Late Inning Curve Balls

The market has certainly thrown a curve ball here.

I did feel yesterday that the market would get to 114 but this wave has clearly cut through the 2nd wave of the previous downdraft. So I can only conclude that this downdraft represents a complete 5 wave pattern (same thing threw me with the crash). Perplexing is that we now have a picture perfect 5/3/5 pattern. Unfortunately there's no way to fit this into the bigger picture so I can only say that Elliott has given me the slip.

It's hard to deny that this rally is a motive wave. Darned definition of a motive wave to me and it's a beautiful 5 wave pattern. Given that Elliott has gone foggy however I'll retreat to other tactics. The first thing to note is the technical resistance line at 1150. Recall that 1160 has been the fulcrum point for the sideways correction. It would make sense for that to now become a resistance point.

The second thing to note is the potential for a Kiss of Death pattern on this 1 hour chart. I've noted before how the K.O.D. on the small futures chart has signaled imminent collapse. Note how the futures bottomed out at 1068, lower than the SPY that only made it to 107.43. However, the S&P futures previously bottomed out at 1077 back in August (was it that long ago?). So perhaps the "future" in S&P futures is telling us something about where the market lands next.

Taking a step back at the SPY we can see how there was a pressure release:

We had the negative reversal on the 16th and then with the new bottom and spike we got a bullish divergence. Bullish divergence is tricky. The green line at the right of the screen is a price projection based on that divergence. Divergence price projections are not as reliable as reversal price projections but it is worth considering the possibility that this is now the 2008 style bear rally that takes us into the end of the year. Given that the spike created a 5 wave we must be on the alert for this possibility. Imagine something that looks like this:

Looks pretty darned reasonable right? The key will be whether we get a higher low on the next downdraft and whether that downdraft is motive or a clear corrective pattern. A higher low on something that looks corrective would certainly warrant a heavy long position. A bullish divergence or positive reversal at that point would add further weight.

Meanwhile, as always when the market throws me a bogey I check the components:

MSFT

Microsoft has been helping me a lot with my Elliott analysis. Here we see the motive wave again. The bear case is still in because the previous high had not been penetrated. We can also see a lower low and lower high forming at the end of the day today so the wind is definitely out of the sails.

AAPL

Apple is still making a bear case. This wave has ended in the vicinity of the previous fourth wave (blue line) which is good. It is also carving out a corrective looking pattern. However, on the daily chart:

Apple has a perfected DeMark buy signal on a volume spike and a serious negative reversal. Now that is a lot of support. Overall that would mean the corrective pattern we see in AAPL is an A/B/C with an unorthodox top. The implication is that a stupendous rally in AAPL is coming. Yikes.

ORCL

I'm still holding an ORCL short and I have to say the chart doesn't look particularly bullish. We have a lot of unfulfilled negative reversals. The pattern it is making is very clearly a corrective pattern. Could that corrective pattern continue? Yes. Could ORCL go down, or sideways while AAPL shoots up? Yes. Don't throw the baby in with the bathwater (?).

XLF

The financials are giving us much information but it's worth noting the divergence on the composite index and the stochastics which both measure relatively shorter term momentum than the RSI. There's a tasty gap for the financials to shoot for.

HD

HD has shown strength during this correction. Yesterday it clearly found that same support line. Will it turn around immediately and break support? I'm doubting that. I'm also noticing that stochastics have crossed and that the composite has found support. On the other hand, RSI is about to find resistance so a struggle looks to be on hand. We'll keep our eyes peeled for a small positive reversal or bullish divergence in the coming days.

MO

Altria made a very nice V shape bottom but this chart looks like it's heading to a retest. What I usually have observed with a pattern like this is that the stock makes a fake breakout above the trend line and then heads down further. One can see this on a past JJG chart. Also note how stochastics have crossed and that RSI bounced off of the 60 level.

TLT

The long bond has reached an absurd level, higher than it did during the 2008 crash. We now have numerous bearish divergences as well as a boatload of "gap gravity". A short here would require a pretty generous stop. One might get lucky and catch a lower high in the next few days.

GLD

Gold is giving numerous long signals. First it perfected a DeMark the day of the bottom. Second we have a very serious positive reversal on the back of a string of unfulfilled positive reversals. We have a volume stop on the bounce day. We have large gaps to draw attention back upwards. We have a tiny little bullish divergence at the bottom. Finally we have intermediate support (not shown). It's an easy trade with a tight stop. (Silver looks much the same except it has two negative reversals that indicate it will retest the 28 low. I suspect both gold and silver will create a false downward spike before rallying).

JJC

Copper shows what can happen when DeMark is early! However at this point we have a bullish divergence on the back of a long term positive reversal. We have serious volume today. We have a delicious curve bottom shaping up. Plenty of gaps on the upside. Keep in mind, this isn't a "bull" market it's a possibly bear rally. Plenty of room for a 10-30% retracement when an asset has fallen this far. (The soft commodities are all showing a similar situation).

COW

Beef was early out of the gate, bucking the recent downtrend. Note the power of those positive reversals for price projection! Now we're closing in on a DeMark sell signal and we have a bearish divergence. The trend isn't finished but it's close to turning around. That would make a 5/3/5 for COW and could be an incredible short opportunity.

UUP

Finally, the almighty dollar. Recall that in a previous post I noted that a divergence between composite and RSI often indicates the penultimate top. Well, we now have a higher top and stochastics are once again crossing over. I don't want to rule out yet another top (note the gap within reach) but to me a dollar breakdown looks more imminent than a further run upward.