A Pause Day?

Was today a pause day or a setup for a short term rally? It is hard to say, however, the decline in the futures after the close would seem to point to the former. Market action still seems to be pointing toward a low later this week, or early next week, but it is looking more and more like this will be an interim low, which will be tested and exceeded before an intermediate term bottom of importance is seen.

The Dow closed just 4 points below the 7930 target I posted yesterday, while the SP-500 is well above the next expected target. Therefore, we should expect to see the Dow at the next target of 6452 before any significant countertrend movement.

Traders should definitely be on guard here for a mini-crash into lower level targets as the public is beginning to throw in the towel. Today I was speaking with a sales representative of a building supply company that I have known for many years, and he was telling me that he was ready to sell all of this stock holdings and move it into a money market account. I warned him two years ago of the impending danger in the stock market. I am sure he consulted with his financial advisor who did not concur with my views. This is one of the first people that I know personally that is not a trader who is ready to give up entirely on this market. One person does not reflect everyone, but I suspect that the lack of any positive response from the government's efforts will lead to a climax of selling by the public this month.

Today was a narrow range in the Dow which should lead to an explosive move near term. Most likely, it will be in the direction of the trend.

We also have a weekly squeeze setting up in the Dow. I have commented on the development of the 2 day and daily squeezes that were developing in the past few weeks. Now we have this weekly squeeze. A review of past instances where a weekly squeeze was followed by another in the same direction in the stock indexes shows that oftentimes the second one will be of short duration. Here again, we see the beginnings of the end of primary wave 1 down, probably sometime this month.

I will continue to trail stops lower and take profits at targets over the rest of this month. I do see one tempting short developing in TM (Toyota). I will show the chart tomorrow, but caution is advised for new shorts.