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.

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.

Volume has Fallen off a Cliff; Waiting for Jobs Number Friday

Volume continues to fall off a cliff as today's NYSE volume was well under 900 million shares. The market should give way soon to a sharp drop to at least the 1100 level in the S&P, but possibly much lower. It seems that folks are waiting for the big jobs number coming out tomorrow. So after the number is released, the market's volume should return a little bit and get this market moving in line with the larger trend. I feel that the rally over the past few weeks is at its ending stages and will roll over at any time. A sharp rally based on the jobs number tomorrow would be a great opportunity to get short as long as all the other indices listed below remain below their June highs. The flat sideways action the past couple days suggests this is a 4th wave we're in and so a final sharp 5th wave rally before reversing violently may be in order. It doesn't have to shoot higher, and the S&P futures chart below is evidence of that. But tomorrow's jobs number has good prospects of giving us solid ground action to help us going forward.




The S&P futures made a nice 5 wave decline and a correction that is about at the maximum comfort level for a retracement at the 78% fibonacci level. So as long as the overnight high here remains in place, it's possible a top is already in and major selling is on the horizon.








Again, the various indices are quite fractured, with the Russell 2000 and Nasdaq Composite now lagging drastically compared to the Dow. Although the market hasn't tanked hard yet after such a pronounced divergence between indices, the fact that they've remained divergent for so long is still quite bearish in my view.

I remain bearish in the short term as I aggressively look for a top and reversal that should take the S&P down to at least the 1100 level in a hurry.


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.

Not Much Changed From Yesterday; Market Still on Verge of Reversing

The market didn't do much today so nothing has really changed in the outlook from yesterday. The Nasdaq Composite and Russell 2000 still have not made any new highs to confirm those in the NDX, Dow and S&P. As long as those divergences remain in place, the bearish potential is great.

Above is a better illustration of the wedge formation I mentioned yesterday. In EWP, they usually are "leading diagonals" or "ending diagonals". Both are weak structures and the ending diagonal is a finishing move, which can form a wave C which might fight nicely here, and result in sharp reversals. Whether or not this particular wedge falls right into perfect EWP form or not, the structure of the rally in this manner is a weak one, and it's exhibited in several intraday momentum indicators. When the market does finally pull back, I expect the S&P to get to at least the 1100 level in quite a hurry. And with volatility so low right now, I put a very small short term put option position that I will either cash out on a sharp decline and VIX spike, or will just let it run out and expire worthless.



Above is a daily volume chart of the NYSE Composite. Today's internals on the NYSE were quite strong however volume was so light, less than 1 billion, that I'm not sure how reliable that strength was. You can see above that after that July 29th down day and volume spike above the 13 day moving average, the market has gone to new highs but volume continues to fall further and further away from the 13 day moving average. So this latest rally leg higher in the S&P since July 29th is quite shallow in strength and conviction and so I feel it will be completely reversed rather quickly.

Friday is the all important jobs number so perhaps traders will just wait until late Thursday and Friday morning to take bigger positions and get some volume back in this market. A short pop higher might occur before a top is in, but the evidence suggests a sharp move to the downside coming soon that should quickly test the 1100 level in the S&P.


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.

Market Should be Ending Rally

There was no follow through to the big rally yesterday. Today's internals were quite negative in both the NYSE and S&P as you can see above. Although volume was very low, and well beneath the 13 day moving average. But I too see this as bearish since we did have a huge rally that seems to have surprised a lot of folks and give the "all clear" sign for the market to get back in bull mode I'd expect to see a big spike in volume as the masses rush back into stocks. But volume was also well below the 13 day moving average on yesterday's huge rally, then was even less today. That's not very bullish in my view. And in fact, volume has been declining ever since July 29th, which was the last time the 13 day moving average was breached, and that was a down day. So since then, we've had declining volume, yet the market has worked higher. This is the characteristics that accompany a top. Which I feel is at hand, or very close.



Above is a 2 hour chart of the S&P cash index and RSI momentum indicator. You can see that the evidence of a weak rally is also strong with this data as well. You can see that the rise the past few weeks looks a lot like a wedge, which is typically a weak structure; whether it be part of a wave C ending diagonal or leading diagonal, a sharp and deep reversal should be coming soon. In addition to this wedge structure, the weakness is also illustrated with the fact that price has made two higher highs so far, and yet the RSI has made lower highs, not confirming the rise in price. Again, this suggests that this market is topping and a sharp reversal is coming soon.

