Closing Wrap

Today and yesterday have both been interestng and for me, gut-wrenching days. Both days the 50-day moving average was broken on large volume, but so far the market ha faled to cascade in a waterfall move down. I don't need to repost the many postive divergences that have occurred yesterday and to a larger extent today.

The Price/Volume Relationship, price again, is dominant at Price Down, but unlike yesterday's volume up, today is volume down. To give you some idea of the dominance, this relationship covered half of the Dow, half of the NASDAQ and nearly half of all of the NYSE component stocks, considering there are 4 possible combinations, that is dominant and impressive. It's also an interesting relationship in that is is one with the least bias. It happens to be the most common relationship during a bear market, but we are in a different situation as volume was still respectably high.

My take on the relationship, the urgency was not nearly as pronounced as yesterday with regard to selling.

If these positive divergences are to play out, it will have been one of the best head fakes we have seen n awhile, a LOT of shorts would be trapped in a bounce that would likely be so scary, you would be questioning if a new bull run was in the works. That would be the entire point of bouncing the market here and the short sellers covering would just make the upside that much stronger. There's no good reason to bounce the market here other then to suck in longs and set up a major short position and to do that, the bounce would have to be very convincing.

Since my expectations from last week were for a move through $135 on the SPY and 12,750 on the Dow-30, this possibility does not seem that far fetched to me. Those were the levels I thought the market would need to break to lure longs back in to the market with some confidence.

Ultimately though, price is always the final say and the while we have some indications that have caused me to shift some things around and may have given us an edge, price will need to follow through and make the move.

Remember, the fact that the market didn't move higher today on the positive divergences doesn't say anything about their validity. A positive divergence can last for several more days and the longer it lasts, the more impressive the following move will be.

So for now, stay nimble, make sure your risk management is up to snuff, maybe raise a little cash and position your portfolio in a manner which is consistent with your outlook. Tomorrow 3C will give us more information as will price. Hopefully the pieces of the puzzle will start to form a clear image.

I expect it to be another gut-wrenchng day. I personally have closed out some short positions and have started opening a few long leveraged ETF positions. The Russell 2000 looks to be one of the stronger positive divergences out there.

As for the Euro, tonight it's sitting pretty close to some support, which could possibly mean weakness in the dollar, which is inversely correlated with most asset classes.

See you in the a.m.