Today's Early 5 Wave Drop, so Far Just Part of ABC Correction; September 21, 2009

Today the market dropped in a clear 5 waves right at the open, but has since rallied hard and the Nasdaq (higher risk index) is leading the way higher and is in positive territory as I'm writing this. As you can see, the above chart labels the decline starting from last week as an ABC correction, with this morning's 5 wave drop being wave C. So as it stands now, as long as the S&P trades above 1057 then the decline should be considered corrective, and new highs will follow. IF the S&P breaks below 1057 then it will signal that possibly something bigger is occurring. The EUR/USD has appeared to have formed a top, or is real close, and China's index continues to selloff sharply with it down over 3% on Friday and did not recover today. I'll assess the bigger picture when 1057 is broken.

In summary: the stock market is bullish as long as the S&P stays above 1057. A break below 1057 may signal that a larger decline is underway and I'll assess at the time to try and determine the magnitude.

Triangle Possibly Forming - They Are "Terminal Moves"; September 18, 2009

On the 5 minute S&P chart, along with other indices, I see a triangle possibly forming (see above chart). If the market declines a little bit more it will complete wave e where it can then thrust sharply to new highs later in the day.

What's key is that according to EWP, trinagles are "terminal moves". In other words, they are the result of a tiring trend that will completely reverse once the thrust is over. If correct, the market will thrust sharply higher later today. Once the thrust is complete, a top should be in place. But a break of wave c at 1064 would hint that top may already be in.

3 Minute Analysis; September 17

Today was an interesting day in the stock market because many indices and assets are at perfect "topping points", but my confidence in a top being established now was very low. This is mainly due to yesterday's strong rally in stocks on the heels of the strongest breadth in weeks. This usually suggests an undercurrent of bullishness for stocks that caries on for several weeks. This of course may still happen, but there was absolutely no follow through today, despite all the good economic news that came down the wire today.

It's possible to label the declines in the major indices today as a 5 wave drop followed by a 3 wave a-b-c rally(see bottom chart of Russell 2000 above). The NYSE did the same and closed substantially weaker than the Dow which closed almost unchanged. Now the Dow, S&P and Nasdaqs all made a new high late in the day (see S&P chart on top right) however this new high was not confirmed by the NYSE and Russell 2000 indices (see above charts with blue line depicting the divergence). Now these are 3 minute charts so this analysis does not instill much confidence in a top being in place at all. But with the lack of follow through on yesterday's rally, the selling on good news that happened late this morning, the negative breadth that transpired today, the arguable 5 wave decline in most indices, and the minor divergence left late in the day, do in fact lay the ground work for a possible top and reversal to be at hand. The EUR/USD and gold and silver also reversed today and closed much weaker, and the GBP/USD continues to be much weaker than the EUR/USD. What's easy is that it won't take much to prove this analysis wrong. A simple rise in the Russell 2000 to above 616.79 and the NYSE above 7023 would negate all this and open the door for another strong rally to new highs.

Tomorrow is option expiration day and so a lot of volatility in the morning and at the close is likely. If the market wants to charge higher, most likely it break those key levels I mentioned in the Russell 2000 NYSE Composite within the first 30 minutes of trade. If not, prehaps something bigger is at hand.

Waiting; September 17, 2009

Nothing new to report other than yesterday brought strong buying demand to the stock market that signals bullish momentum in the near future. This will be negated if we get a sharp reversal today or tomorrow though. The market is rallying quite healthy, no divergences or laggers. I've said many times that the EUR/USD has been following the stock market and when it tops, so should everything else. The divergence between the EUR/USD and the GBP/USD holds true still, and the EUR/USD poked through a slight new high from December's completely what's most likely a flat correction. It could extend higher of course, but minimum expectations have been satisfied and I'm on alert for signs of a reversal, i.e. five waves down, sharp selloff, etc.

When the EUR/USD tops and reverses, it will signal that precious metals and equities have probably topped as well.

EUR/USD Forming Major Top; September 15, 2009

The EUR/USD appears to be forming a major top as I stated in a previous blog post. If you look at the above daily charts of the EUR/USD and the GBP/USD you see a major bearish divergence showing here. As the EUR/USD has surged to new highs the past week, the GBP/USD is severely lagging. If this divergence holds and a big selloff occurs, it will solidify the position that the EUR/USD has formed a major top and will sell off thousands of pips. It appears the EUR/USD is mirroring the stock market so the pair should top and reverse in line with the stock market. The 1.4700-1.4800 area looks like a good topping point, but it's just a guess at this point. I'm waiting for a strong reversal day and a five wave decline to get my attention.

