Tuesday, December 2, 2008

Was Today A Follow-Through Day?

Today's action met the IBD criteria for a follow-through off of the 11/21 low as the Nasdaq Composite was up 3.7% on higher volume than yesterday. I would not be surprised to see it called that way in tomorrow's edition. However, looking at the intraday chart the rally appeared to be an upward flat correction in the form of a 3-3-5 wave count which completed wave c near the close. I could be wrong of course. An alternate view is that the upward correction is a double zigzag with one more down up sequence to complete. I suspect there will be some additional upside tomorrow morning, but none of the indexes advanced more than 50% of yesterday's decline, so I find it hard to get too excited about the long side (in the indexes) yet.

I was filled today on two index short positions on today's retracement. I guess I will know in a day or two if they work out. You can only trade what you see, and what I see is a market in a downtrend that had a nice bounce today. Follow-through tomorrow on increasing volume would be cause to reconsider.

An additional interesting pattern emerged today as the VIX appears to be forming a triangle, which could be a continuation pattern, or wave b of a correction. Either case suggests that the VIX will move higher in the future indicating further selling ahead as well.

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