Markets Still Laboring to Move Higher

Above are the internals of the market this morning and again it shows that the rally of the past few weeks is laboring greatly as pushing higher today. This condition can last for days, but as long as it continues it means the reversal should be sharp and decisive to the downside when it gets underway.






Basic momentum indicators such as the MACD and RSI shown above are illustrating a bearish divergence in the tail end of this rally. Again, these indicators are not good for timing a move or reversal, but it does tell us that as it stands now, this rally is weakening significantly. This can change with a strong upward push on strong volume and internals, pushing these momentum indicators higher, but that hasn't happened yet. So as long as this feeble internals exist during this rally, then I would not be long and would be positioning myself to the short side for a possible monster wave 3 reversal to the downside starting at any moment.


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.

Lakers Win the NBA Finals

It's been a wild night as the NBA Finals wrapped up tonight. Just a quick note on the markets, today we got the weakness the market was telling us it wanted to undergo the past couple days, but the losses weren't sustained as the bulls roared into the close. The bulls have a lot more work to do though before I step out of their way. Although it seems the market may want to climb a bit higher in the hsort term before wave 2 tops, at any minute we could get an avalanche of selling when wave 3 gets underway. With the end of quarter action still taking place the next week or so, it's possible the market could float around until July. But the profit potential for the bears here is high, so I'm looking for shorting opportunities.

Congratulations to the LA Lakers for their repeat championship!

Rally Out of Gas For Now

As I said around midday today, the market rally is quite labored. Although some indices closed positive, the market was negative today. As you can see above, there was solid downside pressure on the market with decliners beating advancers on the NYSE, and downside volume well outpacing upside volume. The S&P internals sported similar behavior. So the majority of action today was to sell, and only a small group of stocks held the market up. This is what occurs at the end of market trends as stocks start to peel away early from the previous trend and just a small few shoot higher as they're completely ignorant to the change of trend occurring. On top of that, the rally of recent weeks has been done on weak volume as well, suggesting that overall, the masses are not buying into this rally. So there's all around internal weakness, so I expect a pullback very soon.



Above is just a good example of how fractured and unhealthy the market has become with a rainbow of up and down indices today. This type of behavior, especially that when the Dow closes positive and the NYSE closes negative, suggest a reversal to the downside is on the horizon.

Of course, the market can erase all this "weakness" with a strong push tomorrow, but the evidence doesn't support that happening. Right now the evidence suggests that the market rally is severely weakening and that a reversal is imminent. It's all about probabilities, and the market will probably decline tomorrow and/or Friday.



In addition to internals, price is showing us an ending diagonal looking pattern into the 1119 level with diverging momentum as seen by the RSI (purple indicator at bottom of the chart). Ending diagonals are structures illustrating a severe weakening of trend. They are usually sharply reversed. My initial target for the decline is the 1089 area in the S&P cash index, but it has the potential to snowball into something much bigger. Remember, I'm waiting for wave 3 of [3] or C to get underway any minute now. There's no evidence now of this occurring right now, but any potential top and decline should be looked at as a possibility. I added to my short positions today to at least catch a near term decline. If the decline does occur soon, then I'll simply set my stop loss at the recent swing highs, and then hopefully soon to break even, and try to catch at least a modest decline in the market to scrape a few profits together.

One thing to keep in mind is that the end of the 2nd quarter is upon us so it can get kind of whacky for the next two weeks. So this "weakening structure" can hold for quite a while as the market grinds higher as money managers maneuver around for end of quarter positioning. But at face value, the internals and price action of the market look bearish, so I'm trading accordingly.


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.

S&P Uptrend Weakening; At Least a Short Term Pullback Coming

The market rally is looking very "labored" at this point and momentum divergences are showing it as well (see RSI in above chart). Although the timing of the pullback is in question, I added to my short position a few minutes ago in trying to catch at least a short term pullback.


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.

