Market Continues to Unfold in Nice EWP Form

The internals of the market were quite bearish today and volume was strong relative to the past few weeks as it made it above the 1 billion share mark, but was still fairly light overall. But the trend continues of having higher volume on declines and volume disappearing on rallies, which is very bearish in my view. Today everyone was a seller basically with 91% of volume to the downside and only 21 S&P stocks trading higher. So the market action today was very bearish.



Looking at the bigger picture it's possible to count the decline from the highs on the year as an unfolding impulsive move. It's not perfect how it started off by any means, but the structure from the past couple weeks is looking quite perfect so far. The market has followed the forecasts laid out by EWP but the market has still not really "broken down". The market is running out of 1 and 2 waves to explain why it hasn't really accelerated downward. So if the above count is correct, we should soon see relentless selling to well below the recent low of 1011.




Looking at the short term it looks like we need another drop lower to complete a small 5 wave decline which could be followed by a correction higher before the next wave of selling ensues. As I said earlier, the market is running out of 1 and 2 waves to explain this slow chug lower, if the counts listed above are correct then this market needs to get moving to the downside fairly soon.

With today's bearish action, and the EWP waves starting to unfold more clear, I don't want to get too caught up in trying to catch every little pop and drop. The main focus I want to have is the wave count on the daily chart posted above which shows an extremely bearish potential for the market in the coming weeks.



The only viable alternate count I have for the short term is that wave ii is still unfolding and today's decline was just a "b" wave. This by no means suggests I'm getting long or taking any drastic action to reduce short risk. I just bring this up because it's a possibility, and it might give some bears with cash on the sidelines to consider holding it for a possible pop higher so they can add to their shorts at a higher level. With that said though, this count is less likely to me because it would mean quite another long and drawn out sideways corrective wave which is a bit rare in what should be a 3rd wave of various degrees it might be in. A sharp rally Friday or Monday may easily put this count as top choice. But it would still only mean a short term rally that shoudl not be sustained for any long period of time and should eventually roll over hard in the near future.


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.

Picture Perfect EWP Waves Still Intact; but Decline Must Start Soon

Today the market just sputtered around, directionless it seems. Volume remained quite light at NYSE posting 922 million shares today. Advancers mildly exceeded decliners and up volume was mildly higher than down volume. So nothing telling or exciting in the internals. The Nasdaqs and Russell 2000 were up about 0.30% today while the Dow and S&P were up about half that. So the higher risk indices were modestly higher than the blue chip indices. So there are no real signs of either bullish or bearish underpinnings in that regard.

But when we look at the wave count, things look a lot clearer. The 5 wave decline from the high established a last week remain intact and is very healthy looking for the bears. The rally this week has so far unfolded in a 3 wave move which is a correction. The market's sharp decline this morning MAY be the resumption of the downtrend that sent the market falling hard in that 5 wave decline last week, but that's yet to be confirmed.



Also notice on the daily S&P chart that the 1100 level is providing quite a ceiling for the current rally lately. The market has been rejected their twice. Perhaps this is an important level for the market. So for the real short term players, I think that staying under 1100 is bearish for the very short term but a strong close above it with high volume may signal the bulls are gaining control. We'll see

So unfortunately I don't see any strong evidence for the bulls or bears in the very short term. But going out in time frames a little bit, it seems clear right now that the bears have control of this market and so I'd only be looking for shorting opportunities since the market can fall hard at any time. Hopefully tomorrow or Friday we can get a more definitive move out of this market with volume that at least gets above 1 billion shares to give this market conviction in any direction.

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.

Picture Perfect EWP Setup Right Now; Will the Market Unfold Picture Perfectly?

Boy it didn't take long for the bulls to sound the "ALL CLEAR!" signal. Looking at the above headlines on CNBC mid-day today, you'd think we'd have been up 500 Dow points in the past few days. But nope, just a one day 100 point rally and already the bulls are ready to get rumbling into stocks again. This is a nice setup because it shows that optimism has returned rather quickly after the big decline the previous days, and it might be high enough now to support the next leg down starting rather soon.




Today's rally of almost 200 Dow points intraday was quite strong. You can see that the market is correcting the short term oversold condition rather well here with strong internals. Volume picked up big from it's extremely low number in the 700 millions yesterday, yet volume today was still under 1 billion and considered quite light overall. 76% of NYSE stocks closed up, 83% of total volume was to the upside, and 458 stocks on the S&P closed higher today. So it was as strong showing for the bulls. Yet despite the big rally and strong internals, the market sold off rather heavily into the close leaving the Dow up only 103 points at the close. So even though the rally was big and fairly strong internally, it was a very hard faught battle for the bulls.

Also of note, the Nasdaqs did not really excel much higher above the Dow and S&P, yet the Russell 2000 did. So yesterday's big outperformance higher by the higher risk indices was a bit fractured today. We need to keep an eye on that. Risk leads the way.



In addition, if we put this move into the proper context we may see that the strong showing today and impulsive rally was that of a wave C that may finish the entire correction that started yesterday. If so, it probably means that whatever larger degree of trend we're in to the downside is a very strong wave because it is moving so fast and sharply.

The rally today filled the first gap I mentioned yesterday at 1089.47. It rallied in 5 waves, and was strong and sharp enough to be a C wave. The only other viable option I see is that it was a small 3rd wave higher. But the internals of the market today suggest it can easily fall a bit shy of it being a 3rd wave (which the alternate count would suggest), and we have to remember that this move is very small and is following a larger 5 wave decline. So the bias goes toward the bearsish count until the 5 wave decline is negated. So as of right now, I think it's safe to conclude that today's rally was part of a C wave within a larger correction, and not a 3rd wave of a new bull run higher.

