By: Principle Analysis

Internals suggest that the usual market participants had better things to do today. Only 709 million NYSE shares were traded today, surely one of the slowest trading days of the year. When you combine this with the price action it lends itself more to the triangle alternate count I mentioned yesterday. With Thanksgiving coming up next week, a week that’s typically good for stocks, it’s possible we might just float around in a net sideways-to up market for the next couple of weeks.

With volume so light on today’s move, it would seem more likely that today’s weakness was corrective, and that a new high is still on the way. But seeing as that the correction from the Wave i low would be getting quite elongated, along with the unorthodox look of wave (iii) down that’s supposed to be underway right now, it means this count is losing steam. If this count is on track still, I’d like to see a sharp and quick pop to a new high tomorrow followed by a sharp reversal, or the market just fall hard with solid volume (above 1 billion NYSE). Anything other than that would lend itself more to the below triangle scenario, or perhaps something else entirely.

The sideways action over the past month or so, along with decreasing volume numbers, fit well into the triangle scenario shown above. If so, this would fit somewhat nicely into the upcoming holiday malaise we should see for the next week or so. I think tomorrow’s price action and internals will be very telling on which of the two above counts are most likely in play.

One of the reasons the more bearish count is still my top choice at the moment is the wave count in the euro. The euro appears to have topped and reversed again aftern an exhaustion gap up from Sunday. The resultant decline looks impulsive, again furthering the case for a top and bearish reversal. Yet stocks did not follow the euro’s intensity to the downside today. This tells me that perhaps the upcoming corrective euro rally with fall short of making a new high, yet stocks might make a slight pop up to a new high before reversing, creating an intermarket divergence I would see as very bearish. So I still think it’s better to be short the euro here. And aside from stocks, the past few years the Thanksgiving holiday has been very bad to the euro and great for the US dollar. If that holds true again this year, it means heavy selling is just ahead for the euro, and the wave count above supports this outlook.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Written by: PRINCIPLE ANALYSIS

Usually I refrain from making bold statements like that in today’s title since usually when I do it the market does the opposite of what I say, stamping the word “fool” on my forhead. But I want it to be crystal clear what my outlook is now for the market looking ahead. I will try to analyze the short term movements of the market in the coming weeks/months, which means anticipating relief rallies, but I want to drive home the “bottom line”, which is the big picture. And the big picture tells me that as long as 1292.66 remains intact on the S&P cash index, stocks are extremely vulnerable to a major selling phase in the coming months which could result in over 50% of value lost. And although the greedy little monster in my head will whisper in my ear constatnly to leverage every penny I have in derivative-type trade shorting stocks, I also need to always keep in mind that no matter how sure I am of the market’s direction, I could be wrong, and I need to always protect myself.

Now to the markets. So another failed attempt for a “man-made” stock market recovery from the government….this time in Europe. Last week the Dow popped 400 points on government intervention. Some common investors I know were giving me jazz because the day prior I suggested they protect their retirement accounts by putting them in all or mostly cash. But with a rally based on government intervention it was nothing more than a sell signal for me, and I told them that. This week now has me giving those same people jazz back, lol. It’s all in good fun. Governments around the world will attempt to stop the implosion, and will cause short term pops only, and in the end they will all fail. Primary wave ((3)) will do what it wants to do and only stop when it is done destroying almost everything in its path. There’s nothing any person or government can do to stop that. The crowd is in control, and the crowd always overpowers governments and individuals, i.e. Warren Buffet, et al.

The internals today were very bearish in that 84% of NYSE stocks traded lower, 479 S&P stocks traded lower, and 93% of total NYSE volume traded to the downside. Total volume was just under 1.3 billion NYSE shares, which is not jaw dropping, but volume should increase as Intermediate wave (3) progresses downward. So overall, a very bearish day in price action and internals. When combined with the wave count and other technical indicators, it looks like a major top is in.

Updating the S&P chart I’ve been posting the past few weeks, we can see that this top is a major one as far as EWP is concerned. This week’s declines should be the start of Intermediate wave (3) within Primary wave ((3)). So a 3rd wave within a 3rd wave is now underway. This is a Waver’s dream trade here. And what it means is that this market should move lower in a hurry, destroying support like it’s paper thin. And since 3rd waves tend to do whatever they want to do and ignore most technical and fundamental indicators, it’s wise to ensure I don’t get in its way.

With that said, the hourly charts show that the S&P probably has to make one more new low to complete a nice 5 wave decline from 1292. This will probably occur tomorrow morning. It’s possible a sharp recovery rally will then take place. But as long as it stays below 1292, I will be aggressively shorting that rally, IF IT EVEN OCCURS.