Waves Relabeled, Bears Have Work to do Now

Yesterday I asked if we would get the follow-through to the end of day selloff that was a nice setup for wave (iii) of 3 of [3] or C. We got our answer quite early this morning. Above is a daily chart of the S&P cash index showing the all talked about 200 day moving average. The break below it was supposed to send the market down off a cliff. This didn't happen. The market then unsuccessfully tried to break above it 3 different times until finally today it broke above it, and closed well above it. So now the market is headed to the moon right? Just as the CNBC chatterers said armageddon would happen when the 200 day MA was broken to the downside, they can also be wrong about the significance of breaking and closing above it. I don't put much weight in moving averages, other than they might become self-fulfilling prophecies since a lot of folks do follow this very basic indicator. What would be extremely bearish though is if the market breaks and closes below it in the next few days. And looking at the count below, it's possible.




I reworked my wave count in accordance with the action the market is giving us. My last count has us in a wave (ii) of 3. That wave 3 should be quite fast and ferocious, especially because itself is part of a larger wave [3] most likely. The market has been chugging around and grinding higher way too long and way too much for this to be likely. So I eliminated it from contention. So the above count is possible. I didn't put this count as my primary count because it is very awkward in the way the degrees of waves subdivide. Wave 4 is very sharp and much much larger and longer than wave 2, which is odd. It just doesn't look right. But it violates no rules, and is still possible. With volume still light, and nothing really changed in the US or global financial landscape in my view, I don't see a reason for the bulls to be so bold on this rally.

Today's rally did make progress for the bulls though. They blew out the 200 day MA which may, in the short term, get some other bulls to jump in now and accelerate the buying from here. They held the S&P 1040 level after a couple attempts by the bears to break below it. And there are a few bullish reversal candles in place reminiscent to the last couple corrections we've had that led to new yearly highs.

So the bearish case has been weakened today, and the bullish case strengthened indeed. But the majority of evidence still goes to the bears in my view. So after today's break of yesterday's highs I only exited half of my short term short position. The market can turn down sharply in wave 3 at any minute, but I don't see any signs of that happening yet, and I don't expect to see any signs either - it should be a surprise. But by exiting some of my shorts I can have the freedom to add on strength, or jump back in on weakness when I feel a top is in, or almost in. A close beneath the 200 MA would be a good start 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.

We Have the Setup, Now do we Get the Follow-Through? Also, Thoughts on the Euro

S&P CASH INDEX WAVE COUNT





S&P TRIANGLE AND THRUST




So the market played out nicely with the "flat" correction and triangle scenarios I mentioned yesterday. The market continued it's thrust higher from the triangle to make a very slight new high above 1105.67 to 1105.91 and then reversed downward the rest of the day. So the flat correction suggests that wave (ii) was continuing the past several days and most likely has completed at today's high. This means extremely heavy selling should be on the horizon in the immediate future with a wave 3 at various degrees, i.e wave (iii) of 3 of [3] or C. A break above today's high would severely damage my current wave count above, and I'd have to analyze the current structure at that time to determine what the best wave labeling would be if that were to happen.

But keep in mind the triangle from Friday. The thrust is over and so the market should now decline to AT LEAST the apex of the triangle around the 1083 area before possibly trying to find a bottom. So that's almost 7 more S&P points that should be lost in the near future. If the market just blasts right through the 1083 level then it will be the first hint that the above wave count is correct, and that heavy selling is underway to much lower levels.



INTERMARKET DIVERGENCES

S&P Cash Index










Another bearish development today was the fact that there was an intermarket divergence between the Dow/S&P and the NDX/Russell 2000. Both the Dow and S&P eeked out new highs from a couple weeks ago while the Nasdaq 100 and the Russell 2000 did not. This type of divergence usually occurs at trend changes. So as long as the NDX and Russell remain beneath those highs, the market is overall bearish in my view.


THE EURO


Weekly




Daily



I've been getting a lot of emails regarding Prechter's call for a major US dollar top and its possible affect on the stock market. It's a legitimate concern, and I share it with many of you. I like to look at the euro, which is essentially the opposite of the dollar, and has been extremely oversold for a few weeks now and has been due for a big bounce. Obviously with a dollar top, the euro will bottom. As you can see from my above wave counts, it appears that a wave (iii) has ended and that a wave (iv) is now underway. So the euro is bullish and the dollar is bearish in the medium term in my view. But since it's a 4th wave, it may just be a sideways consolidation, or triangle, before shooting downward to new lows.

