Market Update - 8/31/2009

Dow Jones Industrial Average: -47.92 or 0.50% at 9496.28

S&P 500 Index: -8.31 or 0.81% at 1020.62

NASDAQ Composite Index: -19.71 or 0.97% at 2007.06

NYSE Internals: 802 Advance. 2209 Decline.

With China's SSEC dropping nearly 7% overnight, it seemed as if we were going to go down nicely today. It did start out that way, with a nice gap down breaking Friday's lows, but the down move lasted about 30 minutes, than started to creep back up at the end of the day... as usual.

The run up at the end forces me to change the count. We have to now mark today's low the end of [iv]. Which means, this entire time, [v] never started. If that is the case, we should start going higher from here, and try to either test the highs of last Friday, or try to get SPY to 105 before we reverse.

But then again... we closed below the lows of Friday, which could mean we have already started the downtrend. I will leave that open for my alternative count.

So which is correct? We should have the answer tomorrow!

Where are we?

Who knows? The answer is no one. But we can all make our predictions, can't we?

The bear market all began on October 11, 2007, after the S&P 500 Index hit an intra-day high of 1576.09. Who knew that the next 17 months after that would be one of the greatest declines since The Great Depression, a 57% decline... Amazing. And here we are today, another 57% from our intra-day lows of 666.79 on March 6, 2009. Once again, amazing. But I think this rally was much more predictable... in a way.

I still think we have another leg down left in this Bear Market. Go ahead, call me crazy. I mean come on! We have just rallied 57% in under 6 months. It HAS to be a Bull Market right? It might be!

Have we already forgotten what happened the last time the Nasdaq rallied 60% in under 6 months? For God's sake. It was only 9 years ago. Let's just rewind a bit. March 10, 2000: Nasdaq hits intra-day high of 5132.52. Then, 2 and a half years later, on October 10, 2002: Nasdaq hits intra-day low of 1108.49. A 78.5% decline. Hello!

Since we always hear the media talking about how this Stock Market decline was similar to the one in 1929, I thought I'd go back and pull of some charts to compare the two. And guess what, they're pretty similar. The Dow dropped 50% and then rallied 52%. Awesome! But then what happened? We dropped another 87%

Ok enough of that. No one cares what has already happened. The question is, where do we go from here? Well, then answer is down. But why?

Let's think about it. Bear Markets a typically corrective in nature. They take a little back from previous Bull Markets. If you throw Elliot Wave Theory in there, you would know that any corrective down trend unfolds in 3 Waves. Waves A, B and C. Wave A is your initial leg down, Wave B corrects Wave A, and then Wave C ends the cycle. Typically, Wave A will unfold in 5 waves, Wave B will unfold in 3 Waves, and then Wave C in another 5. A simple 5-3-5 zigzag.

If you look at this Bear Market so far, we have had 5 waves down. That completed Wave A. We have had 3 waves up from the lows, this should complete Wave B. Which means... Wave C is still to come, and should unfold in a set of 5 waves. Sure... anyone can just go ahead and label waves everywhere. So the question is where do we get our targets? The answer is plain and simple. Fibonacci. We had a 57% decline from our highs. Wave B should retrace 38.2% or 50% of that decline. We already retraced 38.2% and rallied 57%. So the minimum targets have been met. Bullishness is at an extreme. An all time high. More people are bullish now than they were at the all time highs in October of 2007. Go figure. A complete opposite from our lows in March, when you couldn't find a bull anywhere.

So what are the targets for the next wave down? Well, it's either a retest of the March lows or given that Wave C will equal Wave A, we should end up at somewhere about 450 on the S&P 500 Index. Which would put our beloved Dow at 4000. OH NO! NOT 4000!!! Let me just promise you one thing. It will not be the end of the world if that happens. Just take a second to think about it. The Dow was 4000 only 15 years ago. So it's really not that big of a deal.

In this chart I have kind of mapped out what I believe Wave C will look like. All of my targets are mathematical, so I didn't just pull them out of the air.

So good luck and beware the bear!

Market Update - 8/28/2009

Dow Jones Industrial Average: -36.43 or 0.89% at 9544.20

S&P 500 Index: -2.05 or 0.20% at 1028.93

NASDAQ Composite Index: +1.04 or 0.05% at 2028.77

NYSE Internals: 1514 Advance. 1494 Decline.

Looks like I was right about the gap up then pull back and rally into the close. Except the rally wasn't as strong as I expected. From yesterday's post: "I am expecting a gap up tomorrow, then a small little pullback and then a run up towards the end of the day."

