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Wednesday, April 29, 2009

Some Bearish Tidbits




I have been trying to anticipate and indeed call a 38% correction for quite a few weeks. But why? I'll tell you. After a valid ABC pattern from 666 has played out (which I certainly think it has), normally an X wave (or B wave) experiences a 38% correction. So hence, the wave patterns and technicals at times have supported the notion of a move lower. It hasn't happened to the tune of 38% although a 50 point drop did ocurr which is perhaps the most the market will get at this stage. There is no rule on this just merely past precedence and guidelines.
One good indicator of a top is negative divergence from the everyday indicators as compared to another recent market top. A week or 2 spread between the tops is a stronger indicator than if it only happened a day or so apart.
The SPX shows a bit of this negative divergence. Also volume was certainly less than impressive particularly the DOW. But again, its nothing to bet the farm on.
The VIX continues to show positive divergence. New market highs yet the VIX is stubbornly holding higher. Its noteworthy.
The last chart is the banks. Banks have certainly not wanted to participate in the latest up moves. The leading bear sector always points the way downward. One interesting thing about the banks is that EWI contends that April was a big market corrective period. But if you look at the banks, April has been one big catch-up as it was lagging in the beginning. Are the banks merely lagging yet again?
Perhaps. Monday is a big bank stress test day. If they are lagging a bit again, they will surely rally hard if the market is indeed breaking upwards and out from a month-long correction.
But I'll wait until Monday.



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