So what does this mean for the stock market? Well recently the euro's weakness has usually meant stock market weakness too. But there may be many various factors for that, and I'll leave that to the fundamental analysts to hammer out for eternity. While they're doing that, I'll be looking at the techincals and EWP to try and make some money. What I do know is that markets are not always correlated. They tend to be correlated strongly for given periods of time, and then move almost completely independent of each other during other periods of time. Just look at gold and the dollar. During the dollar's monster rally the past 7 months you'd think it would put some pressure on gold, but instead gold has been making new highs. Also, the euro has declined dramatically during that 7 months and the stock market moved up and down during that euro slide. So the correlation between different markets doesn't always hold true, and the euro can certainly rally, or move sideways, while the stock market tanks hard in wave (iii) of 3 of [3] or C. Although the euro bottom and rally is on my radar and is a concern for the bearish outlook in equities, I will not trade based on it. I trade based on the facts laid out in the EWP count and the other technical indicators. Anything else would just be a guess. And I don't trade based on guesses.

So I'm analyzing the markets independently with an eye on the euro/equity correlation as a backdrop. The euro looks to have found a bottom for the time being and the stock market appears to be at the beginning of a major decline phase.


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.

This Week's Action

1105.67 is a key level for the bears to remain in a comfortable and advantageous position in my view. The failure of the S&P to make a new intraday low June 8th, breaks the series of lower lows it's had from the highs on the year. A break above 1105.67 would then make the first higher-high since that downturn as well. This MAY mean the downtrend has been broken, and the bulls are back in control. But 1105.67 is not do-or-die for the bears at all. It just means the bears' comfort level dropped a bit. A break above 1105.67 would have me looking at the below count:




This counts suggests that a flat correction is unfolding which means we're in a wave "C" of (ii). If correct, it will carry to just above 1105.67 before reversing sharply. From there the market will be trapped in a wave 3 at multiple degrees which means heavy heavy selling. Anything short of this behavior after a break above 1105.67 would be concerning.

One thing to note on a short term basis is that Friday we had a choppy session most of the day until going into the close where the market soared higher in an impulsive looking manner. This is either the start of a wave 3 at some degree, or a thrust from a triangle. Seeing as that I'm looking for a top any minute, and the market was trading sideways most of the session, I'm going to side with it being a thrust from a triangle. If so, the market may have topped Friday, or will do so with just slight pop upward at the open Monday morning.

So my primary count still stands from last week in that the market should be finishing up a wave ii of (iii) of 3 of [3] or C any minute now. But it needs to stay under 1105.67 in order for that count to remain intact. A break above 1105.67 would mean that a flat correction shown above is probably occurring for wave (ii), and that a reversal should occur shortly after breaking above that level. If not, then perhaps something very bullish is underway. I'll address that if it happens.



Lastly, I wanted to show the above MACD histogram momentum indicator. Although the MACD histogram is quite a basic indicator and is not good for timing at all, it does help us gauge the momentum of a trend. The histogram illustrates the divergence and momentum of the moving averages it tracks (not shown). As you can see, on the 30min chart above, the S&P is making new highs while the MACD histogram is making new lows, suggesting that the moving averages in the MACD are not impressed by the market's rally lately and that the market's momentum is quite weak. And the moving averages actually turned down late last week as you can see by the blue bars recently. This would be an odd setup for a wave 3 rally at some degree, or any rally that is just getting underway. This fits more with a thrust from a triangle Friday surging into a top. Although like I said, momentum indicators are not good for timing, and this bearishness can be erased easily with one strong surge higher on Monday. But as it stands right now the MACD histogram is telling us that the market's recent rally is weakening severely on a short term basis, and that there will probably be a sharp selloff soon, at least 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.