Five Waves Appear to Have Formed From the Top

The S&P blasted right through 1145, and did so with a 5 wave impulsive decline from the highs. Internals are extremely bearish right now as basically only seller are in the market. The bears are in firm control. Obviously, the start of that 5 wave decline at 1174 is key to the short term bearish case. So risk can be placed above there for short term bearish trades in my opinion. With 5 waves down from the high it suggests that the larger trend is now down and that we have AT LEAST another down leg after a relief rally. The S&P's low on the day is 1128, so that also eliminates the bullish count I have been tracking the past couple days as well. So two key levels were broken through in just the first couple hours of trading. So today's decline has been productive for the bears. 1110.88 is the next key level for the bears to obtain, and a break below 1100 would all but confirm that a major down-phase is underway.

Just as a side note, for those interested I placed this morning's CNBC interview with Prechter below.






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 S&P Should Target the 1150 Area, Then Tell us What the Larger Trend is

Daily S&P Cash Index




Yesterday's post laid out two scenarios: one bullish and one bearish. I know, saying the market will go either up or down doesn't really do anybody any good. But at this time we just need to keep both counts in our sights and let the market play out so we can see which one appears more likely to be unfolding. Looking at yesterday's bearish and bullish charts you can see that something like an ending diagonal was occuring in both, and that at least a near term pullback would occur no matter which count proved to be correct.

We see in the above daily chart that the resistance zone I cited yesterday remains well intact. That area is a major congestion area and very important for the bearish case. If that ceiling doesn't contain this current rally, then the short term bearish case is in severe trouble. But so far it's held, and today was a nice impulsive looking reversal that closed on the lows for the day. Something that hasn't happened in a while. So resistance held, and we finally see a solid sign of weakness in the market. On top of that, today's internals were quite flat as the market was flat most of the day. But the late day selloff soon changed that where closing NYSE downside volume was 78% of total volume, and pushing the Dow down over 100 points. So the bears really roared back into the close. Plus, the VIX closed up 4.55%, so there was definitely some fear at the end of today. Not exactly what I'd expect if the "all clear" signals were raised since the Greek bailout. But with that said, the S&P has still rallied at total of 108 points from last week's low, so the bulls do have something to hang their hats on.

S&P 60 min Chart Bearish Count




So let's look at the wave count. Above is the bearish count from yesterday (click here for yesterday's bullish count). Both the bullish and bearish counts remain valid and quite possible. So how do we find out which one is most likely correct? Glad you asked. The fact that there is an apparent ending diagonal that just occurred, it's more likely that the bearish count is underway because it's much more common for such a structure to occur at the end of a wave 'C' than it occurring at the end of a wave '(iii)'. In the bullish count, it's possible the ending diagonal was wave '(v)', instead of wave 'v' of '(iii)' as shown in the chart. But the problem is that wave '(ii)' and wave '(iv)' would not proportionate in time or size at all as wave '(ii)' is much bigger and longer than what wave '(iv)' would be. So I think it's best to label the bullish count wave 'iv' at a smaller degree. If so, it means that it's a wave '(iii)' ending with an ending diagonal. That's fairly rare.

An ending diagonal, or similar structure, is a signal of the market trend exhaustion. It's a sign that the preceding trend is really tired and going to be reversed soon. Because of this, we often see sharp reversals that retrace most of the diagonal pattern quickly, if not much more. So regardless of whether the bullish or bearish count is correct, we should see the S&P get to at least the 1150 area soon. Retail sales data is coming out tomorrow, to which I could care less about, but some people in the market will have a lot of interest in those numbers so we may get some movement in the morning from that data. It may also be important to pay attention to how the market closes tomorrow. If the market closes down fairly big and the VIX spikes higher, this may be very bearish since it shows that people don't want to be long going into the weekend and that they're buying a lot of option put protection. Bulls having a lot of fear going into a weekend is not the sign of a healthy market, rather it's the sign of a market on the brink.

So let me list the following levels that will strengthen the bearish count more and more as each level is taken out:

1) breaking below 1145 in a strong impulsive manner is a good start for the bearish case, but the market still has a lot of work to do to convince me wave (iii) of 3 of [3] or C is underway.

2) breaking below 1129.32 would mean that the bullish count I have labeled right now is invalid since wave '(iv)' would enter the price territory of wave '(i)', which is a big rule breaker in EWP. So this would make the bearish count much more likely.

3) getting to 1110.88 would close that huge monster gap left from Monday's "the world is saved" rally and erase all the Greece bailout gains. That would be very bearish and almost confirm that the market was headed much lower from there.

4) breaking below 1100 would pretty much officially eliminate all of the viable and likely bullish scenarios I can see, so this would confirm that at least last week's lows of 1066 will be broken soon.

