Market Rebounds, Minor Wave 4 Underway; Euro Continues to Consolidate Before Breakout

The market was deeply oversold going into today's session, and the bulls pounced on that opportunity.  With little bears left to sell the market the "buy the dip" crowd came in today and surged the market higher.  As a bear I would have liked to have seen lighter volume on today's move, but with 2.4 billion NYSE shares with 97% to the upside, the bulls are making a strong move here to put in a bottom.  I'm not convinced a bottom is in place, but today's rally certainly got my attention.  But let's look at volume in a little more detail through the S&P's ETF (SPY):

Looking at volume on the day as a whole on the NYSE, it was a very big volume day.  And looking at the big rally into the close you'd think it was all bulls all the way.  Although for the most part this is true, when you look at down volume relative to up volume on the SPY, you'll see there was still a slight bias to the downside with volume decreasing on rallies and increasing on declines.  This is a very small piece of evidence showing a slight bearish undercurrent on an otherwise very bullish day.  Just something to keep in mind when looking at the rally as a whole today.

Should Stock Investors "Fret Over Economy"? No -- See Chart to Understand Why

I know a lot of folks have been very excited and happy this decline has taken place over the past several weeks.  In fact, I know a couple of people who are absolutely joyful that the market has fallen so much so fast.  And no, they are not bears and they are not short.  They are perma-bulls who view this decline as a great buying opportunity.  Well people like this, and many wise short term traders who covered their short positions, were the reason why we had this bounce today.  The only difference between the two groups of people is that that the perma-bulls will hang onto their long positions and get their faces ripped off on the next series of declines while the wise short term opportunist traders will know when to get short again.

Today's rally may be part of a Minor wave 4 which I speculatively drew out a path forward in the above chart.  I expect further rallying tomorrow morning, but if it's a 4th wave, the overall move over the next week or so should be that of a fairly sideways move.  The key for the bears is to keep the Minor wave 1 low intact at 1258.07.  As long as the S&P cash index remains below that level, I'd be selling into rallies.

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The euro continues to consolidate and will breakout hard and fast soon.  If I weren't a waver I'd look for that breakout to the downside.  But being a waver makes feel that this consolidation is similar to a triangle which means the consolidation is just a correction of the previous trend (up) and once the consolidation is over the previous trend will continue (up).  So I'm conflicted.  But I think the weight of evidence and risk/reward tell me to stick with the basics which show a series of lower lows and lower highs, so I think the short side should be favored as long as a new swing high on the daily chart is not made.


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.