Nearing A Short Term Bottom

It is quite possible and maybe even likely that the Dow will take a stab at 9043 tomorrow after today's poor finish. However, evidence is beginning to build that supports the possibility that Minor wave 3 down is near completion. Today's rally, such as it was, may have been Minute wave iv with Minute wave v down yet to come or Minute wave iv may retest or exceed today's high before retesting today's low.

NYSE and NASDAQ new 52 week lows have traced out 5 wave ending diagonal triangles that indicate a reversal is at hand. Today's volume was the highest since September indicating increasing demand for stocks and some capitulation. QQQQ put open interest is highest at the 32 strike for October and November, while 32 is also weak support from the 2004 low. The Elliot wave pattern is supportive of a low. The 10 period ADX is at 54, a level often associated with trend exhaustion. IBM beat earnings and reaffirmed its 08 forecast after hours, which could help tomorrow. IBM is also sitting at fairly solid support.

All of the above comments are not meant to suggest that you should go out and buy with abandon tomorrow. Rather, if you are currently short you might want to consider taking some profits or hedging with some calls or a position in the QLD until Minor wave 5 gets going toward the end of October. Currently, I am short several individual stocks and would like to hold those positions (with appropriate stops) until the November low. Today I took positions in the QLD and the UWM as a hedge against the potential rally so that I am presently market neutral.

Any rally in the Qs over the coming weeks will not likely make it above the 5odema. Any such rally would be an opportunity to get short or add to existing shorts for the next leg down.