We've Seen this Structure Before

I need to come up with a name for this structure since I've seen it so many times. It's a sharp drop followed by a little or no rally, then just a choppy grind lower. This usually leads to a very sharp rally and eventually to new highs. It's a corrective structure. Although this outlook will be negated if we instead get a sharp drop lower again. But as long as that choppy grinding mess lower exists, beware of a sharp snap back rally.


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.

Strong Selloff on Options Expiration Day

The economic data continues to reverse and disappoint with consumer sentiment dropping much more than expected, and banks are selling off after earnings reports as many investors are concerned about the amount of loan availability in the economy and the fact that a lot of earnings was generated through tapping into reserves. The internals of the selloff this morning are very bearish with only 10 stocks in the S&P trading up, and 94.5% of volume on the NYSE on the sell side. Volume is big but it's options expiration day so we can't read too much into that.




As for the wave count, from an objective viewpoint, looking at the short term here it definitely looks like a corrective setback from the highs of the week. The waves are very choppy and composed of 3 wave moves. So I'm still expecting this to be an X wave of a triple combination. That means one more 3 wave rise for wave Z and then wave (ii) will be complete.



The very bearish internals, failure of the S&P at the 1100 level, the break-away gap this morning, and the sharp nature of today's decline after yesterday's big rally into the close has me looking at an immediate bearish option. I looked at the Nasdaqs and other indices and it's really tough to get a good 5 wave decline from the high that I'm confident in. And I'm already trying to shove a square peg into a round hole with the above count, but I do want to be aware that wave (iii) MIGHT have started today.

Going around the EWP forums and blogs it's obvious that everyone is on the lookout for the next be wave 3 down, so I know that it's likely the market will again do something to fool us at the highs to keep the elliott waver masses hesitant. Perhaps this current structure is it. The fact that the market subdivided in 3 waves from the high and then failed to make a new high in a sharp spike that was completely reversed the next day perhaps is the market's way of "fooling" us. If so, wave (ii) completed yesterday with a "truncated 5th wave" (failed 5th wave). This means that wave (iii) is underway now and should be composed of extremely heavy selling to well below 1000 in the S&P before bottoming. If this is the case, then we should have little patience for the market to flip flop around sideways or undergo long time consuming deep rallies; in my opinion. The market should be headed very firmly down if this count is to take precedence. Otherwise, I'm counting today's decline as part of an X wave with new highs still to come.

Also, I mentioned a week or so ago that the precious metals uptrend appeared broken. Well today silver has sold off sharply again today, and all while the euro has been surging higher. Also the USD/JPY (US dollar vs. the Japanese yen) has sold off sharply as well. This suggests that risk aversion is coming back to the markets. And that doesn't bode well for equities going into next week.


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 Corrected Today; But Far too Brief to Alleviate the Severe Overbought Condition Achieved From the July 1st Low

So the S&P broke below the 1090 level with ease this morning, suggesting that at least a correction was underway and that the short side should be played. But just as quick and easily as that level was broken, it was regained in the last 30 minutes of trading. The decline was far to quick and shallow for the market to fully correct the rally from the July 1st low and alleviate the severe overbought condition left on many intraday indicators.

The wild swings today may be chalked up to light summer volumes, several economic indicators that came out this morning, earnings reports hitting the wires, BP capping their oil leak, Goldman Sachs getting their SEC decision announced, and options expiration tomorrow. But the damage to the likelihood of the top bearish count continues to be done. The rally from the July 1st low looks very impulsive, and is extremely deep for a 2nd wave that's supposed to be within a 3rd wave. I would expect to see more of a sharp quick less deep rally for a correction within such a large wave 3. It's not required to have those features, but it is often the case that it does have them. Although it doesn't violate any EWP rules, the likelihood of this count remaining on track has decreased in the last few days.

A big reversal signal tomorrow or early next week while staying below 1131.23 will re-ignite the probability of this count. A spike to the 1105 area and reversal would be a good start.




