To me the market is setup for a fall...something like gap down Tuesday and range day to close at the lows. But lets looks at the risks to this potential:
- Gold
- Dollar
- Bonds
- Breadth
- Symmetry
- Inverse ETF's have not broken downtrends
- Seasonality
- Market Structure
- Volume Patterns
- Weak Financials
- Oil
- Commodities
Discussion
Gold is in position for a consolidation which is at least supportive of stockmarket retracement. However, if gold were to continue its aggressive move up, that could reinforce selling in the dollar which would likely hold the market up to some degree if not spawn a proper rally.
Bonds, if labelled as an impulse wave would need to complete 5 down which would indicate at least anecdotally that stocks should rally. If that labeling is incorrect then the structure should break to the upside NOW which would indicate a more than likely significant fall in stock price.
Breadth, according to elliottwave was a little higher on friday than they would have liked. Friday was a pre holiday trading day, easily manipulated and possibly effected by the low volume calculation of the indicator. I believe that as long as breadth was not overwhelmingly strong the day is likely to be an anomaly. And that did turn out to be the case.
Nasdaq, SP, Russell and Dow all came back to test breakdown points and for convenience closed right at them. This makes it rather simple from a symmetry standpoint...if we gap up and over those levels then the short is most likely off...if we can not get above them then the short is likely on and P3 down is probably started.
Inverse ETF's have not broken downtrends. This is a big issue. They were rejected at the down trend line. This needs to be broken pronto...or they will go lower. We got some pretty sizable up volume recently and the decline has occurred on substantially less volume - so its not that negative yet.
Seasonality, is biased towards the downside with larger investors back from vacation and likely with an itchy trigger finger. Additionally, market direction changes love to occur on three day weekends.
Counter trend move off lows of march can be counted complete and retest of bearish ending diagonal setup nicely to be a kiss good bye for the market.
Recently, down volume has been increasing and up volume has been decreasing. 2 Distribution days in the last week or so...one or two more could put a nail in the coffin.
Financials, set up a very bearish pattern this week and could not find buyers out of the selloff. In fact, individual charts like C, BAC, GE, JPM did not setup bullish candles on Friday. In fact, they look much worse than the XLF.
Oil continues to sell down regardless of if the dollar is doing so or not.
DBC is coming off a very nice double top and has done nothing to break its down trend. I do not see how the market can sustain a rally when commodities can not catch a bid even if the dollar is weak.
VIX
The VIX index broke nicely out of its falling wedge...and then rather interestingly fell right back into it. This is a mixed event for me. We could (as i expect) pop right back over it on the open on Tuesday or perhaps we need another test of the lower trend line which ironically would fit nicely with further dollar weakness, Gold strength and market strength.