In today's late day selloff, it appears that we may have wave 1, 2 and 3 down from today's highs. Let's see if we can get waves 4 and 5 to unfold tomorrow morning. From there we'll watch how the market behaves around 1145, i.e. if the market shoots right through it then that's bearish, but if the market flip flops or reverse around it then it MIGHT be bullish. And lastly, let's watch to see if people are buying or selling with any intensity into the close, and if the VIX is soaring from fear going into the weekend. Hopefully we'll get some good movement tomorrow to give us a better idea of the larger trend going into the weekend. But right now, I feel the bearish count is slightly more likely than the bullish count simply because of the ending diagonal pattern fitting better with a wave 'C' than a wave '(iii)'.


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 at Crossroads and Needs to Perform to the Downside Quickly if Wave [3] or C is Underway

S&P Key Resistance




I don't have much time to get into great detail this afternoon so I spent most my time having the charts do the explaining to me. The strength in the market is not really conducive of a correction at this point. So the bearish outlook I've been talking about lately has decreased in likelihood. Goldman Sachs also made a new high, negated the 5 wave drop I mentioned yesterday. However since the current rally is supposed to be a wave (ii), we can expect similar-type strength to occur. However, I feel it's gotten to a point where it's almost too much to be the characteristic of a correction. Don't get me wrong, there is plenty of evidence to support the wave (ii) scenario, but now there is evidence building quickly for the bullish side as well.

I have to draw a line in the sand so I know when to start abandoning the wave [3] or C outlook for now. 1180-1185 in the S&P cash index has been a prior congestion area as you can see from the above chart. If the market can get solidly above that range and sustain it, then I would be reluctant to maintain aggressively bearish positions at that time. The behavior around that level is key. If the S&P struggles and reverses the 1180-1185 area, then the bearish view is still on track. But if it cuts through it like it wasn't even there and then holds above it for the close or for a few hours, then I will interpret that as the market wants to make new highs on the year and that wave [3] or C is NOT underway at this time.

I feel we're left at crossroads today, with two possibilities that now unfortunately have equal weighting as far as their likelihood. One is bullish and one is bearish (see below). Notice that both counts below suggest an ending diagonal is forming (see ascending triangle on charts). So just because we may get a sharp selloff soon, that doesn't necessarily mean that wave [3] or C is underway again. We still need to be mindful of the bullish scenario that allows for a correction before resuming its uptrend as well. A break below 1140 would drastically reduce the bullish count's odds of occuring, a break below 1130 would be a very strong signal that the bullish interpretation below was unlikely, and a break below 1110 would confirm that the bullish interpretation is not occurring.

BEARISH COUNT





BULLISH COUNT

The Market is Seteup for a Possible Major Decline Soon

Internals Mixed




Above is a screenshot of today's finishing internals. You can see that there were more advancing stocks than declining stocks on the NYSE, yet downside volume well exceeded upside volume; and enough so that the NYSE closed down more than any of the other major indices at -0.50%. So a lot of stocks were up today, but not with much conviction. The conviction was on the sell side with a concentrated amount of stocks. That's bearish. Also notice that the S&P had more decliners than advancers. So after a monster 400 point Dow rally and saving Greece from immenent destruction, the markets could not get any follow through today. After yesterday's rally, it's already out of gas, which makes it more likely that yesterday was more short covering than anything. Just my opinion.


Updated 5min S&P Cash Index Chart




So above is an updated 5min S&P cash chart that I put up a few minutes after placing my full post up yesterday (click here for yesterday's chart). As yesterday's chart shows, it appeared we needed one more up-leg to finish off wave (v) of C before looking for a top. This top I'm looking for may be significant since the ensuing decline would be a wave 3 at various degrees, which means an almost straight line down. So I'm on high alert for a potential top to make sure I maximize the possibilities at this juncture.

Today the market fulfilled the expectation for that one up-leg and then met resistance and reversed at the 1170 level. With it now possible to count 5 waves up complete for wave C right now, the internals turning negative immediately after a 400 point Dow rally and Greece bailout, the reversal late in the day to turn the major indices mixed into the close, and the structure of Goldman Sachs' decline late in the day I talk about below, I think it's possible a major top is in. If correct, the amount of selling pressure will be enormous. If we don't get enormous selling pressure real soon, then most likely at least my short term wave count is wrong and that we'll eventually see higher levels soon. If that proves to be the case, the low 1180s should prove to be a very difficult ceiling for the bulls to break above. So regardless of the short term behavior of the market in the coming days, I expect tough resistance in the 1180-1185 area.



Goldman Sachs Declined in 5 Waves Today







One thing I noticed today was the fact that Goldman Sach declined in a nice 5 wave impulsive structure as you can see above. It doesn't get much better than this as far as EWP wave structure goes. Goldman's top back in April signaled the tops in many indices in the broader market back then (Goldman's April 16th top compared to the Dow and S&P's April 26th top. So even though this is just a 3min chart and not as reliable as a daily chart, perhaps these 3min charts above showing a late 5 wave decline is Goldman again is signaling to us that the broader market is topping too. We'll know soon enough. As long as Goldman stays below 145.50 then I view the overall market as extremely bearish. Above are the two possible counts for the corrective phase following the 5 wave drop and have equal weighting of probabilities in my opinion.