Since the top count's probability has been weakened this week I wanted to look at other possible counts. Above shows us in a large flat correction for wave 2. I never really liked this count because wave 1 is far from perfect and adding a far from perfect corrective count just makes it less likely overall, plus wave b of 2 should be a 3 wave move and it's more like an impulse move, and the whole correction would be very large and time consuming. With that said, it's still a possibility since it doesn't violate any EWP rules so I want to keep an eye on it. It would also explain the sharp impulsive nature of the rally since the July 1st lows since that rally would fit nicely into this count as a wave C of 2. If this count is correct, it means we'll most likely get a quick shot to just above 1131.23 before topping and rolling over in a big wave 3.

Remember, tomorrow is options expiration day and when combined with light summer volume it could get kind of wild.


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.

Morning Update

The internals today are quite week, but not alarmingly so. On the NYSE, 73% of stocks are trading down and 81% of volume is to the downside. On the S&P, only 75 stocks are trading higher. So the internals are weak, but not so much to fully support wave 3 at various degrees.....YET. It's still early and there's plenty of time to get some momentum behind this decline and accelerate it lower.




The S&P had no problem taking out the 1090 area I cited yesterday so at least a short term correction of the July 1st rally is underway in my opinion. For the larger bearish count to be in play here (wave (iii) of 3 of [3] or C), I'd like to see this trend of lower highs continue until we can count a nice completed 5 wave impulsive decline. Right now, 1090 should act as resistance, but the 1095 area should hold, otherwise it would signal that this decline was just a correction and that eventually we'll see new highs in the coming days.

More later...


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.

A Top and Reversal Coming Very Soon; Will it be Wave (iii) of 3 of [3] or C, or Just a Minor Correction?

INTERNALS




The market had trouble continuing its monster rally from the July 1st lows. The extreme overbought condition the market is in right now on the intraday charts has finally caught up with it. Although the market closed mixed across the board of various indices, the NYSE internals were slightly negative. So the amount of stocks pulling the market up is decreasing. Two days ago we had a similar scenario where at the end of a long push higher for days, the market closed very mixed with negative internals. The following day (Tuesday), the market surged higher with very strong internals. I don't feel this time we will see that again. For one, it's too obvious; and second, this time it is occurring after only one day of fierce rallying vs. several days of rallying for the last time. The current market rally is nearing its end, but that's not really what the big debate should be about. The market is overbought right now in the short term so a pullback is coming, that's a given. The real question is "at what degree of trend is this top going to be." Is this just a correction for a 5 wave impulsive rally from the July 1st lows as I proposed in this morning's post? Or is it the wave (ii) top we've been looking for?


S&P WAVE COUNT





Above shows my top S&P wave count. The wave (ii) rally is much too steep and impulsive-looking for my liking, but wave 2s do tend to be quite sharp and deep and with light summer volumes hitting the markets now, perhaps this rally is just exaggerated. We'll see soon enough. The late day surge today tells me the market might not be quite ready to give up on this rally quite yet, and that we might see a push to the 78% retracement level around 1105. That's awfully close to the 1131.23 critical level for the bears so I'd be aggressively shorting in this area since my risk (stop losses) would be fairly close by. I'm already 75% short of what I want to be for my short term positioning. A break above 1100 will get me thinking about adding more. A nice pop rally and reversal around the 1100-1105 level would be a good sign that the bears have come back in the market to take control.


MOMENTUM INDICATORS






The top chart shows how much the daily RSI had come out of oversold territory to where it is now at current levels. The RSI has made a new high above where it was at during the wave 2 high. Some may say that's because the RSI is showing that it's leading the market higher and will get price to above the wave 2 high as well. I disagree mainly because on the intraday timeframes momentum is severely waning with bearish divergences on numerous indicators. Plus, with a wave (iii) of 3 of [3] or C perhaps gearing up here, it would need to get as high as it could to shoot down as far and fast as it's going to in order to support a decline of that power and magnitude.

