Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Almost Everything Is Lined Up for the Bears


One market leaves a lingering conundrum.

For the past couple weeks, I've done my best to avoid trying to make a firm prognostication of the near term as long as the market remained range-bound. As of this morning, it appears that the market is ready to break down from the apparent head-and-shoulders top. I've made my intermediate bearish stance pretty clear, but we're presented with a lingering conundrum regarding the short term: The NYSE Composite (INDEXDJX:NYA), which is a fantastic representation of the market as a whole, has thus far failed to best its May high.

The purpose of a fifth wave rally is to break the high of the previous wave -- and the vast majority of the time, that's exactly what it does. In rare instances, the market will experience something called a "fifth wave failure," which, as the name implies, is when the fifth wave fails to exceed the high of the prior wave. Fifth wave failures are impossible to predict in advance -- in fact, their very nature is to be the exception to the rule.

Outside of NYA's failure to make a new high, the patterns in most other markets look bearish. After several weeks of top-building, it's difficult to image we'll see a short-lived breakdown. Everything seems to be lined up for a sustained intermediate breakdown except for the lingering doubt created by NYA's failure to make a new high. I obviously can't be certain what will happen here, but because of NYA, I'm going to at least keep an open mind to the possibility that we'll see a relatively short-lived breakdown, then a new high to complete the expectations of wave v, and then the more serious intermediate bear move. If it weren't for NYA, I'd say fuggedaboutit -- bears will run straight to the end zone.

Click to enlarge

Despite NYA, the preponderance of evidence seems to favor the bears for the time being, so that's the direction I'm going to lean. It's entirely possible that NYA did indeed form a failed fifth, which would suggest a very strong bearish market to come. I'll track both options heading forward.

The S&P 500 (INDEXSP:.INX) notes the apparent near-term count, and some preliminary targets.

Click to enlarge

In the big-picture view, I continue to feel that no matter how the near term resolves, the bears are about to take control of the intermediate picture.

Click to enlarge

The Philadelphia Bank Index (INDEXDJX:BKX) reached my final target zone, as previously noted, and may have thus completed its rally and wave structure at Intermediate degree.

Click to enlarge

In conclusion, NYA has left a few unanswered questions on the table, and thus left the near term a bit vague. Since my expectation has been for an intermediate decline, and so many markets looks toppy, I'll treat NYA as a failed fifth wave for the time being -- but with an open mind toward the possibility that we're simply unraveling a fourth wave correction. Trade safe.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos