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.

Is the Rally Over, or Just Taking a Breather?


All final adjusted targets were reached on Tuesday, but this article discusses some of the pros and cons behind each view.

MINYANVILLE ORIGINAL On Monday, I laid out the intermediate bear case and noted that the wave structure suggested there was likely to be one final wave up over the short-term. Then, based on Monday's price movement, I adjusted the target for that final wave in the S&P 500 (SPX) to 1425-1430 (contingent on trade above 1419.59); and also published a target of 3100 for the Nasdaq Composite.

In Tuesday's session, the SPX hit 1426.68 and reversed; the Nasdaq hit 3100.54 and reversed -- and in a market like this, that's not a bad day.

Now the question becomes if the entire intermediate rally is, in fact, complete. I favor the view that it is, for a number of reasons, but in this article I'll discuss some of the pros and cons for that view.

A series of historical data points that suggest an intermediate turn is underway were laid out in Monday's article, and it's worth visiting if you missed it, since I won't rehash that data here. These data points are definitely a "pro" to the overall bear case, but are not exact short-term timing measures. As such, they tell us that a turn is very likely to be in play over the intermediate term, but they don't really help us figure out the short-term -- i.e, if that turn happened yesterday, or if it will happen a couple weeks from now.

The chart below is a point in favor of the intermediate turn having peaked. The wave structure that shows in the Dow Jones Industrials (INDU) counts very well as a complete wave.

Click to enlarge

The Nasdaq Composite (COMPQ) is slightly more ambiguous, particularly on the daily level (not shown), and the daily chart of the Nasdaq 100 (^NDX) in particular would probably be considered a "con" to the intermediate turn having already occurred (chart follows).

Click to enlarge

Below is the Nasdaq 100 daily. This chart looks like a con to the idea that the final top is in, though it's also possible that NDX will go on to make a new high, and indices such as INDU will not.

Click to enlarge

The SPX chart outlines both possibilities, and some key levels to watch. The weakness of the alternate count's third wave has to be considered a "pro" to the idea that the top is in.

Click to enlarge

Another "pro" not shown was discussed yesterday: The NYSE Composite (^NYA) reaching, and so far failing to overcome, intermediate resistance. On Tuesday, NYA was rejected directly at the intermediate trendline discussed yesterday.

In conclusion, the rally turned perfectly from within Tuesday's final adjusted target zone, and I feel reasonably confident that an intermediate trend change is now underway. Obviously, trade back above the 1426 pivot high would suggest the alternate count is in play -- however, even if that were to be the case, at the bare minimum, I expect this high will hold for several sessions and lead to a decent correction. As the assumed decline unfolds, I'll watch the structure and the key levels, and that will help me either add confidence to, or subtract confidence from, my view that Tuesday's swing high was all she wrote for this rally. 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