Moving as Projected; Nov 21, 2008

Looks like the market moved exactly as I projected this morning (see chart below on prior post). The more it follows my projected path, the more it strengthens my wave count.

Check out the above chart where I just copied my projected path from this morning to an updated chart after today's market action. You can see that the market followed the projected red lines fairly well.

Even though today is options expiration day and big volatility was expected, especially a rally being expected on my part, CNBC.com reports that the rally was due to Obama appointing a new Treasury Secretary. What! So the market rallies 600 points because a new Treasury Secretary has been appointed? What? I hope this is why the market rallied, becuase if so it will quickly be reversed early next week. I think options expiration combined with the market losing 13% of its value in 2 days as the reason for the rally. By rallying like it did today, it relieved a lot of the oversold pressure on the market and it allows the market to fall once again to new lows once this rally is finished. I expect this market to selloff again early next week, perhaps Monday afternoon.

Thrust to New Lows Still Underway; Nov 21, 2008

The thrust down from the triangle is still underway and in full force. Above is a close up of the 15min S&P wave count I'm proposing now. This is my best shot at what's unfolding. The market should continue to chop lower in the upcoming days, but today is option expiration day and sometimes it throws a wrench in the Elliott Wave count. But regardless of today's action, the market is headed lower.

Yesterday was a huge day for the bears as they broke through various key support levels that have been in place for years, and then closed below them. This action is very bearish, especially if they close below them again today.

Look for the selling to continue to the 600-650 level in the S&P with the possibility of a few short lived but fierce snap back rallies.

Thrust From Triangle Underway; Nov 20, 2008

Yesterday's heavy selling pressure and NYSE downside volume at 98% and decliners outpacing advancers by 15-1 tells me that the ending diagonal scenario is a low probability. Ending diagonals are a structure based on a weakening of trend. So I would expect 60%-70% down days with a 2.5-1 decline/advance ratio. Yesterday's strong downside move tells me that we are thrusting from a triangle, or in a 3rd wave decline.

Above is a chart of the triangle scenario which is most likely occurring. My initial S&P target is around the 700 area. Any rallies should be used as opportunities to short or re-short.

Also note that thrusts from triangles are strong and fast, but they are also quickly reversed completely. So what I'm doing is buying call options on the way down to protect myself from getting caught off guard on that big reversal as well trying to profit from it as well.

Ending Diagonal Gaining Strength; Nov. 17, 2008

I expected market destruction today as my primary wave count has us thrusting from a 4th wave triangle to new lows. Selling should be fast and fierce, but today we had the bulls in control most of the day except for the first hour and last 30 minutes. 81% of NYSE volume was down on the day which is very weak, but not as weak as I'd expect. This should be a 3rd wave of a 5th wave thrust, so breadth should be closer 90% down. The action today elevates the possibility of an ending diagonal unfolding right now. We should know if this is possible by the end of tomorrow, or Wednesday. If the ending diagonal is unfolding then we should be in a significant rally phase the rest of the week possibly taking the S&P close to the 1000 area. Once that rally endes, it will rollover again to a slight new low around 800 or just below it before it undergoes a fierce multi-month rally.

Due to the choppiness and uncertainty, I have protection for my positions. I'm currently in SDS which is an ETF that double shorts the S&P 500, and I also bought January call options on the SPY which is an ETF that's single long the S&P. Any significant rallying in the S&P will allow me to close my call options at a nice profit, just as any serious declines will allow me to close short positions. I'm employing this strategy because it seems that the only options I see for the market are that a sharp rally and quick reversal will happen, or a sharp decline and quick reversal will happen. So why not position yourself to profit from both direction moves while protecting yourself at the same time?

The bottom line is that if the ending diagonal is unfolding then the market should rally significantly very soon, probably tomorrow. And ultimately the market will only make slight new lows on the year. But if the market keeps selling off then we are thrusting from a triangle and the S&P should get to at least 700 by next week!

About to Break Through Lows on Year with Ease; Nov. 17, 2008

New lows are the year are about to be acheived. Wave structure and overly complacent bullish optimism that a bottom is in all over TV confirms this. My target for the S&P is the 700-750 area. If my count is right, we are thrusting down from a triangle which means the market should fall in a hurry, most likely all week. Once it bottoms it will be quickly reversed and a large rally will ensue, so the bears should use caution if overexposed without any protection.

Sept. 14, 2008; Technicals Point to Bad Lehman Outcome

The technicals are setup for a huge selloff to commence early this week. All major indices are showing a bearish divergence on the MACD, RSI and stochastics (see 30min S&P chart above). The rally late last week was very choppy, overlapping waves, hard faught, and momentum was falling during the whole time. This tells us it's only a correction, and new lows will be acheived. Plus, regardless of the gains the market made, the VIX rose steadily. The VIX usually drops when the market rises, but this time it rose, which shows the amount of fear in the market despite the rallying. This all suggests a big fall coming, and it lines up perfectly for a handful of wave 3's at various degrees that the current wave count suggests. So perhaps all next week will be triple digit losses every day!

