At least one more low to go…

The markets have put us in a position where we will soon be able to eliminate a number of options.  Quickly going out of style, the 4th wave flat targeting 1350-1400, will likely be eliminated with a push below 1149.  The complex correction remains on the table for the moment, but so long as we continue lower, that option will likely be pulled.

That leaves us with the old (discarded) triangle or the ending diagonal.  Should the triangle be leading us lower, we would expect a swift movement lower, that would continue all the way through Friday.  If it is the ending diagonal, we would continue to expect the whips to which we have become accustomed.  Depending on how we count the ending diagonal, we could expect a drop from here, or another move higher.  It is all here to see in this nice chart.

But what is more striking than what wave we are in, the chart displays we are in fact heading lower.  Check out the resistance line on the MACD.  Nice huh.  Now know that this line remains unchanged from 10/16!  Yup, more than 1 month ago, I was plotting this resistance, noting the divergence, and low and behold… Not once, not twice, but three times has this line been tested, and the consensus is… More downside.

I mentioned last week about the banks ($BKX // XLF) breaking their lows, and that this is a quality sign for the bears.  Notice today, the trend continue with a lower close.  I think there is still some considerable downside in $BKX.  XLF is looking a little cheap, and at all time lows, one can only speculate on where this would go.  But, since speculator is our name, I would venture that between $8 and $6 would be a nice target.  As I said…more downside.

Mole mentioned last night about the $CPC.  Here is my take on this as well, but we both agree that fear has not peaked, and we should see another spike higher.  I used a 10, 20 and 50 day moving average to track the $CPC.  Notice that the long term (50 day) is still uptrending.  It is starting to taper of, but until we get a full turn down, the trend remains up, which means more fear.  I would expect the 20day to reach around 1.100 and the 10day to get as high as 1.150.  Again, a substantial target, strengthening the case for wave 5 down…

There is also the $NYHL, which also allows for more downside rather than upside.  Again, the 50day remains downtrending, and I would be looking for the 10day to drop between -600 and -750.  The 20day should be looking to test the 50day around -400.  Basically, this chart shows that since mid June, no rally has managed to muster enough strength to get a positive close.  A positive close would indicate that more stocks put in 52week highs than put in 52week lows, which would be a good indication that the market was looking to move higher, not lower.  If I lost you in the explanation, I basically said “No $INDU 36K yet…sorry Beanie.”

This brings me to the $VIX.  I said a break of 77 would have us looking for triple digits.  This has not happened, nor a divergent high, but there is one more thing for which I am watching closely.  That would be a buy signal.  The good news is, to get this, we would need to see the $VIX above 80…minimum (unless $VIX drops from here).  Considering the range-bound nature of Mr. $VIX over the past 2 months, I am expecting some action soon.

For those of you who don’t know, or are like Gumbo and forgot, I will toss out my list of high-beta stocks.  Caveat Emptor: These stocks are LEADERS… leading down and leading back up.  Watch them closely as we approach our final lows (should still be a few days to weeks), as they will pull up real hard.

GOOG, FSLR, BIDU, MA (almost anytime I am buying puts, I am buying these (i.e. core positions)).  From that I throw in some Ag picks; CF, POT, BG, some energy; CHK, CRK, some minerals; GMXR, CCJ.  Finally I round it out with AAPL, RIMM, WYNN (used to be LVS), ICE, DRYS, and GNK.  Most of these should be no surprise.  I feel that I know the majority of these stocks very well, and I strongly recommend watching and learning how individual stocks, that suit YOUR preferences, move on a daily basis.

That is it for today.  Should we break lower tomorrow, we could get a nice drop down to test the prior lows.  As before, watch for institutional buying around these levels.  Beyond that, expect standard expiry antics…

Skål!