Although this evidence is not good as far as timing the market reversal, I'd say that the easy money for the bulls is over, and I think it's time to try and start getting short when opportunities arise.











And lastly, it's quite clear on the daily charts above that the Dow is leading the surge higher while other indices are lagging. And the higher the risk in the index, the further back its lagging. I posted some charts this morning comparing the Dow to the other indices' highs from back in late June. Well also notice that as of today's close, the Nasdaq Composite and Russell 2000 have not even been able to exceed their July 27th highs, with the Nasdaq 100 barely exceeding it. This behavior is bearish as long as it remains in place. When you combine the fact that other indices are lagging the "cream of the crop" Dow index, and that volume in the market is declining, it seems that interest in this rally and the bullish side is fading big time.

Now a big rally on strong volume that brings all these indices above their June highs and gets new highs registered on the RSI will negate all this topping bearish view. But as long as the evidence does remain intact, I view the market as bearish. The small waves of the yesterday and today suggest a possible small 4th wave triangle forming. If correct, we should get one more sharp thrust higher. But thrusts are terminal moves and completely reversed in fast order. And considering the evidence I mentioned above, signs of a "finishing move" like a thrust from a triangle would be a great opportunity for the bears to get short again, 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.

Dow Breaking New Ground on its Own

Just a quick midday note since I was unable to put up a post yesterday: The market surged big yesterday, but it was mostly the Dow that made the major headway. If the Nasdaqs were leading the charge higher, I'd be looking more at the bullish side for a larger and longer sustained move to the upside. But the Nasdaqs are in fact lagging the worst of the major indices compared to the Dow. This often means that there is some fear underlying the market as people are only willing to buy up the big blue chip "safe" stocks and avoid the higher risk tech stocks. That's not the behavior I'd expect to see at the beginning of a new bull run. This combined with the fact that the entire rise from the July 2 low is now looking like a wedge, which is a corrective pattern, makes me believe that the market still needs to make new lows on the year. As long as the Nasdaq 100, Nasdaq Composite and S&P 500 stay below their highs, I think the risk:reward potential favors the bears who still have a slight edge in my opinion. If those indices to make new highs, then it would turn me neutral for the short term.

More later after the close.


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 Move Coming

The market is flip flopping all around, confusing even most of the pros out there who seem to recommend "getting smaller" in this market because it's so tough. The VIX is quite low and could signal complacency in the options market which can often mean a major top in the stock market is occurring. The behavior of the market with it's wide directionless swings the past week or so signal that a major move is coming. Seeing as that it's possible we're at the top end of a trading range which is around 1113, the wave count suggests that a wave 3 at various degrees might be getting started, a series of new lows and highs has started on the 15min charts, and that the VIX is at levels of complacency that has marked major stock market tops before, I'm going to give a slight advantage to the bears. This means that this "big move" in the market should be to the downside.

What sticks in my head when I see these charts is the Dow's new high that was not followed by the S&P or Nasdaqs on Thursday, then the Dow's reversal to close beneath the open from the day before. This is a topping reversal pattern. With that in mind I can rest assured that the bearish side should be favored as long as that high in the Dow is maintained at 10,463, no matter what the wave structure might be; the short term should should favor the bears. So I'm short term bearish as long as the Dow trades below 10,463.




But all is not perfect, that's for sure, for the bears. The decline from the 10,463 high is not impulsive looking at all. That doesn't mean the market won't tank hard from here, but it's not a good start for a big decline from an elliott waver's perspective. Also, on the above 15min chart, it looks like the market MIGHT have failed to make new lows with that latest drop then sharp rally. It created what looks like an inverse head and shoulders pattern, which is of course very bullish. But the pattern was not completed as the market failed to close above the neckline and instead reversed into the close. So it's inconclusive, like many other things in this market right now.

Despite the bullish potential, the Dow is not far away from the 10,463 level I just mentioned earlier. I think it's safe to stay bearish with a stop just above that level. A strong shot through that level would negate that topping reversal pattern and therefore severely weaken the short term bearish case. Depending on the strength and structure of that rally I would consider getting long since we might be in a wave 3 at various degrees to the upside. But the rally must be sustained, because another shot higher that's reversed would be even more bearish. At this point, a short term trader needs to be very vigilant and nimble. I can't emphasize that enough right here.

I remain short term bearish as long as the Dow trades below 10,463.


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.