Choices, choices…

What a day eh?  Market closed down across the board, dropping as much as 11.85% ($RUT).  Volume was fairly large, especially after the tepid volume of the holiday week.  Breadth was quite bearish with $INDU, $OEX, and $NDX closing with all issues in the red, and the $RUT and $SPX combined only managed to tick up 35 issues.  In fact, this is the worst breadth that I have on record (feel free to correct me).  I mentioned to my brother that if we were starting a sizeable sideways or upwards move, we should be able to single out one sector of the market that was holding the market up.  I looked, and trust me…nothing.

Unfortunately, this leaves me with a dilemma.  Prices dropped with a hellish fury, but not beyond a breaking point in the wave count.  Therefore, wave 4 up remains on the table, and a potential of wave 3 down continuing remains.  My view is that wave 3 down is still unfolding, and the current weakness is likely working out an ending diagonal.  In this view, we should get another couple of modest pushes lower, followed by steep snap-back rallies.  If at some point we tear off below the recent lows, perhaps another variety of wave V of 3 is unfolding.

Honestly, the decline itself was not unexpected, but the breadth was pretty startling. My view continues to be that the downside holds the upper hand, but I am extremely gun-shy, as this type of market reversal is getting tough to read.  Another push or two outside the 2.0BB would be a great exit signal for me.  For now, I would be targeting 1000 in $NDX, but expecting it to break.

I have been looking at some stocks, and I have a few good long ideas as we get closer to a bottom (or at least a snap-back rally).  ESI looks good above 90, as that is strong resistance.  It is a decent relative strength candidate, and has been coiling for a move for a few months now.  If it doesn’t break 90, it would be a good short.

The next few are on weekly charts but are looking pretty sweet.  We have  GMCR which is a nice little bull flag forming and it is pushing it’s head on the upper boundary.  A nice break and I could be in.

Next up is INT which could work out well if it can regain the upside of the 200 week MA.  Until then, I am a little skeptical, but keep the odds on the long side with that flag-like formation.

Finally we have ISYS, which is a little interesting.  While the markets are pushing their downside equivalents of the 2000 crash, ISYS is nearing its 2000 peak of $27.27.  A break of this level could trigger some serious buying.

Keep in mind that these are on the weekly timeframe and will likely be making new highs when the market is rallying in wave 4.  With that, I am treading lightly into new lows, and keeping an eye out for some of these nice moves to start taking off.

Skål!

Mole here – just wanted to tag on tomorrow’s (12/2) RL chart for my trusty steel rats:

Here are also the RLs for Gold as a link – don’t want to clutter up Berk’s post.

Cheers!