The big news over the weekend is what will happen to Lehman Bros. I can't imagine the government letting them fail and get liquidated, however the wave structure of the market and the underlying technicals point towards that being the case. Regardless of the fate of Lehman, the evidence strongly points to heavy selling this upcoming week.

Hang on to your shorts this week, it should be very messy. I remain heavily short all three major indices (Nasdaq 100, Dow and S&P 500).

Sept. 12, 2008; Markets on Hold 'til Monday

Last night news came out that Lehman Bros. is trying to get itself sold to another bank and it's rumored that the government will once again use taxpayers' hard earned dollars to bail out billionaires like they did with Bear Stearns, Fannie Mae, and Freddie Mac. The decision is likely to come Sunday which sets Monday up for a wild day in the markets. So today, people are just speculating on what will transpire over the weekend and are positioning themselves for that news on Sunday. So I don't expect much of anything from the markets today.

What I do notice today is that after today's choppy upward action, it illustrates that this rally is clearly corrective. The structure of the rally looks like it's weakening and its final stages that will give way at any moment, or will have on more quick "pop-rally" before rolling over to new lows. On the updated 15min S&P chart above, it shows a WXY combination correction. As you can see, the upward movement is very choppy with overlapping waves. It is not impulsive, so it is against the larger trend. This is a sign that the market is struggling very hard to make gains. Again, this tells us the rally is a countertrend move. Eventually, it will give way to the next leg lower. But it probably won't happen until next week.

I continue to patiently wait...

Sept. 11, 2008; Corrective Rally Ending

The market rallied after completing five waves down just like I stated earlier this morning (see previous post below). The corrective rally has satisfied all the requirements to be complete, so the next wave of heavy selling can commence at any time. Most likely tomorrow. Today's huge surge the last 30 minutes into the close was done with momentum indicators barely moving up at all, and a strong bearish divergence is building on the smaller time frames which should build into the larger time frames if the rally continues tomorrow. Also, the Dow rallied almost 200 points, but NYSE up volume was only 64.6%; decliners actually exceeded advancers so despite the market rallying almost 200 points there were more declining stocks than advancing stocks; and the NYSE was up only 0.68% today. This is not a strong rally internally. So again, rallies are accompanied by a weak demand to buy stocks, while selloffs are accompanied by a strong demand to sell stocks. When you combine this with the constant 5 wave declines I'm seeing, it tells us the larger trend is still down. And the building pressure of this choppy market should lead to explosion to the downside.

The key level is the top of the 5 wave rally in the S&P at 1274. As long as that remains intact, the proposed wave 3 of (3) down is underway. A break of that level will lead to a re-examination as to what exactly is transpiring. My guess is that the rally is over and tomorrow will be a big big down day. We'll see.

The chart above is the updated version of the S&P 15min timeframe that I posted in the prior post that shows the corrective rally complete and the next wave of heavy selling about to take place.

Sept. 11, 2008; More 5 Wave Declines at Various Degrees

The 15 minute chart above shows the S&P which probably completed a nice 5 wave decline this morning at the open. With 5 waves down complete, a rally should ensue before the next round of selling commences. Again, yesterday's pathetic rally was done on pathetic NYSE breadth, and the last hour of trading saw all the markets fall off a cliff. Today's early morning selloff was accompanied by NYSE declining volume at about 80% and 4.5 decliners per 1 advancer. Again, the trend of strong moves down and weak moves up continues. And now 5 wave declines are unfolding. The evidence is becoming overwhelming that wave 3 of (3) down is underway and should take off at least 2500 Dow points from the 11,800 high.

Wave 3 of (3) is Underway; Sept. 9, 2008

Today's reversal where the Nasdaq and S&P took back all of yesterday's gains and then some, and the Dow lost almost all of yesterday's gains, gives a strong signal that the big daddy decline is underway. Plus, last week's 350 point down day was accompanied by NYSE breadth that was extremely weak, signaling that the decline was very strong. However, yesterday's breadth was not strong at all, with only about 55% of NYSE volume going to the upside and less than 2 advancers per decliner. That's pretty pathetic for a 300 point rally. Plus, the Nasdaq 100 actually traded down yesterday. Then, today's reversal brought about weak breadth similar to last week's big decline with NYSE's declining volume at 88% and an astounding 7.09 declining stocks for every 1 advancing stock! This tells us the larger trend is down, and that trend is very strong.