CHARTS SUPPLIED BY FXCM.COM

Silver's RSI at Level that has Previously Marked Major Tops; September 12, 2009

Above is the daily silver chart showing that the RSI is currently at a level that has previously marked an area what it has formed a major top. Many of the previous tops and declines have eventually led to complete reversals, but with wave 3 down coming soon in the stock market, precious metals should tank to new lows for the year with that collapse. So this "topping" signal is most likely not just an ordinary drop and rally that has occurred. It's most likely signaling that silver's major top and 50% decline is near.

We still need to see a sharp selloff and break down to new lows to confirm any top, but it's important to note that with the RSI reaching overbought territory, the level that has previously market major tops, and with optimism in the 90% bull range, the next move of significance is down. And it will be down big. The euro, gold, silver and the stock market should all top and reverse around the same time, and all those markets appear near that top. I'm waiting for confirmation.

Corporate Executives Dumping Their Stock for Most of Rally; September 11, 2009

I've heard that insiders, i.e. corporate executives within the company, have been selling their stock feverishly the entire rally over the past few months. But in true bullish media fashion, it gets barely any headlines, until now. Insiders obviously know the true story behind their company's earnings and profits and if they're selling in massive numbers, then that's not good for the future and shows they don't believe in the rally. The 800 pound gorilla in the room is that all these firms have been posting great earnings numbers and beating estimates for the past two quarters yet how did they do it? They did it with massive spending cuts, shutting down factories and stores and slashing their work force drastically. So when you add it up, their earnings were good because they had reduced overhead drastically, not because the consumer is making a comeback. So the earnings data and future outlooks are window dressing and fluff. Using this window dressing won't work forever though. Eventually that high unemployment they're dumping on the economy and the shutting down of stores will backfire if the economy doesn't do an about face and rally hard. Which it is not. Insiders probably know this little fact and are selling their stock, knowing that they pumped up their stock prices for the short term in hopes that the economy would recover and then they can hire again and grow. But it's not happening, and the next few quarters of earnings and sales should be horrendous, and fuel the flames of the wave 3 crash. Here's the article on insiders by CNN: http://money.cnn.com/2009/09/10/news/economy/insider.sales/index.htm?postversion=2009091107

Bigger Picture Proves Rally is Just a Bear Market Pop; September 9, 2009

With the market not following the wave 3 collapse model as it should, it seems the market still wants to chug higher to new highs, just as the Nasdaqs did today, I want to keep the bigger picture in perspective. On top of optimistic being at extremes higher than what they were at the 2007 market top, also notice on my daily S&P futures chart that volume during the entire rally since March 6, 2009 has been on decreasing volume. This is textbook characteristics of a bear market rally, and NOT a new bull market. So even though it's been very difficult calling the absolute top in this market, numerous indicators in the big picture strongly suggest that this entire rally will be completely reversed, and most likely it will be done much fast than it rallied.

I will post anything new that develops regarding when the wave 3 collapse begins.

If the Wave 3 Collapse is Underway, the Market Should Fall Hard Immediately Thursday Morning; September 9, 2009

No need to drone on with "guessing"; the bottom line is that if the market is in fact in wave 3, which looks more and more unlikely every day, then it must fall hard first thing Thursday morning. The wave count and sentiment and bullish internals have reached a point where any further rallying will negate the SHORT TERM bearish call. So immediate selling tomorrow morning is required.

If this doesn't occur, then it opens the door for the S&P to get into the 1100-1150 area before topping.

Stay tuned!