Judging by the non-impulsive looking declines in the major indices, it's possible they will pop up for one more new high while Goldman Sachs does not. In this case, the first scenario on top calling for at least one wave C rally before topping should be the preferred count. Goldman may then rollover while staying under 145.50 and the major indices may do so from new highs. This is very speculative, but the declines so far in the major indices do not look impulsive so it's possible they may have short lived new highs before topping. So watch Goldman Sachs and the 145.50 level tomorrow!


Bigger Picture




With all that said, let's look at the bigger picture so we know what we're focusing on. Wave (ii) should be topping soon, if it hasn't already done so today. The market opened down about 100 Dow points but rallied all morning into almost triple digit positive territory. So the bulls grabbed the reins and took control. However the rally was hard faught and choppy with moderately postive internals. Then later in the day, the bulls ran out of gas and the market rolled over, closing with bearish internals, and the indices started rolling over right after Goldman had already started to roll over mind you (Goldman Sachs appears to be leading the overall market lately). That reversal held into the close and it formed a nice reversal candlestick on the daily charts for the S&P.

So when you take this evidence and combine it the short term analysis I mentioned above, I see a good setup for the bears here to possibly catch a wave (iii) of 3 of [3] or C, which would be an extremely strong and sharp decline, well below the lows established last week. So because of the magnitude and profit potential for the bears at this point, I'm on high alert and am very actively trading right now to try and catch this top and reversal. If a top is in right now, there should be little mistake about it. The market should decline in an extremely sharp and unrelenting manner in the coming days.


Decline Structure Similarity






One note today that may put some doubt in the immediate bearish case. Looking at the above S&P structure on the 3min chart today bothered me. On the one hand we had Goldman Sachs, the market leader lately, declining in a beautiful impulsive manner, and on the other hand the major indices declined in this funky-looking structure. I recognized this pattern and knew I didn't like it. Then I looked back at the daily charts of the S&P and pulled up the last time most elliott wavers, including myself, thought the big wave 3 was underway back in January/February of this year. Notice that the structure of the decline then (see above daily chart blue circle), is very similar to the structure of the decline today on the 3min chart above. In both instances, you get this sharp decline that leads to a large bump and cluster at the bottom. The reason this concerns me is because this may be some type of corrective structure today on the 3min chart since back in January/February we saw the market bottom and rally to new highs after it occurred. Even though this may be true, and the market may make new highs above today's soon, I will still be watching Goldman Sachs closely to see if it also makes a new high or not. Goldman appears to be key right now for short term clarity.


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.

Triple Whammy Fueling Rally; What is the Wave Structure?

The rally today was mildly unexpected, more due to its size than just the fact that it rallied. The S&P easily broke the 4th wave triangle interpretation I laid out last week as it blasted through 1138 first thing this morning. As you can see from the above screenshot of the internals of this market, the move up is very strong, and the bulls are in full control. The internals, sharpness and strength of the rally suggests it's a 3rd or C wave at some degree. I discuss the possibilities below.

I think there are 3 things (triple whammy) at the core of today's action:

1) Greece got a bail out

2) Shorts are covering on the news of Greece

3) The typical Monday fund manager buying spree is in effect again.

So the combination of the 3 above factors has lead to this monster rally today, in my opinion. Let's look at the possible wave counts:


Correction Closeup (chart added late)





Primary Wave Count




This is my primary count because the rally from the lows is quite steep and long, and most other bearish counts put this as a 4th wave. It just seems too big for that. The strength and depth fits more of a wave 2 rally. But there is a slight flaw in this count anyway. If you look at wave 1 and compare it to wave (i), you'll notice that the larger degree wave 1 is much smaller than wave (i), so it doesn't have EWP's "right look". But it's still a possibility, and this may simply be due to the major battle of bulls and bears that occurred to form the top in place which throws the perfect wave count structure off a bit. But it violates no rules, so its still well in play. Regardless, the magnitude of the selling prior to this rally, along with this rally on the heals of a Greece bailout everyone knew would happen, leave me believing that this count is the most likely of the choices we have.


First Alternate Count




The above count is also a possibility but the size of wave (iv) compared to wave (ii) makes this count more unlikely than my primary count. Normally wave 2s are sharp and deep affairs and wave 4s are flat muted affairs. This count suggests the opposite, so it raises a red flag with me. The good thing about this count is that if it's correct, the S&P cash index cannot enter any of the price territory of wave (i) which starts at 1181.70. So a break above 1181.70 invalidates this count; making it easy to trade around.

Second Alternate (bullish)




Lastly, it's possible the market is still in a bull run, and this recent selloff was just an ABC declube as charted above. This suggests new highs on the year soon, but the strength and depth of this ABC decline does suggests that the entire bull run from March 2009 is probably weakening and very near an end anyway.