On a simpler technical note, today's reversal of yesterday's big gains created a huge bearish engulfing candlestick (see chart above) on the daily chart, which is extremely bearish for the short term (next week or so).

The bottom line, with wave 3 of (3) underway, the market should be relentless in selling pressure over the next few weeks, and the S&P should get into the 900s soon!

September 8, 2008; Wave 3 of (3) is Underway

I took some time off from posting to tend to a personal matter.

Wave 3 of (3) is underway. The S&P and Dow are not tracing out 5 wave declines, but the Nasdaqs are. After the blue chips tested the daily trendline several times, both on top and underneath, the market finally gave way to a 350 point Dow down day. This was done with over 90% of NYSE volume being to the downside and over 5 decliners to advancers. Now that's a broad market selloff and characteristic of a wave 3. I'm looking at the Nasdaq Composit and Nasdaq 100 for guidance of the overall market, and both are showing tremendous weakness. Today's countertrend bear market rally is temporary and should soon give way to the next wave of heavy selling with a couple days.

August 22, 2008; Trendline Being Tested

The trendline that was crucial to calling wave 3 of (3) being underway when it was broken is now being retested from underneath today (see chart above, red circle shows today's action bumping up against the trendline). The market definitely is aware of this trendline as it held the market up for weeks and now today it's finding a lot of fierce resistance right at the underside of it. Oftentimes when a significant trendline is broken, it's retested from the opposite side before it continues with the trend. However, if the Dow and S&P close above the trendline, it will negate the bearish wave 3 of (3) call that was initiated when the trendline was broken. This would negate the wave 3 of (3) in the short term, and we'll simply have to wait longer for another signal that it is in fact underway.

The Dow's trendline is around 11,610 today and the S&P's is around 1300. If both indices close above these levels today, it will cancel the immediate wave 3 of (3) down scenario and conclude me to think the initial break early this week was just a "false breakout".

August 22, 2008; Today's Rally Waning

Short term momentum indicators are showing bearish divergence and the NYSE has lagged the blue chips' gains significantly all day. Plus, over the past 30 minutes, breadth has also deteriorated drastically. This is all very bearish in the short term for the overall market. A pull back in the Dow to at least 11,550 should occur within the next hour or so. A break of 11,476 would be bearish and might imply that the downtrend will resume, and negate the larger bullish potential of today's rally.

Also, the Nasdaqs' rallies held at their prior 4th waves and are now reversing. Again, this is very encouraging to the larger bearish case because only corrections tend to stall around those levels, and both indices traced out 5 wave declines prior to their rallies.

Let's see if this coming decline can pick up some speed and momentum.

August 22, 2008; Here's Why I'm Holding My Positions

The Nasdaq Composite and Nasdaq 100 show similar patterns that are text book 5 wave impulsive declines with corrections stalling at their prior 4th waves (for now). The Nasdaqs have tended to lead the overall market all year. When they outperform the blue chips, it's bullish and the market is rallying, when they underperform the blue chips, it's bearish and the market falls. Well this is the third day in a row the Nadaqs have lagged the blue chips. Also, they've traced out a 5 wave decline unlike the blue chips. And their rally today is stalling in a typical resistence area of a previous 4th wave (see 15min chart above).

So the bearish structure of the Nasdaqs are keeping me in the game. Once those give way, and the technicals of the overall market look bullish, then I'll close my positions and become neutral until clarity re-enters the picture.

August 22, 2008; Key Levels Broken, Wave 3 of (3) in Question

Well the market had no problem breaking all key levels and looks poised for a 300+ point rally today as breadth is very strong and the technicals show no real sign of letting up. It's clear that the past two days of sideways action in the market and the lack of reaction to oil prices surging yesterday that the market was just looking for an excuse to rally big. They got it today with the Lehman news. 11,700 is the next area of resistance however I'm not sure how significant that is anymore.

It's quite possible wave 2 is still underway and we have another week(s) of rallying before wave 3 of (3) gets underway. The only question is how much more pain is to come before that happens. I'll be following the Nasdaqs for now for guidance. The Nasdaqs traced out nice 5 wave declines from their highs and are underperforming the blue chips. The Nasdaqs also haven't broken any of their key levels. I'll watch them for guidance.

I'm still convinced that even though wave 2 might still be underway that the market will be very hard pressed to sustain any significant rally over a long period of time. The daily charts and breadth have deteriorated significantly during the past rally, and unless some huge discovery hits the markets and reverses that, I don't see a sustained rally. Buying out one private equity firm in Lehman does not solve the problems of job losses, consumer tightening, subprime, the housing crisis, etc. But it does appear in the short term the market wants to use this news to rally for a little longer.