Correction Is Still In Progress

Today's rally on below average volume coupled with weak breadth was not enough to alter the view that the market is still in a correction, however muted the correction happens to be. Tomorrow being the first day of the month is likely to be an up day, but the overall pattern of the action since the low last Friday is corrective, which means that lower prices will likely be seen in the coming days.

While the action over the last few weeks has been quite bullish and supportive of the view that this cyclical bull market will continue as expected into next summer, a number of factors are also consistent with the interpretation that this is a bear market rally which is undergoing a correction. For example, both the IWM and XLF have broken down below their October lows and are sporting anything but impulsive looking patterns, advance/decline lines are not breaking out even as the Dow has made new rally highs, and the summation index continues to decline. In particular, the IWM remains below its broken trendline from the March low with falling momentum.

Unfortunately, the market behavior since the October highs does not lend itself to an obvious elliot wave interpretation at the moment. However, my hunch is that the IWM is in the middle of a b wave triangle that will resolve to the downside once it is complete. This next leg down should complete the correction. If my hunch is correct, then the subdivisions of the triangle should become readily apparent by the middle to end of next week. Triangles are a trader's best friend as they almost always point to the end of a movement which allows us to anticipate the beginning of the next movement. Let's hope we see a triangle.