The bottom chart simply shows the stochastics, another momentum indicator. Although this is a much less reliable indicator than the RSI, I still wanted to show it because it's currently at the same level it was at the wave 2 top, and you can see that they are starting to "pinch" for a cross downward with plenty of room to run on the downside. I could go on and on with these momentum indicators showing topping behavior, but I think you get the point.


MINOR SUPPORT SHELF AT 1090




In the short term, I want to know what needs to occur for me to gain confidence that a top, whether short term or long term, has formed. Looking at the 3 day chart above, I see a minor support shelf at 1090 that seems to be important at the moment. If the market can break through this level convincingly and impulsively, then I think it can be safe to say that a top is in. Once the decline gets underway we should know fairly soon if we should favor the bullish or bearish count. Right now my money is still on the bearish count since 1131.23 has not been broken and the market is severely overbought intraday to where I'd still make money on even a short term pullback.


THE EURO




I mentioned the other day how I thought the euro had topped. I was wrong obviously as a new high was made. But there was little sustained follow through today, and the intraday RSI is showing a bearish divergence for quite some time as you can see above. The rally from wave 3 low is also a clear 3 wave move which is a correction. And when you take into account that the stock market appears to be topping at some degree, it would also make sense that the euro may be topping as well. The fact that there are about 800 pips to go to make a new low for wave 5 in the euro, it would be wise to look for shorting opportunities in the euro, or long opportunities in the US dollar, 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.

Market Severely Overbought; Structure and Strength of Decline Important for Determining the Larger trend

Just a quick note. It appears the market's severe overbought condition has gotten the best of it, for now anyway. With 1131 still intact it leaves the larger term bearish case still very much possible. However a lot of damage has already been done, so the bears have a lot of work to do. The biggest piece of damage in my view is the impulsive-looking rally from the July 1st lows. This is quite a large, long, sharp and deep correction for what should be a wave 3 of [3] or C. Not really characteristic in my view. But the bears can still erase this bullish look with a strong and sharp impulsive decline of their own here. The structure, strength and volume on the decline will help us determine if this setback is wave (iii) of 3 of [3] or C, or if it's just correcting a 5 wave rally that started July 1st.

More later...

Rally is Strong

Well the fracturing of the various indices and low volume yesterday was just another pause and recharge before the next leg up in stocks. Today the market surged up with a gap at the open. I was hoping that it would soon reverse and mark a nice spike and reversal which may mark a top for wave (ii). But the market has held up nicely all day, is now pushing higher towards the close (for now), and the internals of the market are very strong although volume still remains a bit light. So the bears appear to be back in their caves sleeping for the summer with a few bulls running around doing what they please.

I'm not fighting the bulls in light summer trading, and if we're in large wave 3s at two degrees of trend, then the market needs to prove it. And it certainly isn't doing it SO FAR. If the market can reverse and decline heavy tomorrow, and preferably reverse with a gap down to create an island reversal pattern, then the bears may still have a chance. But the market needs to move lower quickly to support the proposed wave count. As it stands right now, the entire rally the past two weeks can count as a 5 wave move, suggesting that the larger trend has turned up. So the bulls have certainly gained the advantage here, and the new surge of strong internals gives them the momentum to keep pushing higher in the short/medium term.

The bears definitely have work to do. The close today, and the follow-up action tomorrow will tell us a lot.


UPDATED INTERNALS AFTER THE CLOSE




So the market closed very strong with volume that kissed the 13 day moving average on the NYSE. I see no bearish signs in the market right now, and the bulls definitely gained the upper hand today. That can easily completely reverse tomorrow, but it's gonna have to if the bears want a chance still. I'll discuss tomorrow or Thursday the impact and moves going forward if the rally continues higher and makes it evident that the big wave 3 again remains ellusive.


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.