So there it is, two top bearish counts and one bullish possibility. I do see opportunities for the bears at current levels, and even more opportunities if the market continues higher from here. Risk is also easily defined at the wave (i) low at 1181.70 or 1219.80 for the bears.


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.

Triangle Most Likley Finishing Up, Then Big Thrust Down

Daily S&P Cash Index




So the market ignored the news of a "glitch" yesterday and continued selling today. If it was all or mostly just a technical glitch causing the big selloff midday yesterday, I would expect a nice bounce back today, especially after a good jobs report for the most part. But that's not what happened, and us elliott wavers knew better, and were skeptical of the whole glitch from the beginning since we've been waiting for massive selling in a wave [3] or C. Today the market continued lower, taking back a lot of yesterday's supposed "glitch" territory. Yesterday I wasn't sure about the whole "glitch" scenario being fed to us by the media, but thought that today or Monday would tell us for sure. The fact that we didn't go flat or rally big today and in fact had a triple digit Dow decline most of the day tells me that there was probably no substantial glitch at all yesterday and that in fact, the market wants to go lower to those levels established then. And the wave count I labeled in the second to last chart shows the perfect setup for yesterday's lows to be taken out too.

With that said, just look at the above daily S&P chart. Doesn't it look ugly? If I were a bull, I'd be nervous this weekend.


Russell 2000




Just to add to what I said earlier regarding the supposed "glitch" I wanted to post the Russell 2000 chart as well. You can see that this chart is even more ugly and worrisome to the bulls than the blue chip indices. This index wants to go lower, and fast. This thing isn't messing around at all. And you can see the long candlestick wick left from yesterday's supposed "glitch" movement that has more than half of it reclaimed by the index today. So again, if it was just a glitch and all the big shots believed it, why is the market going back down to those levels that the supposed glitch caused? After seeing today's action, I don't think there was a glitch at all, I just think the market tanked. But that's just my opinion.

One more thing; you may have noticed that the financial news is reporting that the Nasdaq is now officially in "correction territory" because it's declined more than 10% from the highs. The reason they only mention the Nasdaq is because it's the only one of the Dow and S&P that has reached the 10% mark. In fact, the small cap Russell 2000 index has also reached that territory, down about 12% from its highs. The fact that the high risk Nasdaq and small cap indices are leading the market lower is another sign that a large top is probably in since these indices lead on the way up, and lead on the way down.

So, is wave [3] or C underway? It sure looks like it. But in order to have confirmed that today I'd like to have seen the market get down to yesterday's intraday lows. It got somewhat close, but closed way up off of them. I'd say it's highly likely that a significant top is in, but only a break below 1045 and thus solidly breaking the uptrend of higher lows would confirm that wave [3] or C was in fact underway. A meltdown Monday that takes the S&P below today's lows, and especially below Thursday's will create a 5 wave down pattern from the highs, either on a closing basis and/or on an intraday basis. So if that happens Monday then I'd jump the gun a bit and state that it's highly likely wave [3] or C is underway whether or not 1045 is broken or not.


S&P 4th Wave Triangle




Above is an updated chart of my proposed 4th wave triangle I put out midday today. It's possible the triangle has already completed and the wave (v) thrust is now underway. But the choppiness of the decline leads me to believe it might just have been a wave 'd' of the triangle, which means another modest wave 'e' rally to complete the wave (iv) triangle. What this means is that when the wave (iv) triangle is complete, the market will thrust sharply lower beneath Thursday 1066 low. So there's a good opportunity for the bears to get aggressive for a short term move with tightly controlled risk. I'd like to see the wave 'c' high of 1129 remain intact for this particular triangle scenario to remain probable, but ultimately only a break above 1138 would negate this triangle as a 4th wave.


Alternate Wave B Triangle




One more note: even if 1138 is broken, I still think it's possible that wave [3] or C is underway. If 1138 is broken then we can just flip the triangle and make it a 'B' wave of an ABC correction; probably a fairly large wave 2. Now this is less likely since the triangle is getting quite long for wave 'c' and 'd' already, and making it into a wave 'B' triangle would make it even longer. But I just wanted to throw this out there as a less likely alternate count if 1138 is broken in Monday's trading.


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.

Possible 4th Wave Triangle

Just a quick midday note: if you look at my count in yesterday's post you'll see we should be in a wave (iv) today and so far it appears a triangle might be forming as you can see above. If correct, when the triangle completes wave 'e', then it will thrust sharply lower in wave (v) to beneath yesterday's lows of 1066. To keep this triangle count a possibility, 1138 cannot be broken, but preferably the 1129 level will remain intact.


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.