The late day selloff MAY be signaling that a top was put in at today's highs and that the downtrend to new lows is now underway. We will know very soon tomorrow if this is in fact the case. If not, it means we'll probably see at least one more 3 wave raise to turn this simple 3 wave zig-zag correction into a combination correction with multiple zig-zags.

So the bottom line is that the market looks almost picture perfect here as far as EWP is concerned with a nice 5 wave decline and 3 wave a-b-c zig-zag rally with a C wave composed of 5 waves ending today. So it's quite possible that a top is in. However in the time I've been trading EWP, rarely does a pattern unfold so perfectly and end up being correct. We'll see.


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.

With 5 Waves Down Possibly Complete, a Larger Corrective Rally may be Underway

A few things occurred today to make me conclude that there's a strong possibility the short term trend may have reversed from down to up today:

1) This morning we had a sharp drop that was immediately reversed and held all day. Oftentimes when we get an intraday spike like that which is reversed and held it means that a top or bottom is in; and in this case it would of course mean a bottom.

2) There was much more strength in the higher risk indices like the Russell 2000 and the Nasdaqs compared to the S&P and Dow. Since the riskier indices often lead the way the fact that today they were the strongest may be a telling sign.

3) The VIX was down 1%-2% most of the day, even when the market was negative, suggesting that some confidence was entering the market today where it had not been the previous week or so.

4) It's now possible to count the decline from the August 9th highs as a completed 5 wave move, and therefore a short term bottom is in place for a few days at least.

5) Today's new low created a bullish divergence with intraday momentum indicators and price, primarily the RSI, which is usually consistent with a 5th and final wave.

So the evidence is there to support a short term bottom being in place now, or will be very very soon.

The only problem with all the action today is the fact that today's volume was extremly light. In fact, it has to be one of the lightest volume days of the year. The last time we dipped below the 800 million NYSE shares mark was right before the August 9th top. So with such light volume today, it's hard to gain much confidence in the market action and evidence I just listed above. Regardless though, I've made some good quick gains on my short term positions so I took profits today just to be safe. I can always re-enter at any time.

S&P Cash Index



Euro vs. US Dollar (from earlier today)



Above are charts of the S&P and the euro, both seemingly to fall more or less in unison. I mentioned last week that the euro appeared to have complete 5 waves down before the S&P did which might signal that the euro's leadership of the stock market will have the S&P put in a 5th wave bottom soon as well. Perhaps that happened today with the early drop in the S&P this morning. Right now the count looks good, and if correct, the euro and equities should push higher in the coming days. The S&P might try to fill some gaps before turning lower, the first gap will be filled at 1089.47 and the second one at 1121.06. There is also congestion around the 1110 area that I think will be a good topping area for the market. If the market can get that high, I will take that as a great opportunity to reshort.


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 Can Now be Counted with Confidence; Possible Correction Underway

The S&P plunged to a new low this morning fulfilling the forecast of one more new low to complete a nice 5 wave decline satisfying EWP's guideline for the "right look". The market then snapped back into positive territory with the Nasdaq leading the way as it's showing much more strength today relative to the other major indices. Also, the VIX is down about 1% at the time of writing, so it seems that fear is slowly leaving the market, and the new low this morning did not create a new low in the RSI creating a bullish divergence I discussed last week; all this is supportive a 5th wave that just finished up and a correction upward occurring.

I'm not sure how long or high this correction will be, but if I was playing the medium to long term on the short side I wouldn't touch a position at all. But if I were trading the very short term, I'd consider taking some profits made on short positions and then re-enter on any rallies.


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.

High Risk Leading the Way Lower

The market appears to be in a small 4th wave treading sideways that should result in a sharp pop higher to close the S&P gap I mentioned late last week, or just head to new lows as a continuation of Friday's late day move lower. That should create a nice 5 wave decline from the highs of a week ago. And the correction of that 5 wave drop should be a good opportunity for bears to get short, or add to existing short positions.

Above you can see a list of indices and what percentages they closed at Friday. Notice that the Nasdaq and the small caps, both very high risk indices, are leading the charge lower especially compared to the Dow. When investors flee their high risk assets, especially over a decent period of time, it usually means their is an underlying fear and lack of confidence in the market. The Dow has the most solid blue chip stocks in the market so many folks who just absolutely have to stay in stocks are probably piling into the bluest of the blue chips in the Dow. That's why the Dow is far outperforming the higher risk asset indices. When you combine this with the lackluster volume on rallies and impulsive decline we're seeing now in with stocks, it appears the larger trend is down. I'd be looking to align myself with that trend and get short when the opportunity presents itself.







The above daily charts illustrate my point. The higher the risk in the index, the more it seems to be lagging the blue chip Dow. The Dow was making new highs while the higher risk assets were not. Now the high risk indices are declining much more aggressively than the Dow. Their weakness and non-confirmation of new Dow highs was the first indicator that a big top was forming a week ago. Now their leading the charge lower. And you can even label the Russell's June decline as a 5 wave impulsive move, and the ensuing rally is clearly a 3 wave affair, whic is a correction.

So there has been no let up in this flight from risk. When these high risk indices break their July lows it should be a good indicator that S&P and the Dow will follow shortly, and could hint that a much larger decline is 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.