First Signs of Weakness Present; Now Need the Actual Rollover

The market is working hard to make any upward progress now, suggesting that the buying euphoria, or should I say the short covering euphoria, is almost over. The S&P has stalled hard right in the center of my reversal zone I mentioned early last week. The MACD has now crossed down on the hourly chart, and the daily RSI is in good territory to support another big down leg in the market. But we have no rollover or decline yet, so the market can easily shoot or grind higher from here. I can see a big shot higher tomorrow followed by a big reversal. That may be the shot the bears need to finally suck in the last of the bulls in the market before smacking them down with great bear force and numbers. We'll see. Any further rallying that gets into the 1185-1190 area would have me adding to my short positions with a stop just above 1131.23.








Although it appears we could easily get a sharp shot higher that will lead to a quick reversal, the divergence between the Dow and the other major indices left today is worth noting. Although it's by a very small margin, the Dow has made a new high today while the S&P and Nasdaq 100 has not. Now this divergence dwarfs in comparison to the big bullish divergence I pointed out July 2nd (click here) which led to the recent monster rally of wave '(ii)' we're currently in, but it's still a divergence and it's especially worth noting because Dow component Alcoa announced good earnings data tongiht which has the stock up over 3% after hours and might lead to the Dow rallying to new highs again tomorrow. This may further stretch the S&P and NDX's divergence from the Dow if they don't make new highs themselves. So I'll be watching that closely as a possible sign of an imminent top in the overall market.





So as I've said the past week, despite the market closing higher everyday, the internals continue to weaken every day as well. This is consistent with a correction. And although this can all be eliminated with a big up day tomorrow on strong internals, right now the data supports the recent move higher being a correction. Today the trend continued as the major indices squeaked out minor gains while internals actually turned negative as you can see above. Also, volume was well below the 13 day moving average at less than 1 billion shares on the NYSE. And the NYSE closed down today while the Dow closed up. This sometimes results in a sharp selloff the next day. So the market's rally has weakened severely, and the wave count, momentum and retracement indicators are ripe for a top and reversal at any moment. The market appears to be gearing up for a sharp move, and the current evidence suggests that move is to the downside. But just in case that move is to the upside, I hold that 1131.23 is the key level the bears need to hold.





Lastly I wanted to show the fractured nature of the market at what might be near topping levels. I interpret this sign after a sharp move in the preceding days as an exhaustion of that move. But last time all these indices were this mixed on light volume we had a monster rally the following day. Nothing is perfect, but I did want to point out the mixed nature of the overall market at this point in the rally. A big move appears imminent in the near future.


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 Getting Ready to Fall, but May Work a Bit Higher First

The market appears to be undergoing a series of small 4th and 5th waves since the last few trading days have been composed of flat traded, followed by sharp rally thrusts at the end of the day. The trajectory of the rallies are flattening as well, suggesting a mild tiring of the uptrend. I see no signs of a top though so I have to assume higher levels in the short term. The market is well into my "reversal zone" and has filled the chart gap I've been pointing out. So the market is certainly free to fall hard at any moment, but I don't see that happening quite yet. I expect a push toward the upper end of the reversal zone around 1084 at the least. From there I'd expect to see even more weakening of the uptrend and possibly the finishing touches on wave (ii). The internals gradually decreased all week during this big rally but they still were quite strong overall regardless. But more importantly, NYSE volume fell off substantially as the week wore on and the market surged. So even though the internals were strong, they were still weakening mildly as the rally worked higher and overall volume continued to shrink. So this rally certainly looks corrective so far.



Over a week ago when I was warning of a bottom and reversal I pointed out that the daily RSI was in the same area that has marked bottoms in the market the past few times. The market was oversold in many indicators, but the daily RSI is the most reliable one to follow in my opinion. Notice now that last week's rally has significantly alleviated the RSI's oversold condition as it is nearing the same place that marked the top of wave '2'. But since wave '(ii)' is of a smaller degree than wave '2', it's possible that the RSI won't work much higher at all and just fall from near current levels.

So although there is little evidence that a top is in right now, nor is there evidence of any significant overbought or very tired uptrend, many indicators are well off their oversold levels and are now able to support a solid decline at any moment.