Bottom line: if the above count is correct, it means that over 50% of the value in the stock market should get erased in a very short period of time. Needless to say, I’m short. My stop is just above last week’s high at 1293.

The euro is getting destroyed. The European “save the day” news only lasted about a day. And now, as usual, the markets realize the financial system as we know it is still doomed. So the dollar is back on fire again, crushing the euro in a 5 wave move as you can see in the above chart. Here too I will be aggressively shorting rallies as long as last week’s high remains intact.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Nothing has really changed since my last post as you’ll see the same daily chart above that I’ve been posting for quite a while now. Stocks are in the targeted reversal zone between the 61% and 78% fibonacci retracement levels, a common place for second waves to top. What’s important, aside from stocks having trouble gaining ground inside my reversal zone, is that after Thursday’s monster rally from europe “saving the financial world” is that Friday was flat, and today is so far negative……..meaning there has been abosolutely no follow through to the great save the world news and big rally last week. Now the today’s trading isn’t over and we could sure see a monster rally into the close. So I’m not getting too excited here, nor am I calling a top at this moment. All I’m saying is that so far we’ve had no follow through to the big rally last Thursday, and stocks are having stalling in the reversal zone I’ve cited, two bearish signs.

The action into the close will be telling. And keep in mind, it’s the last day of the month so end of month trading can make things a bit whacky. I have a feeling this week could get pretty wild as November gets underway, and it’s a month that has been particularly brutal to the euro in past years which could be reflective of what will happen to stocks.

And speaking of the euro, here she is. On the daily chart you can see the top from last week took place at a very convenient spot, the 78% fibonacci retracement level. If the big bearish candlestick on the day holds into the close, I will definitely be taking another stab at the short side on this pair.

In addition to the reversal right at 78%, the euro declined from the high in five waves. This in-and-of-itself is enough to get EWP bears in on the short side in my opinion. I’d like to get a nice bounce from here to give me better positioning on the short side though. And when you combine this with the fact that November, and especially the Thanksgiving US holiday, tend to be very bearish for the euro, it definitely has me salivating to short this pair soon.

By: PRINCIPLE ANALYSIS

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Link to the full article: http://www.marketspath.com/0011028report.html

The bulls have been on a tear in the month of October, able to walk around with the stamp on their chest saying “we were able to show the markets the best October in history.

They have done a fantastic unfortunately, we only caught 1/2 the run. We were getting long almost at the exact lows (IWM 60.70 last entry on the long side) but when IWM hit 67 the next day, I locked in profits, as an 11% move in 1 day was a great trade. Little did I know it would be at my original target of 74-78 in a matter of 18 trading days. So yes, the bulls have had a great run and for the most part, it was expected and why I think it made it here with little trouble.

Most bears that use Elliott wave counting, stamped the October 3rd lows as a major wave (1) down. Wave (2) typically retrace 62%/78% of the entire decline. IWM hit 62% yesterday and what wave 2′s are made to do is convince everyone that the previous trend is back in place-which was up. Sop far, wave 2 has done exactly what is was suppose to do, if this is indeed a wave 2.

That is the problem with Elliot wave trading, you do not know you are wrong until a higher level gets taken out.  In this case, it would be the previous highs that were made in May. That is a long ways away to find out if you are right or wrong. I use Elliott wave, I look at the longer term wave structure, but concentrate and trade the short term wave structure.

By combining my timing models which give me heads up a current move is losing steam and short term Elliott wave counting, I am able to try and figure out the short term wave structure and trade off these short term moves. One thing I am NOT good at with Elliot wave, is counting the squiggles. I don’t have the patience for that type of counting  nor do I want to trade those minute moves.

My goal is to concentrate of the moves that will net us at least 2% or more on IWM. As of yesterday, it appears that we finished wave 3 up of wave (2) and should see about a 20-30 point spx drop from those highs to make a wave 4, which wave 5 up to new highs should follow some time soon. I am thinking next week. Remember, the Bulls are wearing the “best October is history tag proudly” and they aren’t going to let it go anytime soon-especially until the month ends.

But the Bulls are their own worst enemy. There isn’t a person in the world that wouldn’t want to see the stock market move higher. But it is the fashion in which the bulls move the tape that is frustrating many and having 50% of the traders hoping that the spx goes to zero. They don’t know what “take a breather means-just as we just saw in the month of October.

The spx has moved some 20% off the lows in 19 trading days and has reversed its “breather” move at only 23% retracement pivots, usually intra-day.  That is NOT sustainable!! So what happens with these types of moves, are all of the shorts get squeezed, any trader that was waiting for a pull back to jump in, just sits and watches the move and once the shorts are finished covering, we nose dive back down.