The sell of in the morning did seem promising at first, but that died fairly quickly, just like any other minor sell off in this rally. That makes me come to a conclusion that the rally may not be over yet, and that the pull back was just wave (iv) of wave [V]. If that is the case, wave (v) of [V] should complete on Monday/Tuesday.

Main count:

The alternate count is that today was infact the top, and we are starting a severe Primary Wave 3 down. There is a possible wave structure that does support today being the top, but I personally don't like it. Only because a lot of the waves are just squished in there together, and the structure seems fairly short. But we have to keep in mind that Wave 5's have NO minimum time constraint.

Alternative count:

The HUGE neagtive divergence on the Daily RSI does also support the top of a wave 5 today, since wave 5's usually set up some type of negative divergence.

I'll be posting a weekend update on how I expect the rest of the Bear Market to unfold.

Market Update - 8/27/2009

Dow Jones Industrial Average: +37.11 or 0.39% at 9580.63

S&P 500 Index: +2.86 or 0.28% at 1030.98

NASDAQ Composite Index: +3.30 or 0.16% at 2027.73

NYSE Internals: 1616 Advance. 1376 Decline.

Finally hit my target of 102 on SPY, and got a pretty decent bounce from there that lasted pretty much the rest of the day.

We also finished off wave [IV] today, and started our journey to 105, which I believe should end either tomorrow, or early next week.

We seem to be in the dead center of of (3) of [V]. The end got a little choppy, so it was probably [iv] of (3). I am expecting a gap up tomorrow, then a small little pullback and then a run up towards the end of the day. Hopefully we get to the 105 area and call this rally over.

We did make a new closing high on the daily, but we still remain under some key trendlines.

Market Update - 8/26/2009

Dow Jones Industrial Average: +4.23 or 0.04% at 9543.52

S&P 500 Index: +.12 or 0.01% at 1028.12

NASDAQ Composite Index: +.20 or 0.01% at 2024.43

NYSE Internals: 1437 Advance. 1562 Decline.

Another slow and boring consolidation day. Typical wave 4. Pop in the morning, drop in the early afternoon, and then sideways for the rest of the day.

We seem to have finished wave [iv] today. I had a target of 102 on SPY, we got to 102.49. Looks like wave [v] is now starting, which should take us to new highs. I'm looking for 105.

The only thing that is concerning me is the daily chart. It's not looking too healthy for the bulls. We are forming new highs, but the candlesticks keep printing as a Doji or shooting star. Those are normally reversal patterns. We are also nearing the crossroads of some major trendlines, and we keep slamming up against the upper resistance line of the bearish rising wedge, which is in line with the upper Bollinger Band. It's gonna take a lot to get this thing over 1050 on the SPX.

There are no major leaders in this market either. Financials seemed to have topped, and energy can't get us going because the dollar seems to be rising. The market is also virtually ignoring some of the "good" news thats been coming out, (ie new home sales, durable goods, home price index.) It's looking like the end is very near for this rally.

Market Update - 8/25/2009

Dow Jones Industrial Average: +30.01 or 0.32% at 9539.29

S&P 500 Index: +2.43 or 0.24% at 1028.00

NASDAQ Composite Index: +6.25 or 0.31% at 2024.23

NYSE Internals: 1830 Advance. 1185 Decline.

SPX made it back to the 1038 area today, and reversed yet again. But only to find support at 1027... again.

We also put in a slight higher high, so that could mean that today was the top. But I personally don't think today was the top. The 5th wave up today was very small.

From my primary count, we have started wave 4 today. This should retrace down and take us to at least 102 on SPY. After that, the final push to ~105.

The chart below is my alternate count, showing how today could have been the top for the rally.

A break above todays highs will be bullish, and we would finally see 1044 then, and a break below todays low will be bearish short term, meaning we probably get to 1015-1018.

Market Update - 8/24/2009

Dow Jones Industrial Average: +3.32 or 0.03% at 9509.28

S&P 500 Index: -.56 or 0.05% at 1025.57

NASDAQ Composite Index: -2.92 or 0.14% at 2017.98

NYSE Internals: 1551 Advance. 1475 Decline.

A good reverse intra day today. Gapped higher, ended up closing negative... barely. But nevertheless, it closed well off the highs.

Looks like minuette wave 4 of 3 just finished, with the 5th wave push still to come. If we break below 100.93 before making a new high, that will probaby be our first signal that the Primary Wave 2 rally has ended.

We did break out of a channel today, as well as broke under some support at 103.13(Friday's high).

If this is truly the beginning of Primary Wave 3 down(either retest March the lows or make new lows), we need to sell off and close below 100.93. But until then, the target of 105+ on SPY(S&P500 at 1050) still stands.

