Heads spinning!

Let me preface with the statement that Mole and I have a difference of opinion on where the market goes in the near term.  He believes that the market will rally a little more from here, while I believe that we will continue falling, much like we did after the Sep 18-19 rally.

Mole here: Not true – see the quick update I posted a little while ago where I line out two possibilities.

So, I will start off with a daily chart of the $NDX, my working count, and some evidence to back it.  A 4.5% decline is pretty good for the bearish case right after the largest single-day market rally EVER, yesterday.  When that  daily candle goes from opening 40 points higher to fill the gap, and dropping almost immediately afterwards for a total of an 8% change on the day, it makes a strong backing of the bearish engulfing signal.  Finally, I am targeting a few ranges as preliminary targets, unless the markets just fall out.  Those levels surround the range of 1300 and 1250.  Should those levels break with little contest, I would be looking for 1100 as a next target.

Here is the intra-day count that allows for the [ABC]-[X]-[ABC] I mentioned to CC earlier.  Let me also mention that when I use [brackets] I am using a generic count, and not specifying the exact degree.  Oftentimes that is not easy to do in real time.  That said, here it is, a flat, zig-zag, zig-zag.  It is a little weak, but is does not violate any rules, and follows quite a few guidelines.

So, how did the market react today, internally, in respect to yesterday’s rally?  Well, let me go through the daily breadth with you, to give you a frame of reference.  We have:

10/9 Breadth

10/10 Breadth

10/13 Breadth

10/14 Breadth

So, we have10/9: Negative, 10/10: Mixed (Negative), 10/13: Positive, 10/14: Negative.  The internals do not appear to be gaining in strength, rather responding like a junkie to its dope…  We’ll know tomorrow if the market starts to flatline…

The $VIX produced another failed buy signal today, the second failed, of 5 buy signals during this decline.  This one, being the fifth, and coming from a $VIX peaking at 77, is a little harder to dismiss.  I told Mole yeterday that we needed to use the $VIX as a trading signal until it settles out in the 30-50 range.  That said, when it spiked into the mid-forties this morning, I used it as a chance to buy a few pieces of second month paper at, what could likely be, a nice discount.  I think that we all agree that whether the markets move a little bit higher from here, or don’t, that the general direction is still nearly straight down.  Until the  $VIX settles into the above range, I recommend buying stock to reduce your volatility risk while going long.  The BX trade I showed earlier was part of a long term investment, but when I saw the gains I made in 3 trading days, I needed to take it.  There are two sides to this coin, but in a market like this, when you get nice winners, you need to make sure you capitalize on them.

That said, I hope all of you have been surviving, and hopefully profiting from this market.  It has been rough, and will get worse, but if you can trade through this (and we still have a market left), you can trade through anything.

Skål!