Market Update - 10/26/2009

Dow Jones Industrial Average: -104.22 or 1.05% at 9867.96

S&P 500 Index: -12.65 or 1.17% at 1066.95

NASDAQ Composite Index: -12.62 or 0.59% at 2141.81

NYSE Internals: 714 Advance. 2323 Decline.

Market reversal in the morning was pretty significant. From the high to the low, it was roughly 26 SPX points.

As I said last week, there is a good chance that 1101.36 could have been the top. But recently, it seems that another possible pattern has emerged. The bearish count is that we have topped. The bullish count is that we still have 1 more high still to come.

The bearish count says that we have been coming down in 3 waves so far. With each wave dividing into small subwaves. The degree of the waves don't matter at this point. The count suggest that sub wave [3] of wave iii ended today. If this is the case, we should see some more sideways consolidation before heading lower.

The bullish count is pretty complex. But I have to mention is because it's still a possibility. Instead of looking at the waves as 3 subdivided waves down, the bullish count suggests that with was a triple zigzag down. In other words, a 5-3-5-3-5 wave structure. A normal corrective wave is a 5-3-5. Meaning 5 waves down, followed by 3 waves up, then another 5 waves down to complete the corrective pattern. A simple 5-3-5 zigzag consists of waves ABC. A triple zigzag has waves W-X-Y-X-Z. The X waves are usually a big thrust in the opposite direction of W and Y. Sometimes X waves come in 3 subwave patterns. I think this all makes more sense looking at the chart.

Again this is a complicated pattern, but I have to throw it out there because it could end up being in play. As we have learned from the past, the market loves to take the most complex path to confuse everyone.

If the bullish count is right, we will have another high, or retest of the current highs soon.

I don't want to confirm a top until this trendline from the March lows get taken out on the SPX.

Once we break down out of this wedge, the chances of a top being in will be very high.

US Dollar was up. Gold and Crude Oil were both down. Financials led the way down today. VIX was up nearly 10%