Observations

Tonight we have a dominant price/volume relationship, Close Down/Volume up, by a wide margin, this typically leads to an oversold situation and an oversold bounce.

Further evidence of a VERY oversold situation is the 239 industry/subindustry groups, only 2 closed green today!

While we have plenty of relative positive divergences, I would like to see more of these turn in to leading poitive divergences like the 15 min SPY below.

Being the 15 min is already there, the 1, 5 and 10 min can make it to that position pretty quick, it would certainly be possible within a day as I have seen a 15 min timeframe achieve that in a day. When we have those kinds of divergences on multiple timeframes and averages, the probabilities of being at a turning point are very high.

False breaks/head fakes are also good timing indiations, I showed you on in AAPL earlier tonight and you an see how quickly it fell one the head fake is completed and the longs start losing money from buying the breakout. In an upside reversal, a break below important support leads to the head fake and it is completed when price rise above the breakdown level.

We saw several important breaks of support today, the most serious being the S&P-500. I wrote about two weeks ago that I thought we'd have one more rally, followed by a new low and a strong move up off the new low. Some of the indications were in last night's post, such as the breadth charts and the Zweig Breadth Thrust.

The volume on the break of both the closing low and intraday low was not as strong as  would have preferred to see, nor was the break as sharp as I would have preferred to see, we'll have to see if it was enough. Both MACD and RSI were positively divergent on today's move below the support levels.

The 3C depth charts are getting very low in their troughs, some at new lows compared to past accumulation areas.

 The DIA improved a lot today in this respect, but still is lagging the others. The two white boxes represent the past area that my "gut feeling post was based on, that more or less stated that I thought the last accumulation zone at the  Sept. 23rd area was going to look like the zone in the first white box, which in retrospect I don not view as two separate accumulation events, but as 1 event separated by a short bounce. Some other things they have in common include the fact that we didn't see the level of distribution at the bounce area that we saw at previous rallies. Here you can see there was no negative divergence on the hart , just a "V" shaped peak , whereas the other two rallies showed clear distribution.

 The IWM depth chart is at a new low, it too did not see negative divergences at the interrupting bounces. The depth harts shallow troughs would tend to indicate heavier zones of accumulation.

 The QQQ also saw a new low today on the depth chart, you can see clearly that the troughs have been areas of accumulation while the crests have been areas of distribution, ending bounces.

The SPY also hit a new low, again notice the white boxes on 3C are not showing negative divergences.

As for the Demark signal variant indicator, as mentioned earlier, all of the signals that were present Sunday night played out on the open today in the SPY, they probably did in the other averages as well, I just didn't check those.

 As of Sunday night, the longest timeframe we had signals on was about 30 minutes, tonight all have 60 min signals which have done a goo job at marking the lows that lead to rallies as you can see by the buy/sell signals on this SPY 60 min chart.

 DIA is the only one that is only to the 30 min, but with 2 consecutive signals, which we have seen at two previous bottoms that led to rallies.

 QQQ

 IWM

IWM daily which has marked every bounce/rally

The VXX which trades opposite of the market has a daily sell signal.

They have been pretty reliable.

The reason I have felt for some time that we would see some good upside from the bear flag daily formation is the daily positive divergences, this is something I have talked about for awhile, not just recently.

 DIA daily leading

 IWM daily leading

SPY daily leading, even while price breaks to new lows.

So the Demark signals are in the right area, the daily charts suggest something has been cooking of a bigger nature, there were numerous signs in last night's post, the depth charts are now in an area in which a turn up would signal a tradable bottom and the 3C charts are almost universally showing relative positive divergences.

The only thing I would like to see at this point before issuing a screaming buy would be leading positive divergences pretty consistently.  Should that happen, I think we could see a rally bigger then anything we have seen in the past nearly 2 months. A flat trading zone would also be encouraging.

Tomorrow Bernie K speaks before Congress, I would doubt he would be making any policy statements there, but who knows what he might say and if the market will latch on to it. He's scheduled for 10 a.m., hopefully CSPAN will cover it so I can be spared CNBC.