Notice the long-term MACD divergence and the sweet head and shoulders pattern. This is definately a bearish looking chart. It is the flipped chart of oil, and implies crude rallying to 70 or so.
The interesting thing is that crude oil tends to move in line with the stock market. So, the market looks bearish and crude oil looks bullish. One will be right. I will have to adjust quickly if the stock market decides to follow crude oil higher.
I last posted about the overall market here, and about AAPL here.
Above, I posted an Elliot Wave count for QQQQ which I find intriguing. From the '07 high, the market has declined in 3-waves to complete WaveA down (Nov. lows). Since then, the market has been correcting in WaveB which should unfold in 3-waves. I am considering the possibility that WaveB unfolds as an irregular flat, where Wave-b of WaveB slightly undercuts the WaveA low, and then rallies sharply for Wave-c. This wave would break above Wave-a (Jan. '09 high), tricking everyone into thinking a new bull market has started. This would complete the entire WaveB correction, and then the final leg of the bear market would start, bringing prices much lower in WaveC.
The key to this scenario is that Wave-b unfolds in 3-waves, as opposed to 5-waves. I think this could happen, as I'll explain in the next chart.
- C around $8
- F around $3
- AAPL around $100
- GS around $71
- IFN aroudn $18 (plus a $6.50 or dividend)
I took a pretty big hit on each of these, but it's been a good learning experience. One of the best lessons: if everyone is predicting the same thing as you, it's not going to happen (e.g. the common consensus was that the bailout was going to end the market downtrend).
Notice on the above chart that the NYSE A/D divergences I posted a few days ago have been negated. This makes me believe that we could see one more high with lower stock participation to complete the rally. This would post the final A/D divergence and then lead to the next bear market decline.
The above chart shows a possible Elliot Wave count. We should be in the Wave4 correction, and you can see that the move is not impulsive. The waves are choppy and overlapping in what appears to be an "abc-x-abc" 7-wave pattern. This implies lower prices, as does the low volume in the recent rally.
Furthermore, the NYSE Advancing Issues count is showing divergence with price action. Notice that while the SPX made new price highs relative to the early December spike, the 5- and 10-dma of the $NYADV indicator did not. Again, this indicates that fewer stocks participated in this rally, which is not a good sign. One caveat with this indicator is that if the market rallies again on Monday, it could blow out the divergence. I want to see the market drop hard with few advancers to confirm this divergence.
If you need further evidence that we are near a short term top, take a look at Will Rahal's top/bottom indicator here. It is in the traditional sell zone and is also diverging with price.