EUR/USD; September 8, 2009

For those of you who are currency traders and know that right now the EUR/USD is correlated fairly well to precious metals and the stock market, I wanted to post what Jamie Saettele with FXCM says about the pair because it mirrors my expectations and wave count now that it broke through the previous high of 1.4440. Jamie's long term outlook and wave count on the majors are very similar to mine so I recommend his column on DailyFX to be looked at on a daily basis for free currency analysis: http://www.dailyfx.com/

The entire article excerpted above can be found at: http://www.dailyfx.com/story/dailyfx_reports/daily_technicals/Dollar_Breaks_Down___Pairs_1252419404910.html

Today's Rally Weak, and Fading Fast; September 8, 2009

Today's rally in the stock market really didn't get any legs from Friday, the big rallies in the European and Asian sessions, and the crashing dollar this morning. Internals are not strong at all, however all this can change rather quickly. As long as the highs of the year are not broken then the bearish call for wave 3 is still on the table. But the market needs to give way and fall hard soon for this to remain a possibility. The first step for the bearish case was to have little or no follow through with all the rallying from last week and overseas. That is happening SO FAR. The second step is for a major reversal to occur very soon.

Gold and silver appear to be doing "blow off tops" which commodities normally do, and the dollar is making new lows which appeared likely after the sideways movement it had done for weeks. My eye is on the EUR/USD though and I expect it to pop above it's previous 1.4730 high to complete a "flat correction" where it will have a formed a major top and reverse at least 2,000 pips from there. Gold and silver should follow and fall hard after this blowoff top is complete. The stock market should fall at the same time as well.

So now we wait to see what happens and see if this year's highs remain intact to keep the wave 3 crash possibility still on the table. Hopefully we'll get a better idea of where we're at in the market by the action at today's close which could get quite volatile.

My Current Holdings; September 7, 2009

Just to remain transparent and fully disclose what I'm doing I'm listing my current put option positions:

SPY December 2010 at $80
QQQQ January 2011 at $30
XLF January 2011 at $9
SLV January 2011 at $9
IWM January 2011 at $35

Friday's Action Lessens Confidence in Immediate Bearish Case; September 7, 2009

Friday's strong rally on strong breadth and internals after getting so-so news on the US job market was very bullish. All the indicators and reactions in the past several months point towards Friday's big rally being the beginning of a larger rally that should last for days or weeks. So new highs are quite possible. The only that gives me pause in completely abandoning the short term bearish call is the fact that it was a trading day prior to a long holiday weekend and the rally was done on very very light volume. However, the Asian and European markets rallied hard on Monday and US futures are up fairly big. This is not the type of reaction I'd expect if the mass of traders were bearish and didn't agree with the rally on Friday. It tells me the masses agree with the rally and think the market should move higher. And the fact that so many people are coming back from taking time off for the holiday, it means that this market can really soar a lot higher this week.

The first hour of trading Tuesday morning will tell us a lot. If the market just comes out of the gate rallying and continues throughout the morning on strong volume and breadth, then we will know that wave 3 most likely is not underway yet, and we'll have to wait just a little longer for it to begin.

I still have all my same positions.

Nothing Changed; September 3, 2009

The market has done nothing since the selloff Monday until the last few minutes of trading today. Today's sharp rally at the end of the day tells me the "cheaters" and smart money know the big jobs report tomorrow will be good. On a short term basis it appears the market is falling impulsively, but it's not complete. A correction to around the S&P 1015-1020 is expected before the next round of selling. As long as last Friday's highs hold, I will conclude that the market is in the big wave 3 crash right now.

On a very speculative short term note: I can easily see tomorrow being a fairly strong rally day after a good jobs number on light volume right before the long holiday week and the apprehension of most people not wanting to be short going into a long weekend. So I expect a strong rally day tomorrow. However, as long as the market stays below Friday's highs, we should see very heavy selling resume early next week.

My positioning remains the same.

Wave 3 is Likely Underway, the Modern Day Financial Dark Ages are Here; September 1, 2009

Today was a horrible day for the market as good ISM and employment data came out yet the market sold off sharply in reaction to it. On top of that, NYSE had declining stocks outpace advancing stocks by almost 5-1 and almost 95% of all volume today was the to the downside. And speaking of volume, today's selloff was on monster volume. The selloff also confirms the momentum indicators' (MACD, RSI and stochastics) bearish divergence with today's weak close.

All this suggest a severe exhaustion to the wave 2 rally and a high demand to sell stocks, even on a good news day! Most likely the big wave 3 crash into a modern day depression is now underway.

My initial target for the S&P is to break 450 before the end of 2010, but it can possibly go much much lower. I am fully invested in put options on the SLV, SPY, QQQQ, IWM and XLF with most expirations occuring Jan of 2011 which gives plenty of time for the market to collapse.