Excedrin Headache #C

The S&P now closes below Mar17, and confirms the general downturn across all major markets.  The relief rally has been stillborn, despite slight pops above water in the past two days. Neely has been expecting it, but has issued an emergency notice to his trader subscribers to also take short positions in case we fall hard over the next few days (his service gives specific levels and times to short).  He also urges caution on the Euro, whose wave pattern is showing that a new high may come shortly - especially if the ECB raises rates and the Fed stays flat.  The STU is in a similar posture.  In the S&P, the recent May high was a wave 2 retracement up into the level of the wave 4 of the prior wave 3 down, a common level to hit (it reflects distribution of stock out of long positions; the prior 4th of the 3rd was an attempt to catch the bottom that failed, and now the desire when that level is reached again is just to dump those stocks). 

The Dollar has also broken below an upwards channel, indicating that it will now fall, maybe to all time lows, and the Euro may go above $1.60.  Gold is in a corrective pattern, and some EWI readers think it could be in a triangle, implying a pop to new highs shortly.  Hochberg is doubtful, and gives technical reasons why from the wave structure.  Putting the currency pedal to the metal, he thinks the Dollar/Euro situation will not reverse until gold starts its next leg down. 

A relief rally will come, they always do; but the STU does not recommend trying to catch the bottom, as stocks may simply fall in a general capitulation to the trend.  Instead, they say to watch the bounce: in the short run, it should not crest Dow11.4K, SP1285 or Naz2300 (I rounded their precise numbers up a bit for convenience), else we are stil in a flat correction not the next leg of the Little Big One down.  A big rally should sail up near Dow12K beforee collapsing.  Finally, while the VIX now has given a buy signal, other investor sentiment is still higher than one would see at a bottom.  Watch out below!!

Comments

[Eventhorizon]

Not sure on the Vix.

It has taken a spike above 30 to put in the last three bottoms. The 13 day MA has reached the 26-28 zone each time about 6 days after the peak.

Currently the Vix has reached 26 and the MA has taken 23 days to get from 18 to 23 (0.217 points per day). Allowing for a lag of 6 days it will take between 8 and 17 days to reach 26 - 28 at the current rate of increase.

Arithmetic:
(26 - 23) / 0.217 - 6 = 7.8
(28 - 23) / 0.217 - 6 = 17

So, possibly still a week or three to the downside.

[Bill C]

So, possibly still a week or three to the downside.

That could be a hell of a week or three!

The March 17th trading low was 1256.98 so we still have a few points to go to get below that.

[Paul]

Sorry, this has nothing to do with your topic, but I's like to point out the media's take for the Dow's fall today. They blame it on GM. BBC calls GM the "biggest drag" on the index. That's BS. With a market cap of barely $5 bn, GM constitutes less than one percent of the Dow 30's total value. GM value is so small, that the next smallest Dow company, Alcoa, is worth nearly six times that much.

[Eventhorizon]

Paul,

I expect they mean that the psychological impact of GM's predicament is affecting investors and dragging on the index. Your point is absolutely valid none-the-less: financial reporting in general is abysmal.

As an index the Dow sucks ass (as they say in South Park) - it is weighted by share price which makes no sense. For instance compared to market cap, Boeing gets about 4 times the weight it deserves, while GE gets about 1/4.

[TObject]

Paul, NOT a BS!
check my earlier post about US automakers
http://yelnick.typepad.com/yelnick/2008/06/entering-the-by.html#comment-120391504

[I.Sosceles]

noise.
orchestrated.
the decline is over, virginia: fearrrrrrrrrrrrrr
bernake is out.
lehman is dead.
volcker is in the wings for the new year.
the real story is entitled: Between the Lines

abcxabc: small, medium or large? :)

[Plain_Ewaver]

I agree with Event about the Dow. That's why I only look at the SPX.

And my count is that yesterday at 1292 SPX started 5 of (C).

Fibo targets from smaller to larger degree:
1130, looking within (C), most probable
1166, making (C) = (A)
1090, big picture triangle since 2000

[Bob Thompson]

Investors Intelligence and Hulbert numbers are on a buy signal.

Highest bear numbers in a decade. Wow!

[Tom CZ]

as long as market in "Hope" and not "Fear" we are going lower - I need to see bloody marry to get in - exp. S&P EPS quite close to that one seen at the top of realized at the start of 2007 (so around 90) - risk reward to earnings season lower so for the stocks...

[Upstart]

We're likely in a little sideways correction for another day or two before the final week and a half of drop. Eventhorizon is pretty much on top of it.