Monday, November 23, 2009

Monday 11/23/09 Market Update

The market moved higher today but as I mentioned in a comment on yesterday's blog, no major indices besides the Dow Jones Industrial Average made a new high. The S&P 500 was 1.31 points shy and was the closest to confirming, the NASDAQ was not so close. The Russell 2000, Dow Jones Transportation Average, and the BKX bank index did not confirm last weeks highs but more notably are distant from their October highs (the Russell 2000 actually peaked in September).

In addition to this great divergence, volume has clearly been waning the entire month of November, or ever since the last bull leg began. Volume actually picked up the second half of October, or during the time the last bull market correction began. This has been a distinct change in volume with the exact opposite to be expected in a healthy rally. So putting the pieces together, a top should be expected soon if there has not been one already.

Above is a 1 minute chart of the S&P 500 index. I am content with a wave [iv] bottom taking place last week, it seems to fit into the larger picture without problem. The larger wave count since early November supports this idea. Strong impulse waves were seen since Friday so this is likely not part of a B wave. Finally given this, a B wave probably never unfolded because it seems to have been too small in size and time compared to that would be the A wave.

In trying to determine the larger wave structure, I am also considering the size of the sell-off this afternoon which seems far too wide to be the 4th wave of a larger impulse. And given the gap and big rally today after 3 weeks of a November rally in its later stages, it is unlikely that a larger impulse can unfold in what would be the 3rd wave of a larger impulse that started since last week's lows. So the best options seems to be a wave [v] truncated top on the S&P 500 today. That top would not be truncated on the Dow Jones Industrial Average.

Supporting this idea is an impulsive count that can be seen from today's highs. This is a very encouraging sign given the buying that took place early this morning. But over the coming days we will need to see whether this is an unfolding wave B of (Z) of [2] of the beginnings of wave [3]. Moving below 1030 should basically prove that [2] has completed.

From an Elliott perspective on all scales I would be very surprised if today's peak is broken tomorrow. I believe a wave (ii) zigzag correction will take place tomorrow with prices reaching 1108-1110. Any gaps more than one point in either direction would surprise me.

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