CURRENCIES




I mentioned last week that the euro was in what looked like an ending diagonal pattern which represents a severe weakening of trend. Ending diagonals are usually reversed sharply. Since the euro has a nice 3 wave corrective-looking pattern right now, and the fact that it declined in 5 waves late last week, it's possible a major top in the euro has formed. If so, I expect at least a 700+ pip fall to new lows on the year. This should put pressure on the stock market, especially if earnings outlooks aren't that great. Folks will know that a weaker euro, which means a stronger dollar, will only exacerbate the earnings problems going forward.



Also it's important to note the weakening momentum in the Japenese yen pairs as seen through the USD/JPY. These pairs tend to be tied to risk, and therefore they track equity markets quite well with a solid positive correlation. The USD/JPY has a bearish divergence on the RSI and may also be forming a head and shoulders top. Now there's no 5 wave decline yet, so a top is definitely not being called here. But if both the EUR/USD and the USD/JPY are topping and about to undergo large reversals, it should no doubt translate into a weaker stock market.

So I remain firmly bearish the S&P as long as it stays below 1131.23.


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 (ii) Probably Has More to Go; Euro Gearing up for a Decline

The market shot higher this morning at the open only to fall and flatten out during midday trading. Again, this might be chalked up to "Amateur Hour" back in effect where mostly amateurs come in during the first and last 30 minutes or so while the professionals trade during the meat of the day. This behavior didn't do us much good on Tuesday though since it led to a huge monster rally on Wednesday. Outside of the first and last 30 minutes of trading today, the market was quite flat. The late day surge turned the internals of the market quite bullish into the close, suggesting that we still have higher levels ahead of us tomorrow, and probably into next week. Also, there's no real big news data Friday, like most of this week, so the bulls will again be able to blind themselves to the economic decay occurring and just feed off each others' unrelenting optimism to float this market higher again.

One thing to note is that the internals were weaker than yesterday's, although still quite strong today, and volume was also quite light as NYSE volume didn't even reach the 13 day moving average. So the majority of volume spikes above the 13 day moving average still occurred on down days, showing us that the conviction of the market is still on the sell side, for now.

Enthusiasm and optimism have already come back strongly as there are headlines and analysts aready discussing the bottom in the market and talking about the decline being overdone and that earnings and the economy are not that bad. Far different from the "depression" headlines we had over the weekend. It's also the type of sentiment we want to hear as wave (ii) reaches its final stages. But the move higher this week on not so hot volume lends itself to the fact that the overall market is not buying into this rally.




Above is a speculative wave count of the wave (ii) correction. I have it as a comination, or double zig-zag, that should now be in wave 'c' of 'Y'. Wave 'Y' can complete any time now, but will probably get into the meat of the reversal zone before doing so, and if the rally carries into next week then it should get to the upper portion of the zone around 1084. There's also a gap to fill just a few points higher from current levels, so it still would seem that we have higher levels to go.

Another thing to note is the action in the euro that I mentioned this morning. Although the euro and the stock market have not been correlated that well lately, it's still worth noting if you're a currency trader, or for whatever correlation to the stock market that still might be left. The euro is completing what looks like an "ending diagonal" which is a finishing move that is quickly and sharply completely reversed. Although the reversal may only be a short term move, it still may be finishing up a much larger correction which could line up well to wave (ii) in the stock market finishing up if the correlation returns.

So the bottom line remains that I'm firmly bearish below 1131.23, but in the very short term it seems wave (ii) still has higher levels to obtain before the next round of heavy selling to lows gets underway. And there seems to be a good opportunity to start building short positions in the euro (or long the US 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.

Euro Rally Fading Fast, Downward Reversal Imminent

Just a quick note on a good opportunity. I've been easing into a EUR/USD (euro) short position over the past week or so due to the clear 3 wave corrective structure it's formed in what should be a large wave 4. Now you can see an "ending diagonal" like pattern forming now. This is a sign of weakening trend, and that a sharp reversal is coming soon. The only problem is controlling risk since stop losses would be too tight at recent swing highs since this pair can easily just grind slightly higher for a while. The bottom line though is that this pair is about to reverse downward sharply and I want in on it as long as I can manage my risk on the trade appropriately. Also of note, if the EUR/USD is forming a major top and reversal in wave 5 to new lows on the year, it will be tough for the stock market to make any sustained rally. So the key 1131 level in the S&P I mentioned yesterday would seem safe for now if the euro is topping.


