More Testing with a Negative Close

We did get more downside testing today with a close under last week's low.  That is a pretty negative outcome, but the 5ma of the TRIN has now moved back to a level associated with bottoms over the last 3 years.  Also, the McClellan oscillator is again oversold.  The % of stocks above the 50ma remains well above 50%, which is also a positive.  We may see some more downside tomorrow, but unless we see a positive close on rising volume soon we will have to conclude that a much deeper correction is in progress.  Even so, as long as the 11/25 low holds, the outcome should be positive.  

I added the Qs on today's decline near the low.  We'll see if the market manages to rally tomorrow.  I also have some orders in for potential breakouts should they occur.  One possibility is SCSS which was mentioned this morning in IBD and has formed a cup and handle base on top of a larger double bottom base that triggered a buy signal on 10/20.  The new buy trigger price on SCSS is 21.24.  Be sure and use a stop.

Disappointing Start To The Week

While today's selloff was disappointing it did little to change the overall expectation for another move up as we approach the end of the year.  The volume was low, and the VIX was down in spite of the selling.  This may have just been a final shakeout before something gets started.  Even if we see more testing of last week's and today's low unless there is a solid close on volume below it, the outcome should be positive.

VIX Confirms Rally

While IBD continues to call the "Market In Correction" even after most of the recent decline has been retraced, but the VIX is saying that the rally is for real with Friday's big decline as shown below.  We see that unlike the July period when the 12ma was above the 50ma and rising, the opposite is true now with the 12ma below the 50ma and falling.  A break below the October low of 24.44 would solidify the rally, which is now expected to last into the first of January with the SP500 approaching 1340 to 1354.

As Expected

The rally that occurred was really in the pre-market futures, and then the pullback continued to lower levels as expected.  It looks like it still needs some more work, but any reversal with a positive close should be enough to conclude that the pullback is complete, unless it extends in a combination, of course.

Regardless, the rally has another leg up that could begin anytime.

Is The Pullback Over?

The Qs came within a few cents of tagging the 12ema today with just crossed above the 50ema forming a bullish hammer.  The pullback may be over already, but it is premature to make that call.  It is more likely that we will see a small rally and another decline first to create a larger 3 wave pullback.

The presidential cycle is calling for a rally into the end of the year and into the first of January.  Thereafter a multimonth decline should follow into May and a major rally into the end of 2012.  This scenario fits with the combination correction pattern that appears to be playing out right now.  It also fits with the typical 2 year rally  - 1 year correction - 2 year rally pattern that Gann described.  We are in the middle of the 1 year corrective pattern right now.  Whether or not a 2 year rally follows remains to be seen, but it will be probably be more than most are expecting.

Waiting For The Pullback To The MAs

While it is possible that a pullback will not occur, it is more likely that it will, and probably somewhere in the zone of the 12ema and 50ema as was the case after previous rallies this year.  Today's price action produced a doji-like candle, which may be signalling that the pullback is at hand.

MACD Buy Signal

A valid MACD buy signal has triggered for the Qs.  All four previous signals this year led to significant gains, and there is no reason to believe that this won't as well.  However, a pullback is likely as a clear 5 wave impulse has completed on the intraday charts.  There is no way to know how sharp it will be, but regardless it will be a buying opportunity.