Transcendental Market Truths:
The Market:
The rally back from the January-February correction is showing structural cracks despite the modest up close recorded on Wednesday in the stock market. The initial weakness in the US Dollar, illustrated by the strength in the Euro, provided the stage for the early rally. However, when the Euro is in a strong downtrend, rallies are simply not going to last long and this one certainly faded quickly after Moody's reported it was considering downgrading some banks in Europe. This pulled the stock market down as all of the gains were temporarily given back. Although the market was finally able to register a modest gain by the close, my breadth indicators stayed red and my Elliott Wave count suggests that the market could be in for another leg down in as the flood of cash out of the Euro returns to full strength.
Dow Industrials:
The Dow Industrials just made it to the measured move resistance price at 10,318.7500 and turned down decisively at this key area. Money flow also turned down, which suggests that there is no accumulation on this rally. At the same time, my OEX Dollar-Weighted Call-Put Ratio, which registered an overly-bullish reading on Tuesday, continued in that condition on Wednesday. This rally is over-believed and that spells trouble for the market. Normally, I will see the market top two trading days after a close at the overly-bullish level, so according to that historical metric, Thursday should see the market make a high and start down again.
The larger count on the market is corrective. Some would love to see impulses to the downside (five-wave patterns) to confirm that the final top is in place, but, so far, most of the down legs have come as ABCs. But, the rallies has also proved to be ABC patterns as well. Experience suggests that ABCs up, plus ABCs down indicate the market is in a trading range consolidating the uptrend, rather than immediately trending lower.
One of the reasons I think the market could hold up and rally after this correction is over is that I am still seeing literally hundreds of individual stocks showing solid money flow into them. Yesterday, I had 349 stocks with money flow at a maximum as measured over the last 100 trading days. It's more likely that the market is going to see much fewer individual stocks under accumulation at a major high. |