Financial Thunderdome Back on

Quite a crazy day in the markets and there's a lot to go over even though the possibile explanations and theories about today are endless, and all that matters is tomorrow and Monday's price action anyway. Above are hourly charts of the S&P cash index with the candlestick chart charting the complete intraday moves in the market, and the line chart just printing the index on a closing basis to ignore the wild swing in the middle of the day. You can that under both counts we had a big selloff today with it obviously composing some type of wave 3. So "glitch" or not, today's action was very bearish and fits into the current wave count, which I labeled in the simplist and easiest way possible for now. I can easily see wave (iii) extending further down on the line chart tomorrow and/or Monday to complete better looking subdivisions for the wave though. We'll see.

So what the heck happened today? Well the selloff had 2998 stocks on the NYSE close down with only 173 close up. So that's over 17 stocks closing down for every 1 closing up. Volume was also huge at 2.5 billion shares when we've been seeing about just above 1 billion shares traded a day prior. Of that total volume, 95.6% was to the downside. So it was "crazytown thunderdome" on steroids today.


THE "GLITCH"


So the chatter on the financial news is that it was a "maching glitch" or a "fat finger" that made a mistake on a trade which triggered a domino effect across the markets for the 1000 point Dow selloff today. This is possible, but I'm not fully buying into that just yet. Ultimately, tomorrow and Monday will let us know what the market really wants to do: if the market takes back today's losses and rallies higher and higher, then it was probably just a glitch or trading error that caused today's steep selloff. But if the market charges lower and especially if it breaks beneath today's lows, then I highly doubt any error was made at all. I wouldn't doubt if a big fund(s) or bank bailed out of large positions because they see the wave [3] or C coming and the public is being told this "glitch" story to prevent public panic and Congressional and/or SEC scrutiny. But I have no evidence of that, it's only the conspiracy theory part of my brain thinking that. Tomorrow or Monday we should know the answer to this great mystery.

But if you're like me, then tomorrow is an eternity away, and you want to think about what happened and come up with your own conclusion beforehand. So let's logically run through this. The reason I have doubts about a glitch or fat finger causing the ENTIRE problem today is because of the following reasons:

1) The market was already under a lot of pressure from Greece and China and other European drama (PIIGS - Portugal, Italy, Ireland, Greece, Spain) before the selloff. It's not like this happened just out of the blue on a normal trading day.

2) I've heard mixed data in CNBC articles stating originally it was a Proctor and Gamble (PG) trade through Citigroup that caused this, and I've also heard that Citigroup made an error selling S&P futures contracts. But other articles state that Citi cites no trading errors, NYSE cites no errors either, and the volume numbers from Citi don't match up right with the selloff in question. So what's the real story here? And with all the technology and tracking we have today, how is such a huge trade that would cause a 1000 point selloff so hard to track down? It shook the financial world there for a while, don't you think they'd be able to track that down? So why is it all such a mystery even hours after the fact? Very suspicious.

3) It's a little too much of a coincidence that this "glitch" occurs at the same time Greece is in turmoil, China is struggling, Portugal, Italy and Spain are next in the debt monsters crosshairs, and the European Union is imploding? I mean of all times for a "glitch" selloff to occur it occurs now? Possible, but a bit too convenient perhaps.

4) If this was just a glitch then why wasn't it identified by the market and prices bid up to "pre-glitch" levels. Let's not forget the Dow still closed down 350 points, and the futures are still down. If it was a glitch, wouldn't this be a great buying opportunity? But so far, the big shots and smart money aren't participating. Why not? If it's just a clitch and it's now all but confirmed to be, why isn't the market skyrocketing higher?

5) Notice the below charts of some of the currency majors. They too fell with the stock market. Why did they fall with the "glitch", and more importantly, why haven't they fully recovered to pre-glitch levels now that everyone knows it's an error. The currency market should be much more resilient to a glitch than any stock market due to the massive size and liquidity. So what's going on here with currencies?


I'm not an expert on how the minute details of market functioning, so please tell me where I'm wrong on any of the points above. These are merely things that raise doubt in my head as to this whole "glitch" thing we're being told. It may be true, sure, but the markets will give us the answer soon enough. I'm sure Prechter already has his answer. I remain short and cannot confirm that wave [3] or C is underway since the market did recover substantially into the close. However, if we revisit and exceed today's levels in the coming days, and especially if we break 1045 soon, then I'd be comfortable stating that it is highly likely that wave [3] or C is underway and I'd be looking to get aggressively short at that point. So let's see what tomorrow and Monday bring us.

I welcome anyone's thoughts, opinions, criticisms, and data on my post today as well as on today's market action. Thank you!


Why did currencies fall victim to the "glitch" too, and more importantly, why haven't they recovered to pre-glitch levels?









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.

Wow!

Wow, Dow down over 700 and S&P down over 100. I've said in previous posts that 1045 in the S&P was where we'd be able to strongly say that wave [3] or C was underway, but with the intense selling pressure today I'm going to pull that statement and put in a new one: as long as the market stays "heavy" and around current levels without a monster rally into the close, I'd say that it's highly probable that wave [3] or C has already started right now. It may be tough to get short now with a 700 point selloff, but just look at the steep decline from September 19, 2008 to October 10, 2008 and see how many entry opportunities there were; very few. I think over time it's quite possible for there to be good opportunities to enter anyway, but I just wanted to let you all know what I feel about today's selloff and that I've adjusted my entry point to get more aggressively short. So, barring a monster rally into the close, I think it's quite likely that wave [3] or C is currently 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.

