A Rally Top?

The Qs came within 0.10 of the target cited in yesterday's post before 11am this morning on a very low volume run rate. Around 2pm a lower top began to form. Having come so close to the target with a potentially completed pattern and volume running lower than at the 9/23 and 10/14 highs within two days of the next potential turn date, I decided to open a 1/2 position in the QID around 2:30pm. In the last hour of trading things began to deteriorate and the Qs closed below the 9/23 high on increasing volume.

Before the closing bell, Maria Bartiromo was searching for a reason for the selloff. The final conclusion was that a downgrade of Wells Fargo was the reason. The real reason: when a bullish pattern reaches it's completion concurrent with increasing sentiment against a negative cycle period, the market will sell off regardless of fundamentals.

We can't be 100% certain that today was the top of primary wave W, but the probability is pretty high. I will be looking for confirmation over the next few days and an opportunity to increase my positions in the QID and SSG as well as add on with the TWM. Several potential sell signals will do - another MACD sell, IBD calling the market in correction, 5 waves down from today's high with a proper fractal sell pivot, a break of the October low - take your pick.

The minimum objective for this correction is the August low and the 200dema. I expect a rally off of the 200dema back to the 50dema followed by a retest of the first low or a move to the July low. The correction should be complete by early December. At that point we can re-evaluate the potential for the continuation of this cyclical bull market in primary wave Y of cycle wave x into a top sometime in 2010.

I am also short BRCM and MON. There are a few other shorts setting up in individual stocks but not many. Perhaps in a few days things will change.