Stocks Extremely Stretched, Intently Watching for Opportunity to Strike

Only 1 billion NYSE shares were traded on Friday which is extremely light for an options expiration day.  But the market continued to float higher and there were no real signs of a top so there's nothing much to say or do for us wavers other than to wait on the sidelines for now.  Optimism as reported by EWI's services is at an extreme, momentum as shown by the RSI above is also at an extreme and diverging from price, and the wave count suggests the rally will end at any time.  But look back through the past few weeks of my posts and you'll see that these statements are nothing new.  The market has been extremely resilient and is probably trying to squeeze as many shorts out as possible (if there are any left) and suck in the last of the last of the sidelined folks to the bullish side before giving out.  This process, as usual, is taking quite long.  This is why I haven't recommended shorting into strength the past few weeks.  I feel that the downside will be great enough to where we can patiently wait for solid evidence of a top before we attempt to get short.  Anything other than that would just be "guessing".  And guessing will lose you money in the long term.

Above is a long term S&P count.  I wouldn't be surprised if this market pushed toward the 78.6% fibonacci level at 1377.55 before topping, although I wouldn't bet on the long side that it will happen.  The RSI tells us the whole picture, it shows an overbought and diverging market.  When stocks top, the reversal should be sharp, deep and fast.

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Drilling down to the 3min intraday charts you can see a nice 5 wave decline from the highs established Friday with a 3 wave corrective rally into the close.  EWP would have us conclude that the larger trend is now down and that hard selling to new lows will occur Tuesday and also maybe Wednesday at a small degree 3rd wave.  But these small timeframes are not reliable enough for me to get short right now.  If the trend in fact turned down on Friday, this decline will be part of a larger 5 wave move down to where I can get short later on with better evidence to suggest a top is in.  Without a sharp move down Tuesday, the count above would be extremely doubtful and we should look for higher levels.  But if the market does shoot lower on Tuesday, then needless to say it would certainly get my attention to track the count and structure closely.

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The euro is not looking good from neither the bullish or bearish side right now.  We have a bunch of 3 wave moves flip-flopping all over the place.  I still lean toward the bearish side because the long term trend is still down, but for the medium term 1.3743 needs to hold or it will confirm that the recent move lower was only a 3 wave drop and a new high above 1.3860 will be acheived.


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.