Selling Continues, but Getting Choppy

The market continued to sell off early in the morning, then some indices bounced into positive territory before tumbling again into the close. Overall, the decline from the S&P 1220 high is a bit sideways for my liking if the big wave [3] or C is underway. But that can quickly change as the structure unfolds. If wave [3] or C were underway, I would expect more of a sharp downward trajectory instead of all this swaying back and forth we're seeing here. But that's just a "feeling" and therefore almost meaningless when it comes to trading. What is of meaning is what can be illustrated and proven with data. Above you see an hourly S&P cash chart. Since I don't like the nature of the way the index is unfolding to the downside, I wanted to point out what's important; and that's the fact that the 3 declines from the 1220 high have all been composed of 5 waves. So this is elementary EWP telling us the larger trend is still down. Also, the series of lower highs has remained intact. So regardless of whether or not we're in wave [3] or C right now, as long as the market continues to decline in 5 waves and make lower highs, the short term trend is down. The most recent high that should remain intact is the one at 1205.13. Under the current structure here, I see little chance of 1205.13 being exceeded, and still being able to count a larger impulsive decline from the 1220 high as part of wave [3] or C. So a break above 1205.13 would make the chances of wave [3] or C being underway extremely unlikely. As I said yesterday, as of right now only a break below 1045 would confirm that wave [3] or C was underway.

Another thing to note in the short term is the price action today. Yesterday I stated that, "...I expect a drop to at least the 38% fibonacci level and prior congestion area of 1150-1160." The S&P dropped to 1158.15 this morning, right in the range I mentioned yesterday, and then reversed where it wasn't touched again for the rest of the day. This type of behavior when reaching a target range, along with the fact that it is possible to count the most recent decline as five waves complete (see above chart); it leaves the possibility for a larger rally tomorrow, and/or perhaps Friday when the jobs number comes out. A good target range for a short term bounce would be the 1180-1185 area. From there I'd be looking for a top and reversal with a stop level just above 1205.

So there you have it. The market is not declining as sharply as I'd expect from a wave [3] or C, but evidence still supports the bearish view for the short term at least. I won't trade based on "feeling", I'll trade based on what the market tells me. And right now the market is telling me the larger trend is down as long as the S&P stays beneath 1205.13 and it keeps declining in 5 waves. Hopefully the market can continue it's overall up-down sequence and I can continue to trail my stop loss downward. In doing so, it won't matter whether wave [3] or C has started or not because I'll make money on the short term analysis anyway.


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 Fulfilling Yesterday's Forecast; Look for 1150 in the S&P Soon

Well the market finally listened to what I had to say finally, lol. The market sold off sharply today, fulfilling yesterday's forecast for a sharp selloff composing a wave iii of (iii). Internally, the market was extremely bearish with only sellers showing up for today's trading. The NYSE had 6.09 declining stock for every 1 advancing stock, and 93.5% of NYSE volume was to the downside. So the bears woke up from their slumber, crawled out of their caves, and kicked some bull butt today. Normally when such a heavy sell off occurs like this, the market will spend a day or so snapping back from the losses. Probably because everyone who wanted to sell already sold today. So the following day or so might have the market float higher on light volume. We'll see if this holds true tomorrow and the rest of the week. I wouldn't bank on it, and I definitely wouldn't get long here. The mere magnitude and internal composition of the selloff tells me that the bears are now in control as long as 1209, but preferably 1205, remain intact. So any rally that stays below 1205/1209, I'd consider a great opportunity to get short.





So what degree of trend are we in right now? Still too tough to call with any certainty at this point. The above chart assumes that this current slide downward is just an ABC correction. If so, I expect a drop to at least the 38% fibonacci level and prior congestion area of 1150-1160. But we could see the correction decline all the way to around the 1085 level perhaps. Breaking below 1044 will be the breaking point. A break below that level would be an extremely strong indicator that wave [3] or C has begun, and that the big top all the wavers have been waiting for is probably in. One thing I'll be looking for as the days go on here is where the market is moving in 3 and 5 wave moves. In other words, is the market moving down in 5 waves, and up in 3 waves? If the market continues to fall hard with little letup, and declines are composed of 5 wave drops and rallies are in 3 waves, or combinations of 3 waves, then it will add to the larger bearish case the farther it falls and longer it does so. So even though we're far from 1044 being broken, by looking at the EWP structure of the decline, we can still make good short trades and control risk. Only a rally in 5 waves on strong volume and internals would make me cautious.






The above charts show the Nasdaq 100 with two different basic technical analysis views. The first chart shows a head and shoulders top I originally pointed out last Wednesday (click here for original post). This is of course a classic topping formation and clued us into this top and reversal a day or so before it really started getting underway.