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 is Well Into Wave (ii)

So the market's declining momentum and bullish divergence last week (click here for post) told us the market was gearing up for a snap back rally from it's oversold condition. Yesterday's 5 wave decline fooled me, but I was able to exit around 1043 once the start of that 5 wave decline was breeched today. Today was quite a ferocious rally that was an across the board all bull move. You can see that the internals were very strong with almost only buyers in the market today. There was probably a lot of short covering today as the bears realized the easy pickens on the short side have already been made. With a wave (ii) now underway, I expect to get a minor feel of overall optimism and glee come back into the financial media with talk about great earnings and all the bad stuff already being priced in. Over the weekend there was a feeling of doom and gloom with headlines talking about the second Great Depression. This obviously was around the wave (i) bottom. So when looking for the wave (ii) top, we should get a bit of the opposite in the headlines which should talk up the recovery and "great stock values" again. This should alleviate the oversold condition the market was in just in time for a monstrous wave (iii) of 3 of [3] or C. Although this reversal can happen at any time, and it will be so fast that it will be tough to enter without a good strategy in place, I don't beleive this rally is over quite yet.




So let's start to look for area for a reversal. That way when the market approaches this level, we can anaylze the internals, momentum indicators, and wave structure to see if the market may be rolling over. You can see in the above S&P chart that a good reversal zone is between 1070 and 1084 since that is between the 50% and 62% fibonacci retracement levels of wave (i) down, and there is an open gap there too. So for now, I will expect the market to continue higher into this area where I'd expect to see some resistance and weakening of the uptrend. Any rallies would bring about good opportunities for the bears to get short this market with stops just above the start of wave (i) at 1131.23. And although today's internal strength suggests rallying the rest of the week at a minimum, the fact that we're in a wave 3 of [3] or C means that rallies can be very sharp and short lived. So I'm not falling asleep at the wheel on this one at all.

As long as the market stays below 1131.23, this market is very bearish in my view. However, a break above 1131.23 would be very bad for the bears, and would strongly suggest that we are back in bull mode and that the market will surge to new highs on the year. But I don't want to get ahead of myself since we're far far away from that level. The focus is on resistance in the 1070-1084 area for now, and I'm of the opinion that rallies should be shorted in the short term.


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.

Larger Trend Remains Down

S&P 500 CASH INDEX COUNT




Friday I expressed caution for the aggressive bears, citing several pieces of evidence showing that the market was oversold, and that downside momentum was waning. This morning we got a big pop leading to a strong triple digit Dow rise with strong internals. However the rally didn't last long as less than an hour into the session the bears came out and pushed the market lower for most of the rest of the day, even at a couple points turning the market negative. So the market did indeed rally as the evidence Friday suggested, but it did so very quickly. This short rally and reversal action time and time again illustrates the struggles the bulls have been having in mounting and sustaining rallies. It also probably speaks to how strong this downtrend probably is.

Building on today's thesis of the larger trend being down, we can see in the above count that today's rally was quite possibly a 4th wave, and that perhaps the 5th wave is now underway since we can see a nice 5 wave decline from today's 1043 high. According to this count, the market will make a new low beneath 1011 before making a new high above 1043.


UNDERSIDE TEST OF KEY 1040 LEVEL, WHICH IS NOW RESISTANCE




Speaking of 1043.....that high today also represents an underside test of the key 1040 level that was important for the bears to take out in order to further confirm that a larger downtrend was underway. Once major key support levels are broken, they will then quickly be re-tested on the underside of that level, which has now become resistance. Today we got that test on the underside of the key 1040 level, and the market reversed sharply in 5 waves after doing so. This is a very bearish sign.


