly free to fall much further from current levels over the coming days.



The 30min S&P RSI tells a different story though. It is trending higher after being in oversold territory which is typical for 3rd and 4th waves. The next turn down to new lows should be wave v. that should be met with a higher low in the RSI thus creating a bullish momentum divergence which is typical of 5th waves. The market can subdivide differently than what I have labeled above and the impulsive move from the highs still be valid, but above is my best interpretation of the short term count in my view.

Technically you can count a 5 wave drop from the high complete right now, but to get a better look from the degrees of trend and wave correlation, it would look better if we made one more new low beneath today's low. There is a small gap in the 1089.47 - 1083.88 area that should get closed prior to wave v. getting underway to a new low. It should be a very small "c" wave to complete this wave iv. so I expect a sharp pop higher that should be reversed fairly quickly. This quick pop may come at tomorrow's open, so watch for it.



Lastly, we all know the US dollar can have a large impact on the stock market. And you can see here that the euro has led the selloff in stocks since it topped just before the Dow did. The euro, which moves opposite the US dollar here, appears to be wrapping up a clean and sharp 5 wave impulsive decline. I expect the pair to push a bit lower though to finish up wave v. A good target for a bottom is the 1.2732 level. It can certainly fall much further since a major downtrend in the euro is probably underway. But the behavior of the currency around the 1.2732 level could tell us if it does want to find a bottom there, and if the stock market might be finding a short term bottom as well.

In summary, the evidence suggests that the stock market still has at least one more new low to make before we even start to think about a short term bottom being in place. Tomorrow would be perfect for a quick pop higher to close the gap in the S&P I mentioned to complete wave iv. followed by another sharp drop beneath today's low to complete wave v. Once that nice clean 5 wave impulsive drop is complete, I'd say we could feel more confident in shorting rallies that follow.


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.

Big Kickoff to Big Decline

Just a follow up to the internals from this morning. The same dreadful numbers carried into the close; a bearish sign. 84% of NYSE stocks closed down and only 5 S&P stocks closed up. But one day doesn't make a trend, so we need to the subdivisions of the market break into 5 wave impulse moves and volume remain solid on the way down. Speaking of volume.....



As I've been mentioning the past few days, volume on the latter end of the recent rally has been falling of a cliff with NYSE volume getting into the 700 billion area this week, which is quite amazingly low. But yesterday's decline and today's big selloff brought the volume back into the market. Both days saw an increase in volume with today's volume bursting through the 13 day moving average at 1.16 billion on the NYSE today. The trend of contracting volume on rallies and increasing volume on declines is a clear sign that the larger trend is down. And since it's pretty much been occuring for months now, one can conclude that we are in a very large downtrend.



Lastly is the S&P count. Blog reader, Rob, noted that today's decline looks a lot like that pesky structure we called the "Wolf Wave" (I know there is actually a wolf wave that is something else, but I don't care, this is my slant on it). This structure has burned us bears quite a few times. It's composed of a sharp straight line down, followed by an immediate choppy slow grind lower. This has oftentimes led to sharp rallies and new highs. Today's structure doesn't quite fit that scenario, YET. The choppy grind is not immediately after the big decline, there are some sharp pops that could easily be small 4th and 5th waves. We need more time to be sure, but right now I see this as a nice healthy decline that has further to go. Tomorrow we should see follow through to the downside at least in the morning. That should eliminate the possibility of the "wolf wave" altogether.



But just in case, I wanted to post the possible structure to watch out for tomorrow that might warn of a bottom and sharp rally to new highs. If the market just does a slow grind lower like I projected above in red, then we might want to be a bit cautious on the bearish side. But if there are any more sharp declines that are sustained, it will eliminate this from contention.

In summary, the market looks very bearish overall in the short term at least. I'm short and will remain short until the market tells me convincingly that I shouldn't be. I expect follow through to the downside for at least tomorrow morning. Any rallies at this point will be sold into on my part.


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.

Barring a Massive Reversal by Close Today, a Significant Top is in

Above is a snapshot of the internals of the market as if 1201 EST, and you can see they're quite dreadful. 86% of NYSE stocks are trading down and only 6 stocks on the S&P are trading higher. In line with the analysis the past few days suggesting a wedge, or diagonal, was at its end it makes sense that we'd see these numbers on the decline today. It also means that the divergences between the indices I've been talking about remain in place and are now much further and harder for the bulls to rally and resolve those divergencse. Advantage bears.




The breakaway gap and accompanying internals suggest this move is a wave 3 at some degree. If so, the market should grind lower in the near future. I previously mentioned that my initial target for the decline after the diagonal was the 1100 area, which was easily taken out this morning. But with the internals so bearish and the technicals suggesting a wave 3 of same degree is underway, I see no reason to cover shorts on short term trades as long as this decline holds into the close today.


YESTERDAY'S EURO CHART




THIS MORNING'S CHART



Well EWP certainly isn't perfect, but when it works, it works very well. Yesterday's call for a strong decline proved accurate as the euro has been absolutely hammered last night into today. I see no reason to not be short this pair.


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.

Euro Looks to Have Topped; Stocks Should not be Far Behind

The clearest short term structure is in the euro which most likely formed a significant top the past few trading days by breaking through the key 1.3117 level I mentioned yesterday, and doing it with a 5 wave impulsive move. The US dollar is in the same position, only in the opposite direction. Now is a good time to get short the euro, or long the US dollar, in my opinion. Stops could be placed just above last week's high in the euro, or just below last week's low in the dollar. If the euro has topped, it could result in more than a 1000 pip decline and most likely will challenge parity in the coming months. Doing so would put tremendous pressure on commodities and stocks. Bulls beware.