The second chart illustrates the battle between the bulls and the bears. Notice that the bulls kept charging higher quite strongly but was met with fierce bear resistance every time around the 2050 area. The bullish push was persistant as it kept rallying on every selloff, but the bears had seen enough and met the buying with even more selling. This is evident by the later established series of lower highs and lower lows we're currently in right now. This illustrates that the bears were starting to gain the upper hand on the bulls, and that the market's uptrend was ending and rolling over. Then, like we saw today, the bears wore out the bulls and finally took control of this market and gave us a nice big selloff today as the bulls retreated in full. So this is typical topping process behavior. The bulls keep trying to push the market trend further and further but the selling pressures eventually prevent it from doing so until eventually the bulls give up. Today they gave up. The only question now is when they'll regroup and return again.

Tomorrow will be very telling. In the past few months we'd get these big selloffs like we did today, only to see them reversed and new highs made in the following days. So if we can get some good continuation through to the 1150 level and test the 1100 level in the coming days, it would be very encouraging for the long term bearish case, and inch us closer toward possibly being in wave [3] or C. So the action the rest of the week will be very important.


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 Enter wave iii of (iii) Down on Tuesday

S&P CASH INDEX




Well the market took us on another wild ride with a sharp rally right out of the gate this morning carried into the late morning into a another surge higher, then maintained those gains all day. Not a surprise for a Monday, as most Mondays over the past several months have brought us strong rallies. Also, with the end and beginning of month jossling around it's also no surprise we've been quite volatile the past few days.

The above 15min chart of the S&P cash index shows that today fits well with the bearish wave count posted last week. Today's surge was a 3 wave move of wave ii. Today's late day rolling over is the start of wave iii of (iii). We've been in this position before. This is an easy tradable structure because we know that if a wave iii of (iii) is about to unfold then we should have heavy and aggressive selling soon; like tomorrow. If the market floats around for a while, or especially if it breaks above wave (ii) at 1209 then we know something is probably wrong with this count and the bears should be real cautious.

So right now I'm looking for heavy selling tomorrow to fit into the current wave count above as long as 1209 remains intact. A break above 1209 doesn't necessarily negate the immediate bearish outlook, but it would certainly make it much weaker.


NASDAQ 100




The above Nasdaq 100 chart shows that the bears are trying to gain control of this index. Each push higher to the 2050 level has resulted in sharp selloffs composed of 5 wave declines. So the bears are waking up here and the bulls may be running out of gas. Last week's close in the Nasdaqs set up a bearish picture anyway, as I stated in Saturday's post. So the bearish setup is in place. Although right now I feel the larger trend has turned down anyway, a close beneath 1988 would all but confirm that a substantial decline was underway.


NASDAQ 100 TRIANGLE




There is one less likely alternate count that shows a bullish picture according to the Nasdaq 100. And this may be especially important since the NDX is what clued us in to the head and shoulders structure last week. It's possible that a 4th wave triangle is unfolding right now which should give us one more decline for wave 'e', which is usually done due to some news event, then a sharp upward thrust for wave 5 to new highs on the year. One of the main reasons this triangle is unlikely is because triangles are composed of 3 wave movements, both up and down, and this proposed triangle has mostly 5 wave moves within it. Therefore it's a less likely scenario than the bearish one I mentioned earlier, but is still something to watch. A break below 1988 in the NDX would negate this alternate bullish count.


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 Has Topped; But at What Degree?

The market failed to complete a 5 wave rise from mid-week's lows and instead actually declined in 5 waves Friday. This behavior, along with it breaking below my key level of 1193 make me conclude that the trend is now down in the stock market. As you may recall, earlier this week I had a "flat" correction labeled with the first 5 wave decline (wave (i) or A) being wave C. This is because prior to that there is a 3 wave rise to a new high. A 3 wave rise to a new high and then decline in 5 waves is indicative of a flat correction. However I did label a very far fetched, yet plausible, alternate count for the 3 wave rise which would have it forming a major top (click here for chart from last Tuesday, or click here for full post from that day). As ugly and unlikely as this count seemed, it may hold true since we now have 2 impulsive declines sandwiching a non-impulsive rally. This is bearish. The million dollar question is, "at what degree is this top?" Too tough to tell at this point, but I did say a few times a couple weeks ago that I did feel that too many elliott wavers and analysts were calling for this monster crash that Prechter has been leading the charge for. And that the sell off of the century most likely wouldn't occur right when everyone expected it, right on time, and right on track with the short term wave count. I said it will do something to fool us, or have us give up. Well I know for a fact at this point a lot of extremely bearish people have given up on this most recent rally, and that the 3 wave rise to a new high and now two 5 wave declines is not textbook EWP at all. Could this be what I was saying about "fooling us"? We'll see. What does seem more certain though is that we have much lower levels to obtain before a bottom might be in place. If this is not the big wave [3] or C, then it's at least a moderately large A-B-C decline, which would have us finishing up wave i of C right now. If so, wave C should carry down to around 1155-1170, an area of prior congestion. If the market relentlessly continues to sell off right through this target area, and rallies continue to unfold in 3 wave moves, I'll then look to set targets that will help us determine if the current decline is in fact the big wave [3] or C.


