Wave 3…

Wow!!!  What a day!!  Did anyone see this coming?  Honestly, I can say that I did, but, evil as I am, gloating isn’t really my style.  Suffice it to say, I was quite happy with the move today, and for a number of reasons.  Follow along… I have a few things to point out today, and I will do my best to not compose an 8000 word financial masterpiece, but I can’t be sure.

First up, we have the market action.  I am gonna throw out 3 indexes tonight, starting with the NQ.  Keep with me as there is a lot of information on this chart.  First off, check out the 3.2% drop in an index in one day.  Suweeeeet!  Second, notice the BB bands and the last time we pushed out on such a, “marabuzo,” if I may, of a candle, we spun and snapped back.  I expect a lot of spinning, and perhaps, less of a snap back, depending on how things play out.  The former would indicate wave 3 of (3) is underway and we will fall in a relentless decline.  The latter implies that we must wait, yet again, while wave 3 continues to subdivide into additional 1-2, i-ii, (i)-(ii)s.   But, we did almost push outside the  3.0 (not shown) BB today, which is very rare.  But today’s action does show a complete reversal from the BB break to the upside we talked about a month ago.  Point number 3 is the teal trendline which represents wave 3 (of wave 1), a basic path from which we can project.  As you can see, my original orange trendline is a little more accurate, but still underestimated the speed of this move.  Finally, we talk about targets.  An easy target is 2205, but that is really close at this point (potentially only 1 day away).  The most probable target range surrounds the March lows (not shown) into the range of the July lows.  This covers the 2150-2160 range, and there are a few potential targets on the way down that we will discuss should the NQ have no regard for common resistances.

For the $RUT, things are just beginning.  We have yet to break an important resistance resting at about today’s close (718).  We are pushing the BB’s and are in the same price location, but further along in the wave progression, as the rally following 6/11.  Once we break our support, we should look predominately to 680 in real short order, perhaps hovering a little under 700, as we kiss that psychological level good-bye.  We will keep you posted as this index is quickly stepping up its game.  The three points on this chart are the 3% decline, the short-term RSI and mid-term momentum indicators turning down, and the ATR moving up rapidly.  As far as the ATR, notice how today’s candle was as large as the range of 7 full days of trading just a few weeks ago.  Things are really starting to click here.

Finally, my least favorite index on the planet.  Yes, the boring one that all the “standard” and “conventional” financial nut-jobs cover.  Let me assure you that I am not any of the plain words in the above sentence, but I will call this a shout out to CNBC.  Go Cramer! Go Cramer!!  So, the $SPX has some interesting points as well.  I will be a little “risky” and talk about the $OEX breadth a little.

These two pictures show $OEX breadth (top) and my ever-popular “Breadth-O-Meter,” complete with EOD volume numbers.  Notice the blue chip volume indicating this is not over, while interestingly, the leading $RUT and $NDX are showing weaker volume percentages.  Breadth was down more than 9:1 across the board, with financials (LEH, MER. FRE, FNM, etc) back to leading the way lower.  Okay, back to the $SPX…The banks have started to turn down (check $BKX for that), and the $SPX can no longer maintain its bullish ghost.  Today’s action technically breached to low on the 28th of July, but bounced back a little towards the close.  I think all the big wigs would have to agree that this means we will be “testing” the July lows.  The two most common targets, which coincidentally are the most common fibonacci clusters are the low and close of July 15th.  The $SPX has closed below it’s 2.5 BB today, meaning that a close back inside (the 2.0, not 2.5) should not be taken lightly.  Finally, the $SPX has the same large moves in the ATR, MOMO, and RSI, indicating that we should be progressing lower from here.

Okay, I have rambled for quite a while now, and I really wanted to cover some of my picks, as well as some others.  BIDU, GOOG, CME, FSLR (which gave a nice bounce to enter on this morning), GCI (finally breaking).  CCC just couldn’t fight the tide any longer, and LFG I think is in the same boat, and should be drowning soon.  And I’d like to bring a few more to the table…BDC on the retest, ICE is about break from a rising channel, TRA could be a confirming double top or an ugly H/S top, but either way is about to break horizontal res, PCR about to hit 52 week lows, and the moves in AG machinery, DE, CNH, MTW, BUCY, JOYG, LNN.  Man, the list goes on, but I still want to talk about the $VIX.

There is a lot to say on this, and I am going to move quick to finish on a bang.  $VIX closed outside the 2.0 BB, meaning that next time it closes inside, it will issue a short-term buy signal.  The beautiful thing about this, is that this is the exact level as the first failed buy signal of wave 1 or (3) down.  I do expect a close back inside shortly, but I expect the signal to fail, meaning that we won’t get a consecutive lower close.  There should be several of these fake signals during this wave 3 decline.  Just seeing the potential signal, to mean, confirms undoubtedly, that wave 3 is here, and that we are moving considerably lower from here.

Okay, I know I flooded everyone’s already frazzled brain, but hang on, because you may not get the best entries from here on out.  I wouldn’t be surprised to see indexes gapping either ways on opens, and very short, steep rallies.  Keep tuned in and we will keep you on the right track.

Skål!