Market Update - 8/21/2009

Dow Jones Industrial Average: +155.91 or 1.67% at 9505.96

S&P 500 Index: +18.76 or 1.86% at 1026.13

NASDAQ Composite Index: +31.68 or 1.59% at 2020.19

NYSE Internals: 2467 Advance. 585 Decline.

Minor Wave C is off to a pretty hot start, just like Minor Wave A was.

We pretty much just blew through all types of resistance today, and we really have no resistance till about 1044 on the SPX. Which is about another 2% or so.

We broke through 101.64 and 102.03 on SPY today, and I don't expect a solid backtest of those prices in the near future. I think we are pretty much headed straight up to 105-106 area. With very little pullbacks. After all, Wave C needs to have some similarity to Wave A, and I'm sure we all remember how this rally started back in early July.

I've kind of mapped out how I think this last leg up of the rally will look like. I think 105-106 is a good area of it to end, but we have all the possibilities in the world to get to 110+, which I don't want to throw out. But 105.50 has some good Fibonacci relationships as to where this Primary Wave 2 rally should end.

^ I still believe that we are going to form some type of Bearish Rising Wedge.

We have some pretty clear cut negative divergence on the daily chart too, but it still has a little bit more room to diverge, which should put us right at or around SPX 1044. We also hit the top of the wedge today.

Market Update - 8/20/2009

Dow Jones Industrial Average: +70.89 or .76% at 9350.05

S&P 500 Index: +10.91 or 1.09% at 1007.37

NASDAQ Composite Index: +19.98 or 1.01% at 1988.22

NYSE Internals: 2233 Advance. 814 Decline.

Looks like major wave b has ended. We broke through 1004.

We have completed 4 waves up from the low of 98.12 on SPY. The fifth wave up has met the minimum target, but I still think it has room to go a little higher, given the way things have been going lately...

My first target for minuette wave 5 to end is right around 101.61. Which would then end Minor wave 1 up, which is where minor wave 2 down will start. We have some nice resistance there too, not to mention the 38.2% retracement of the entire bear market sits at 101.64. And that area is also our highs from last week on Thursday and Friday. But remember, when major wave A started back in July, at SPX 869, minor wave 2 retraced almost 100%.

Using 101.61 as the high for minor wave 1, any pull back will probably be shallow. The 23.6% retracement will be around 100.79. 100.75 is also good support. The 38.2% retracement will be around 100.28. Which lines up with the 1000 level on SPX, which should be some decent support.

^ Nice little Bearish Rising Wedge forming. The dotted line is the alternate resistance line. Fits in with the scenario of the wave 2 pullback starting if we break that support line.

Since this is most likely the start of major wave C up, it's time to predict a target for it. A good place for it to end is right around 1050 on the SPX. A lot of trendlines are crossing in that area. After that, it's good night for the bulls. :-)

Market Update - 8/19/2009

Dow Jones Industrial Average: +91.22 or .66% at 9,279.16

S&P 500 Index: +6.79 or .69% at 996.46

NASDAQ Composite Index: +13.32 or .68% at 1969.24

NYSE Internals: 1856 Advance. 1144 Decline.

Looks like minor wave b may have ended. We went to test the lows around 978 today, and it held and we got a nice 20 point intra-day bounce from there. Reminds me of when we made a low of 869 back in early July, and the next day we tested the lows around 872, then took off and never looked back.

Head and Shoulders neck line was tested again today, and it failed to hold. Yesterday I said we needed to hold the 995 area, or we would be close to confirming a new uptrend. Well, we closed above that. My line in the sand is 1004, which would also fill the gap. If we break that, minor wave b is over. If we reverse from there, minor wave b still has some hope of getting down to ~970.

If this is infact the start of minor wave c, I expect our first level of resistance be at 1004, 1014, and 1018. Any down move should find support at 991 and 978.

Looking at the lows on SPY, at 98.12, we seem to be coming up in 5 waves. Wave 5 is underway currently, and the target should be at our first support level around 100.70.

Tomorrow should be interesting!

Market Update - 8/18/2009

Dow Jones Industrial Average: +82.60 or .90% at 9,217.94

S&P 500 Index: +9.94 or 1.01% at 989.67

NASDAQ Composite Index: +25.08 or 1.30% at 1,955.92

NYSE Internals: 2,418 Advance. 614 Decline.

Backtested the H&S neckline today around 99.46, and it seems to have held. Volume was lighter today(207M yesterday, 173M today), so it didn't really seem like the start of a new uptrend. If the H&S does play out from here, we would need to see some nice volume on our way to ~97. If not, then I guess the gap at 97.65 will have to wait to be filled.