NASDAQ 100 HEAD AND SHOULDERS




The Nasdaq 100 continues to fulfill the then speculative head and shoulders top I projected on Wednesday (click here for Wednesday's chart, or click here for that day's entire post). In addition to this, both of the Nasdaqs had their lowest daily close since April 12th, suggesting that the uptrend has halted, and the bears are now in control. The evidence is strong that continued selling throughout the overall market should resume in the coming days, if not weeks. The degree of that downtrend will be determined once the structure unfolds.


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 Surges Higher, Degree of Trend Now Key

The market surged strongly higher right out of the gate this morning and continued the rest of the day in what appears to be a wave iii. Tomorrow it's likely to get some pullback or sideways action for wave iv which will eventually give way to another surge above today's highs in wave v. What's of importance here is at what degree of trend is this 5 wave rally? Is this 5 wave rally going to complete the larger wave 5 and end the rally that started early February? Or is the 5 wave rally just a wave 1 that still needs waves 2-3-4-5 to complete wave 5? I don't know yet. What will give us some clue though is whether or not wave v ends above this year's highs in the major indices. If wave v makes it above this years highs, then it's quite possible that will complete wave 5 and create a major top and reversal. If it doesn't make new highs on the year, then it's probably just a wave 1 within wave 5, and wave 5 has quite a bit further to go. Today's rally was quite strong with almost 80% NYSE volume to the upside, so we should have further to go on the upside regardless.

So again, the key to when a top should register is finding out what degree of trend we're in right now. If wave v rallies to new highs on the year, then it may mean wave 5 is complete and a large reversal will occur. If wave v does not make a new high on the year, then it's possible the 5 wave rally from yesterday's lows in the Dow (Tuesday in the S&P) is just a wave 1 within a larger wave 5 which means much more rallying in the coming weeks.






Above at the top is the Nasdaq 100 chart again, showing the possible head and shoulders top forming. Interesting that yesterday I said that the right shoulder could carry to the 2040 level before topping and reversing and that's right about where it halted at today (see yesterday's chart here). So if we get a sharp sell off tomorrow with an impulsive structure then I'll be putting this head and shoulders pattern on the forefront of my analysis, and view the alternate bearish S&P count just above as my primary count. A break below 1193 in the S&P cash index would be a strong sign that a top was in and these two bearish charts above are correct.

So the bearish counts are a close second place as far as determining the liklihood of structure unfolding now. If the NDX's head and shoulders pattern holds, and the S&P declines beneath 1193, I'd say that a larger top had already registered and that a big and lengthy selloff 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.

Flat Correction Complete, the Market Should Move Higher

S&P Cash Daily




The flat correction discussed yesterday appears to be on track. Today the Dow made a slight new low while the S&P did not. So aside from a very small and minor bullish divergence between the two indices, the Dow's rally from its low appears more impulsive than the S&P.


Today's Bottom and Rally in the Dow




Here is a close up of the Dow's potential five wave rally today. It's far from convincing, I know. The S&P does not follow this structure because its low was put in yesterday, and the rise from that low is in 3 waves. So there's some conflicting behavior here between the two indices in the very short term. But the evidence does support a move higher to new highs on the year because the recent rally to new highs that I labeled wave 'b' in the first chart, is a 3 wave advance. A 3 wave move is corrective, and since it made a new high it probably means it's part of a flat correction. Since we did have a bounce all day today, a new low beneath today's would make the wave 'c' of the flat correction quite ugly, and therefore less likely. So a break of today's lows in the Dow at 10,965 and yesterday's S&P lows at 1181.62 would put the flat corrective scenario in doubt. If BOTH those lows are broken then I would become short term neutral; but as of right now, I'm short term bullish for one final wave 5 push before a larger and longer decline occurs.


Nasdaq 100 Possible Head and Shoulders Top Forming??




Above is a 30min chart of the Nasdaq 100 showing what might be a head and shoulders top forming. This is very speculative since there's really no evidence of the right shoulder being printed, let alone having a right shoulder topping. But it's something to look for. It's possible the S&P and/or Dow will make slight new highs and the NDX will fail to do so, creating the projected right shoulder and creating a bearish divergence between indices. So if the lows in the Dow and S&P mentioned above are not broken, and the rally continues the rest of this week, watching the Nasdaq 100's structure compared to the other indices will be interesting. We may be able to look at the 2040 area of the NDX as a possible topping point for this index since that marks the topping area of the left shoulder, and perhaps the entire market will be topping when it reaches that level too. Just a thought, and something to watch.


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.