Fear is much stronger than greed. So when the shorts are finished covering and we start heading lower, it starts to snowball as traders have been down this road before. They see a massive move up only to give it all back and some 3 weeks later. The shorts that got squeezed are now re-shorting again and the supply simply outweighs the demand, especially when the original demand was fabricated (shorts covering)

During the last drop, the bearish sentiment was pretty loaded. When there are a lot of bears in the market, they can be used as a floor for the drop. The bears that are in a winning trade cover, which adds to the demand, which provides a floor at some point. But if you make all of the bears cover at once, you get moves like we just saw, which as I mentioned are unsustainable, but on the way down (which it will come down) there is no floor anymore, as all of the shorts are out of the market.

The traders that were waiting on the sidelines for a pull back, will chicken out as the drop will almost look like a crash, as the volatility down is always stronger than on the way up.  So again, the demand that may have been there if they used a normal speed approach on the way up, is now gone.

So our short term timing systems, which are made up of ratio breadth charts, are looking for a pull back soon. The 15 minute timing system is in an inverted sell signal and if they try and push this market even higher today (bulls are pigs, so that may happen) the 60 minute timing system will then trigger a 2nd sell signal.

Usually when the 15′s and 60′s are in line, we do get the larger pull back. That is pretty much what I am expecting in the coming days. But for the 60′s to trigger a sell signal, we should see a higher high than Thursday at some point.

Our $tick indicator is throwing out some major sell signals. I have been mentioned to members that I believe a major move down is looming. I am calling it D-Day and it could come sooner than some are expecting. Unfortunately, I can’t give you  this date or time frame. It just wouldn’t be fair to paying members. But if you are interested in learning when it is, please come and join our premium member service. Our $89.95 2 month special may be ending soon, as we are switching payment providers and my developer is not sure we can offer it.

So up in this area, carefully pick you spots to short and don’t marry the short side on the first drop. They almost always come back up and at the least test the highs. Below is a chart of our 15 minute timing system. Just one of 6 that our members see each night. Our timing system has NOT been wrong since put in place, almost 2.5 months ago.  Good luck trading.  G-

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Tuesday I thought a top in stocks might be in, but was unsure. Then the big euro reversal yesterday made me think a reversal in both the euro and stocks was at hand. Well, you know the result of that thinking. If the top I’m looking for is in fact Intermediate wave (2) of Primary wave (3), then it will be a doozy when Intermediate (3) gets underway to the downside, and a big money maker for the sage bears. However, I can almost guarantee you that catching this monster top will not be easy. And that was proven to me yesterday.

But being wrong in the short term does not make me wrong in the longer term. With the high on the year still intact, stocks are right in the typical topping area for 2nd waves right now, and the fact that this rally is based on some bailout nonsense in Europe, I feel this is simply just another time for me to nibble on the short side some more. I’ll get more aggressively short on a nice reversal day, or simply a sharp decline on very bearish internals. But I have little doubt this market will not make it easy on me. I just have to put my emotions in a box, lock them up, and keep them under the bed for now so I don’t do anything stupid.

Looking at the euro chart I posted yesterday it still looks great for a top and reversal and has me salivating to get short. Then when I look at the above chart from this morning, I think I’m an idiot for wanting to get short. But that’s the market. Right around major reversals in likes to suck you in and then slap you, making you feel stupid in front of your friends. And this slap hurt, I tried twice to short this pair yesterday and got stopped out twice. I’m waiting now for another reversal sign and will try again. I’m not giving up simply because I was wrong yesterday. Being wrong is part of trading. It will happen, and happen often. The key is to adhere to the bottom line we all have, which is to make money trading. Well, that’s what I plan to do…..make money shorting the euro. Yesterday’s decline looks like a 4th wave and the 5 wave rise into this morning looks like a 5th wave at some degree. I’m not sure if it will subdivide further into 4th and 5th waves so I’m going to wait for now. The top in the euro should align with stocks more or less.

By: Principle Analysis

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Internals today were very bearish in that declining stocks far outweighed advancing stocks on the NYSE and S&P. And although volume increase slightly today overall, it was still quite light today coming in at just under 1 billlion shares NYSE. Not sure this supports the case of a top being in right now, but volume doesn’t have to enter right at the top, it can come in during the following days, and there is certainly evidence in place now that suggests Intermediate wave (2) might be over.