SPX has completed three waves down from the highs, and bounced from support. Minuette wave C of Minor B seems to be coming down in 5 waves, but a break about 994.60 will probably end the pullback, since wave 1 and 4 will overlap, and we will have to change the count to an ABC for minuette wave C. However, our last confirmation will be a break of 1,000 on the SPX. That will probably start Minor C of Intermediate C, to finish Primary Wave 2.

The Daily chart also has a Bearish Rising Wedge forming, I don't know if we will make to the support line for the minor wave b pullback, since getting there will mean we broke through a lot of support, but it's still possible. I would still like to see the pullback end around 970.

Once again, if we break 1,000 we are probably going to try to take out the highs of 1,018 and possibly head to 1,040-1,050.

Market Update - 8/17/2009

Dow Jones Industrial Average: -186.06 or 2% at 9135.34

S&P 500 Index: -24.36 or 2.43% at 979.73

NASDAQ Composite Index: -54.68 or 2.75% at 1930.84

NYSE Internals: 339 Advance, 2736 Decline

Looks like my Head and Shoulders seems to be playing out.

We did manage to close the gap at 98.82. We still have 1 more gap to fill at 97.65, which I think should get filled soon. That 97.65 area also lines up with some nice support and is also near the target for the H&S. If we break that 97 area, I think we go test 96.11, which is our breakout point for this recent rally.

We do seem to have 3 waves down from our high at SPX 1018. I have labeled these as an ABC. Now is this ABC down the end of Minor B or is it a part of a larger correction in store? Well, I still think we see the lower 970s on SPX, and perhaps mid 960s. Which also lines up with 96.11-97 on the SPY. We have also retraced just over 23.6% of the rally from 869, and since we have this labeled as a minor wave b correction, it should hit the 38.2% mark at 961, which is close to our breakout point of 956 on SPX.

As far as the DOW is concerned, we bounced from the 23.6% retracement, and closed above it. If we can break through that, we probably test 9,000. If we break 9,000, we probably test the 8,920 area.

Reversal Signals?

Looking at the 60 minute charts on the SPY, there are a few signs of a reversal that may be coming.

First of all, there is a Head and Shoulders topping pattern. There is also a potential Exhaustion Gap and a Descending Triangle. We have also had no pull back at all since this recent wave up began, and with minor wave (a) potentially topping at 102.03, we can start giving targets for the minor wave (b) pullback.

There is some real nice support for SPY around 96.30 and 97. Which is in line with 2 gap fills(98.82 and 97.65), the 38.2% Fib retracement of the recent rally and some decent horizontal support, not to mention, our breakout point on SPY was 96.11, which was our high on June 11, 2009. I don't see any pullback breaking that level on SPY. There is just way too much bullishness out there, and the so called 'dip buyers' will just keep popping up at every major support level. But let's not get too ahead of ourselves. No significant pullback will occur unless we break 99.46 on SPY with some decent volume. The sellers just seem to give up when we get to that level, and the buyers come in like there is no tomorrow.

A break above the current highs of 102.03 will nullify the current count, which could be possible.

Recent Market Rally - A Closer Look

Primary Wave 2 has been one heck of a rally. But that was expected... right? With this rally now in it's 5th month, and bullishness at an extreme, I think it should be safe to say that the end is near. How near? Well, let's take a look...

Here is a picture of the Bear Market so far:

Clearly 5 waves down, and what appears to be 3 waves up. Text book Elliot Wave.

But that doesn't tell you much. Zooming into Primary Wave 2(P2) only, it makes it easier.

3 Intermediate Waves. (A) completing at 956.23. (B) at 869.32. (C) currently underway. Intermediate (C) has met the minimum Fib relation to (A). P2 has met the minimum Fib retracement. Is it over?

Looking at (C) close up, we can see 5 waves up from the 869.32 low. Now are those 5 waves the end of (C)? Or is it just one wave up of a larger structure that is coming.

Do I personally believe the rally P2 is over? No. I still see one more squeeze coming, and it should take us to SPX 1040 to 1050 range. Why? That way, the bulls will think we have a clean break of the 38.2% Fib, and the next target is the 50% Fib at 1122, which is a possibility.

But let's rewind a bit to the end of Primary Wave 1. March 6, 2009. I remember the day we made the low of 666.79. Most people were claiming that to be only the end of minor wave 3 of (5) of [1], with minor 4 and 5 still to follow... but it never came, did it? A lot of people are expecting one more wave up, but that doesn't have to happen. Just something to think about...