Market Update - 5/6/2010 (Black Thursday?)

Wow. What a day. The Dow was down nearly 1000 points intra-day, but quickly recovred and closed down about 350. The sell off seemed to accelerate after more riots and panic broke out in Greece. It will be interesting to see how the world markets will react to us tomorrow. The EURO is getting crushed and the USD is soaring higher.

As far as the wave counts are concerned, we weren't supposed to get to 1065 this quick. :) And really, there is no other way to count the sell off than labeling it as some type of wave 3. On all the time frames, the waves are extremely hard to count. But I do have some possible rough counts. Again this is just pure speculation. It is nearly impossible to count these waves. But here are a few alternates.

First alternate is that we open up higher tomorrow and make our high somewhere around 1142-1145 before selling off again. Remember, corrective waves either correct in time or price. This is a sharp price correction. The waves back up do look corrective.

I have this bounce back up labeled as a Minor wave 2. 1142 is the 50% retracement of the move from 1220 to 1065. 50% retracement for wave 2 seems logical. After a retracement, we should start Minor wave 3 which could take us much lower.

An alternate to this is that Minor wave 1 isn't even over yet, and today's low was a Minute wave [iii], followed by a very sharp Minute wave [iv]. If this is the case, wave [v] could start very soon. The target for wave [v] is anywhere between 1044-1065 - this would end Minor wave 1.

Bullish alternate? Sure. This was just a one day event and tomorrow we start a new rally. Or we could get a deeper retracement of this down move to perhaps 1150, 1165 or 1180.

But let's look at the fundamentals. Europe is in big trouble. Greece is in panic mode. There are 3-4 other countries in Europe that are in the same situation as Greece, maybe even worse. If the Greece bailout is triggering a sell off like this, just imagine if the other 3-4 get bailed out too. Plus, is there enough funding to bail out half of the EuroZone?

Also, I remember a while ago that I said that this Expanding Diagonal shape we were in on the daily charts was dangerous even though it looked bullish. I remember saying that prices could collapse down once we made our highs for wave 5.

If we break this lower trendline that we are sitting on, prices could crash all the way down to 900 in a matter of weeks. 900 is the target of this diagonal.

Also, despite this huge sell off, we are not even oversold yet on the daily charts.

There is no divergence on the MACD or RSI.  We also closed below the 100 day moving average, and were below the 200dMA intra-day.

The next few days/weeks are going to be extremely volatile and fun to watch. It will be interesting to see which way the market heads now. Bearish sentiment could be rising.