Overview

As I said last night, expect a bounce today, but even if it had retraced all of Tuesday's loss, it's still a single tree in the forest as breadth has deteriorated badly. Tuesday's end of day 3C suggested a bounce as did the breadth readings which were so bearishly lopsided, they by themselves put the market in a one day oversold situation.

I also explained that tops and bottoms are a process, not an event, whether it be a top that lasts months, weeks or days, very few are "V" shaped and most are "U" shaped. This chart illustrates what I meant.

In white are the typical "U" shaped reversals, there's one in a red box that is very close to a "V" shape reversal, but they are not common, so imagine if today was a continuation of a big sell-off (see red arrow), it would be rather unique, besides, we had objective data that suggested otherwise.

Speaking of the lopsided bearish trading stats, yesterday's price-volume relationship on a down day was very lopsided to the bearish side, while today's relationships are different and we had a close up, I'd be hard pressed to say they were less bearish. Here's how today's Price/Volume relationship for the averages broke down:

All NYSE Stocks tracked...

Close Down/ Volume Down:  817 stocks This is the most common relationship seen in a bear market and  doesn't tell us much.

Close Down/ Volume Up: 797 stocks This can be an indication of capitulation, but where we are now it is taken as an indication of panic selling when it is dominant.

Close Up/ Volume Down: 3345 stocks This is the most bearish of the 4 relationships

Close Up/ Volume Up: 1609 stocks This is the most bullish of the 4 relationships.

Clearly you can see today's dominant price/volume relationship was close up/volume down which is the most bearish

Dow Jones-30

Close Down/ Volume Down: 2 stocks

Close Down/ Volume Up: 1 stocks

Close Up/ Volume Down: 20 stocks

Close Up/ Volume Up: 7 stocks

NASDAQ-100

Close Down/ Volume Down: 9 stocks

Close Down/ Volume Up: 6 stocks

Close Up/ Volume Down: 62 stocks

Close Up/ Volume Up: 21 stocks

Russell 2000

Close Down/ Volume Down: 248 stocks

Close Down/ Volume Up: 173 stocks

Close Up/ Volume Up: 378 stocks

Close Up/ Volume Down: 1137 stocks

S&P-500

Close Down/ Volume Down: 28 stocks

Close Down/ Volume Up: 37 stocks

Close Up/ Volume Down: 314 stocks

Close Up/ Volume Up: 114 stocks

As you can see, today's price/volume relationship was dominantly bearish.

As for the SPY, DIA and the QQQQ

 The DIA was, like the others, was plagued by a negative divergence nearly all day-this is distribution into higher prices-bot buying by smart money. In the afternoon the averages started downtrends, defined as lower highs/lower lows.

 The QQQQ's divergence and it's downtrend which started earlier.

And finally the SPY and a leading negative divergence that led to a downtrend-lower highs/lower lows.

It seemed much of the EOD action was dictated by the EUR/USD FX pair.

 Above is a one minute chart of the pair, you can see a triangle consolidation formed, as per usual we saw a false breakout to the upside and just shy of the market close, the Euro broke down out of the triangle.

Here's the hourly chart with the trend in green. The first 3C warning came last week and we saw the euro break down against the dollar. It rallied since to form the triangle which broke to the downside late in the session. If you look closely, you will see that the Euro is in a downtrend as well, lower highs/lower lows and appears as if it will make a topping pattern as it already broke support from the first breakdown-this is bad for Gold, many commodities including oil and stocks.

Here's today's GLD 60 min. chart.

You can see the negative divergences on Monday-60 minutes is a serious time frame. Also today it hit resistance from yesterday's highs and 3C went into a negative leading divergence (in the red box).

The daily GLD chart...

Here you can see the trendline of resistance from yesterday's highs, this still looks like a serious break.

The NASDAQ has been the leader lately whether it be to the upside or the downside and it lagged both the DIA and the SPY today. Semis didn't look to good.

Here you see the white arrow showing accumulation and the red arrow showing distribution and a reversal in SMH as well as a leading negative divergence in the red box.

Surprisingly UUP held up today

As I showed you this screen last night, I mentioned after the first breakout, the first pullback usually runs back to the 10-day moving average which you see here in yellow, it usually makes for a good buying opportunity, but in this case, it shows UUP holding up pretty well.

Today seemed to be more about financials then most other groups. Here's XLF vs. FAZ

 As you can see, although FAZ pulled back, it held support well and with a positive 3C divergence on a 15 minute chart which had progressed from shorter charts during the day.

XLF failed to challenge resistance and ended with a 3C negative divergence on a 15 minute chart. These two look almost exactly the opposite-that is to be expected of price, but not 3C unless there is true confirmation there.

As far as IBM and AAPL being taken to the woodshed yesterday, neither gained much traction today.

 AAPL

The same is true of IBM. If both or either of these stocks fail to fill that gap, then it will be considered a breakaway gap and should start a downtrend as they are reversal gaps.

Tomorrow we'll be looking at stocks that have earnings before the close. The last quarter I did this 3C nailed something like of 19 of 22 correctly. If you have a stock that reports after the close, go ahead and email it to me.

Here are a couple that reported today, one miss and one beat, look at the 3C signals that showed what is most likely leaked numbers to smart money as they acted before the earnings were released.

 Ebay beat, you can see a negative divergence that led to a reversal back in March, then accumulation that led to the rally in June, the fact 3C is so much higher now then the top of the April Rally puts it in a huge leading-positive divergence considering price is a few points lower. These are the kinds of things I look for in earnings plays.

Seagate missed, you can see a long stretch of distribution as they distribute stage 1 inventory during stage 2 mark-up, but the serious signal that hinted at a problem was the recent negative divergence, it actually went into a leading negative divergence. This would be the kind of thing I look for. You never know where of which stocks you'll find them in, but when you do find them, they tend to stick out like these two.

I may add some stocks to the list tonight, I still like FAZ a lot where it is, there's a great risk:reward ratio there. Also earnings plays will be up for stocks that report after the close tomorrow.