MARKET INTERNALS




Depsite most of the major indices closing positive today, and the Dow mounting a big triple digit rally this morning on strong internals, by the end of the day the internals of the market were mixed-to-flat. The NYSE had more declining stocks than advancing stocks, but had more up volume than down volume. This "mixed" picture is especially odd since the NYSE managed almost a 1% gain today overall. So even the internals of the rallies the bulls do manage to sustain into a close are still done on very anemic internal strength. The bulls' legs are clearly shakey.


INDEX TRACKER




Above is a list of how some indices closed on the day today. You can see that although the majority of indices closed positive today, but the high risk small cap indices were down big today, and the Nasdaq Composite barely eeked out a gain in the final minutes of trading. When taking in all the evidence previously mentioned here, the fact that the high risk indices lagged this rally badly today is more evidence that the bears are still firmly in control and that the larger trend remains down.


AMATEUR NIGHT




I've often heard that the first and last 30 - 60 minutes of trading is done by mostly amateur traders, and the meat of the trading day is done by the professionals. If true, the above 3min chart of today's action tells us a lot. I drew red lines at the halfway point between 30 - 60 minutes at both 45 minutes into trading this morning, and 45 minutes at the end of trading this afternoon. Notice that during those "amateur times" the market rallied hard while during the meat of the day when supposedly the professionals dominate the market, the trend was clearly down. Now most of us know that money is made by following the professionals, not the amateurs, and this chart is telling us that the professionals are selling this market. Also notice that the segment belonging to the professionals traced out a clear 5 wave drop. So the professionals all by themselves are telling us that the market's trend is down. I'm following the pros. 1043 remains the key level for the bears to defend for the immediate bearish case.


EUR/USD




Lastly I wanted to post a EUR/USD chart and count. It appears that the euro is wrapping up a large rally that I believe might be a large 4th wave. This is evident by the apparent 3 wave a-b-c rally that is finishing off wave 'v' of 'c' right now. If correct, the profit potential is enormous since this currency pair should drop over 700 pips before even trying to form a bottom.



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.

Downtrend May Be Resuming

My latest posts warning of a snap back rally came to light this morning as the market surged higher to a strong triple-digit Dow gain. But the rally was short lived as the market is well of its highs and has now just declined in five waves just a few minutes ago as you can see from the 5 minute chart above. With a small 3 wave rally completing prior to that 5 wave decline we see now, we should be aware of a resumption of the downtrend.




The 15 minute chart above shows a possible wave count that puts the rally today as a wave 'c' of a three wave rally composing wave 'iv'. The five wave decline seen on the 5 minute chart at the top may signal that wave 'v' down is now underway. Wave 'v' will most likely get below 1011 at a minimum, before it even thinks about bottoming. 1043 remains key for this short term bearish outlook.


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.

My Approach

The evidence suggests that a short term bounce may develop early this week. But since we're probably in a wave 3 of [3], that bounce may not occur until hundreds of more Dow points are removed. And although I play the "in-and-out" day and swing trader game in the short term, I do keep focus on the bigger picture for my longer term core positions that I rarely touch. The bigger picture suggests we are in a major downphase of the market that will work prices much much lower in the coming months, and perhaps years. So I feel sticking with the short side, as long as key levels aren't taken out, throughout this phase is a wise choice. If I feel a bounce is coming, I might take some profits on short term positions and look to re-enter on that bounce, but I would not even think about trying to get long, nor will I touch my longer term core short positions. It's also important that if I do play for a bounce, that I set a "sell stop" order beneath the current market price so that I can re-enter the market if I'm wrong about that bounce and the market were to just keep moving lower. Again, I'm only doing this with my short term trading capital as it will allow me to take aggressive positions for big potential gains, and I know that no matter what happens with those short term trades I still have my longer term short positions in that I don't touch. So I just wanted to explain my trading approach to the market as this decline progresses and be clear that I remain longer term short despite moving in and out of the market with other short term trades.

Below are a couple articles that I thought Prechter followers might be interested in:

With the US trapped in depression, this really is starting to feel like 1932

Dow Repeats Great Depression Pattern: Charts



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.