Market Update - 6/10/2010

The market gave us the exact opposite of what I expected. The move today was pretty powerful, and it took out the highs of yesterday. The internals were also fairly strong. 52:1 at the open, 41:1 at the close. Typically, only a wave 3 or a wave C will produce a move like this. I am leaning towards this up move being a wave c rather than a wave 3. Despite today's wave being impulsive, the waves behind it are still very choppy. And for this up move from the lows on Tuesday, it's very hard to count a smooth impulse.

So basically the current count has only one option. The market has to be down tomorrow, or it is very likely that this count is wrong. We have already had a pretty deep retrace for wave (ii). 1092 is the 78.6% retracement level, and usually once that fib level is broken, the count changes.

So the open could tell us whether this count is right or not.

Now if we continue to climb higher over the next few days, we could have something completely different on our hands. I think it could be similar to the pattern we had in October 2007, when the market first started to fall. Here is the chart of the SPX in October/November of 2007.

The first wave down was a leading diagonal. It was in a falling wedge and waves [i] and [iv] overlapped. After we broke over the wedge, we had a deep retrace for wave 2.

Now here is the chart of the Russel 2000 index today. The reason I am using the R2K is because the pattern fits a little better on it. Plus, it made new lows on Tuesday. The Dow, Nasdaq and Russell all made new lows on Tuesday. The SPX did not. That's why I am not using the SPX, the pattern doesn't fit the same way.

Anyways, the pattern for the R2K today looks very similar to what happened on the SPX in late 2007. If Minor wave 1 is over, we could get a very deep retrace. This could put the Russell around 680, and the SPX around 1125-1130.

The SPX also has the same falling wedge, but the only difference is that it did not make new lows on Tuesday like the other indices.

Breaking above could send us higher.

Another thing that could be fueling this up move is a falling USD and a rising EURO. As we know, the USD was getting a little over bought, and the EURO was oversold.

With both if these retracing a little bit, we the markets could get a bounce too.