Stocks reversed at a very interesting level at the 61.8% fibonacci near 1257. I’ve been citing this as the bottom level of my reversal zone the past couple weeks since the 61% and 78% fibonacci retracement levels are often the stopping points for 2nd waves, it’s above the prior 4th wave, and the end of Minor wave 1 down June 16, 2011 is at 1257. All represent good resistance levels that should give Intermediate wave (2) some trouble.

I would have liked to see higher volume with a rally and reversal to be more certain that a top is in right now, but the evidence would seem to at least warrant me to start getting short here. I will add to my short position on further rallying and /or an acceleration of the downtrend with strong volume and very bearish internals.

I like to look at the SPY (S&P SPDR) as a proxy for overall stock market volume sometimes. You can see that the big sharp decline we had this past July/August had increasing volume accompany it, while the recent Intermediate wave (2) rally has had mildly decreasing volume. This is bearish. You can even see the 20 day moving average trailing slightly down now while price moves higher. This is a good sign that we’re on the right track in counting this current rally as a correction, and NOT a resumption of the previous uptrend.

There is plenty of other evidence to support this, but I don’t see a reason to put a laundry list of things on here. The bottom line is that as long as this year’s high remains intact, I see substantial risk to stocks, and that once Intermediate wave (2) ends, the decline should be deep and sharp providing substantial profit potential for those on the short side.

The euro has reached a level I’m comfortable putting on a very small short position to start easing into a larger short position for the longer term. Today’s weakness may even be enough for some aggressive traders to get short with a stop just above the overnight high. With a nice round number of 1.4000 at the 61.8% fibonacci retracement level in arms reach, it’s hard to think that at least on sharp, and possibly quick, attempt to reach 1.4000 won’t be made by the euro. But no matter what my play is on how to approach the short side, I want to make sure I’m in the market when this pair finally decides to turn sharply lower on what I believe will be a move towards parity with the US dollar. If a sharp move to 1.4000 occurs overnight and stops me out, I wouldn’t be surprised if a sharp reversal takes place shortly after, prompting me to jump back in on the short side.

http://principleanalysis.blogspot.com/

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

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Regardless of your opinion on this, admit it was interesting that exactly when the S&P violated the Minuette (iv) CANNOT CROSS line, the market exploded higher on strong volume. Looks like too many people were on one side of the trade and there was a mass exodus out of the short camp. I repositioned my trading account to a neutral state until I figured out what the heck was going on. When the market does something you don’t expect, you must get smaller and reevaluate the situation.

After some reflection, here are my thoughts. This is the type of post that gets readers annoyed and even angry. I cringe just hitting the Publish button because I know  most people will say I’m ignoring the price action and simply using creativity to find a count that fits my stubborn outlook. If there was one day in the past 3 years that I have been tempted to turn bullish, it was today. And that is why I know it’s time to be more bearish than ever.

This count is borrowed from DanEric who is a stubborn Bear just like me. It shows Minute [i] finishing shy of its 1010 target, sporting an extended fifth wave. Sure, it’s not ideal, but it’s a valid wave count with no rule violations. According to Prechter, corrections after extended fifth waves usually complete near wave two of lesser degree. Well, that’s pretty much where we are now indicating Minute [ii] is just about done. This target lines up pretty well with the 50% retracement too.

Please note: This is a rough road map for the market movement I expect based on the rules of Elliot Wave Theory (EWT).  There may be several valid counts at any given time, but I am only presenting what I consider the most likely count based on my own objective analysis.

S&P 10-Minute

S&P Daily

According to EWT, Minuette [i] should advance prices beyond the Minor 1 low, just as Intermediate (1) should advance prices past the Primary [1] low under 666. Notice the large head and shoulders pattern on this chart. The negative sloping neckline is very bearish.

Please note: This is a rough road map for the market movement I expect based on the rules of Elliot Wave Theory (EWT).  There may be several valid counts at any given time, but I am only presenting what I consider the most likely count based on my own objective analysis.

Counting corrective moves is challenging, and counting triangles is especially difficult, so I don’t really care exactly where we are. It will become clear soon enough. I am having trouble finding a count that supports a Minuette (iv) flat or zig-zag, but that possibility does exist. The alternate count is that Minuette (iv) already topped out  -  see DanEric’s expanding triangle count.

As a trader, I want to be prepared for (v) down, which should be a decent size move. Given that (i) = (iii), both about 60 S&P points, it suggests that (v) will be an extended wave, moving greater than 60 S&P points.

Please note: This is a rough road map for the market movement I expect based on the rules of Elliot Wave Theory (EWT).  There may be several valid counts at any given time, but I am only presenting what I consider the most likely count based on my own objective analysis.