The euro and dollar picture in the short term looks clear, but the stock market's picture is not so clear. This lack of short term clarity suggests that the stock market's top and decline might lag the euro in this respect. The bulls and bears are really fighting it out, like an intense arm wrestling match, shooting this market up and down violently the past few days. But the burden lies with the bulls right now since the market was in rally mode prior to this stalling out the past week. So far, the bulls haven't proven at all that this market should and will go higher in the coming days/weeks.

Today's internals were fairly bearish and volume was still light at just under 1 billion shares traded on the NYSE. But what's of interest is the fact that relative to the past few days' volume which was declining, today we had a strong rise in volume compared to the past week and today it just so happens that it was a down day. So again volume increases on declines and dissipates on rallies.






The divergences between the various indices remains intact and therefore keeps this market extremely bearish and holding a great risk/reward opportunity for the bears. The S&P has still not confirmed the Dow's new high, and the Composite and Russell 2000 indices are lagging far behind. This lagging of the higher risk indices is not a two or even three day affair. It's actually been occurring for almost two weeks now. Risk is fleeing the market and not joining the blue chip Dow on its move to new highs. This is bearish overall. And despite the VIX being at "comfort" levels for some traders on financial TV, the breaking down and divergence of the market as whole tells me the VIX should be more interpreted as a "complacency" guage at this point, not a guage determining how calm the market is. The market is complacent as risk is fleeing the market and volume disappears on rallies and returns on selloffs.

This market is bearish in my view and I'd only be looking to play the short side. It's possible we'll still get a sharp spike to a new high tomorrow, but the upside potential should be limited in time and/or price. A spike higher while these divergences remain in place and the euro stays below last week's high would give the bears a good opportunity to come in short, in my opinion.


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.

Five Waves Down in the Euro Suggest a Top

Just a quick headsup that the euro has made a nice sharp impulsive 5 wave decline from its high suggesting a large top is in. The above 1 hour chart tells the story. This could easily result in an over 1000 pip decline in the coming weeks. This of course would put a lot of pressure on stocks and commodities.

With the Fed statement coming out later today, and 5 waves in the euro looking complete, or about complete, it's possible we'll see a large snap back rally to correct that 5 wave decline soon.


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.

Markets on Pause Before Fed Announcement Tuesday

The market's volume continues to fall off a cliff for this rally with today's NYSE volume coming in well under 800 million shares. People are on hold until they hear from the Fed tomorrow. The divergences remain in place with the other indices and the wedge pattern on the daily chart I've been talking about suggest the next big sustained move will be to the downside. With the Fed statement tomorrow we may get a sharp rally that will either reverse the same day, or sometime Wednesday. Like I said before, a picture perfect scenario for the bears would be to get a big sharp rally higher that is reversed the same day to close beneath today's intraday low, which was 1121 in the S&P.

But us bears may not be so fortunate with articles such as this one from CNBC's Fast Money touting how Fed days have brought about market rallies: "Since 2008, Fed Days Historically Good For Stocks". Obviously a good contrarian stance at this type of optimism would be that there will be little to no rally tomorrow and that the bears will come in full force right off the bat. We'll see.

In addition, the euro is looking about ready to break down but no confirmation yet. I'd like to see a break, and especially a close beneath 1.3117 to start thinking about getting aggressively short. And a euro breaking down means the US dollar will be starting a major rally, and that will put pressure on commodities as well as stocks.

The bottom line is that the stock market and euro are on the verge of a large decline that should start sometime this week. I feel that at least at this point, the easy money to the upside has been mad. So my focus is looking for shorting opportunities. The action surrounding tomorrow's Fed statement might bring about those opportunities, both in stocks and in the euro and/or dollar.


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.

The Weak Ahead

No, I didn't mispell "Week" in the title of this post. But thanks for fact checking me. IIt's just a play on words since this upcoming "week" looks "weak" for the market. Get it? Okay it was dumb, I know, and I shouldn't have wasted people's time with it. But I'm just a few hours away from beer and baseball time and I'm on summer cruise control right now.

Friday's action looked promising at first, but again volumes didn't enter the market that would suggest a large wave 3, or sustained decline, was starting. The NYSE volume remained beneath the 1 billion shares level. But it was a Friday, and I still thought we could easily just have light volume for that reason, and then Monday we'd get continuation of the decline with higher volume. Wrong. The market again reversed into the close on an impulsive looking rally. So it seems the market might not be quite ready to roll over. But boy is it close.

The sharp selloff and reversal higher is still well in line with the weak diagonal looking pattern that the market has formed since the July 1st low. So the choppy, hard faught, up/down rallying continues. The reversal suggests the market might still grind out at least one more new high. It's not guaranteed by any means, but it looks likely at this point and I want to be mentally prepared for it.

What I'd really like to see to get aggressively short is a sharp rally that will act as a vacuum that sucks up all the remaining hesitant bulls into this rally from July 1st. A sharp move higher, preferably above the upper ascending trendline I have shown in the above chart, and then reversal the same day would be the perfect scenario to call a top and rush into the short side in my opinion. If that happens, it could easily happen very early this week. A rally to a new daily high, and then reversal and close to beneath the prior day's intraday low would be a picture perfect scenario to get short into that close. But regardless, the market's upside looks quite limited at this point, and the easy money to the upside has probably already been made, while the downside potential is quite large so that's where my focus is.

The divergences between other indices remains in place. (click here for the post on this topic).

Okay, I gotta get ready for Miller Time and the Red Sox vs Yankee game tonight. Hope you all are enjoying your summer!


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.