Market Update - 1/21/2010

Dow Jones Industrial Average: -213.27 or 2.01% at 10389.88
S&P 500 Index: -21.56 or 1.89% at 1116.48
NASDAQ Composite Index: -28.55 or 1.12% at 2265.70
CBOE Volatility Index: +3.59 or 19.22% at 22.27
NYSE Internals: 651 Advance. 2410 Decline.

Markets sell off as Financials drop.

The bearish count is now certainly in play. We broke a lot of support today. Here is what I said yesterday, "If wave (ii) is not over, watch for an up open, then a quick reversal down." This is what exactly happened. We gapped up slightly today, then immediately sold off hard. It was a pretty big reversal down, and we stayed down for the entire day. No end of day rally today.

So now the big question is, have we topped for now? Well, that still really isn't confirmed. We held some major support at 1114 today, which also happened to be the low on New Years Eve. We need to break this low to continue lower. If we break 1110-1114 on the SPX, we may break down to 1100 or lower.

Here is the count so far on the Dow. The degreee of today's waves may not be accurate, but nevertheless, it's still bearish either way.

As you can see, we were in a sideways parallel channel for the second half of the day. If we break today's lows, we may see some continued downside before we bounce. Tomorrow, if we make a lower low, then bounce, we can label the move down as subminuette wave i, and the bounce back up as subminuette wave ii. If we bounce back tomorrow for wave ii, expect the bounce to go somewhere around 10450-10475 on the Dow.

Finally, after over 10 months, we have broken below the Primary degree trendline coming from the March lows on the Dow. No matter which way you draw it, this line is broken. If we are going to back test, it needs to happen soon, other wise we may not get a back test. But we may attempt to do it.

However, like I said, we are also sitting on some key support levels. We are literally sitting right on top of the 50 day simple moving average on the SPY.

If we break below it, we will probably continue a lot lower. We also sold off on higher volume today.

The bullish count is that we held some major support today at 1114. This could produce a big bounce back up like it did the last time.

I don't want to call a top yet, but I'm getting close to it. If we break down below 1100, I may be forced to call a top in terms of Elliott Wave. Whether it is the top of Primary Wave 2, or just a start of a normal healthy pullback doesn't matter to me. We will take the down move one step at a time, labeling the waves as we go along. No need to jump ahead of the curve and call it the start of a new crash, yet.

The US Dollar was flat today, and Crude Oil and Gold sold off once again. VIX jumped nearly 20% and Financials led to the downside after GS reported better than expected earnings.