The market sold off early Wednesday, but retraced almost all of the move down by the close of the day. It seemed too be a very controlled sell off as the volume wasn't really that heavy for a down day. It followed the technicals fairly well all day. While I thought it would rally up in the morning and sell off into the close, it didn't have the strength to start rallying until it sold off some more first.
(to watch video on youtube: http://www.youtube.com/watch?v=bs63pR2qzJ4)
Finally, around midday, the market bottomed and the charts all pointed back up and proceeded to rally into the close. I think it will continue up tomorrow morning until about midday and then rollover into the close. The market is certainly showing signs of weakening as it put in a deeper histogram bar this time.
Last week it wouldn't have dropped as much before rallying back up, which means there isn't too much longer before a sell off begins. They seem too be doing everything they can to hold it up until the elections next week. I have no idea if the high is in or not, but it feels like it is.
Mainly because of the time remaining before the elections and the time of the month. The last days of October the mutual funds should be selling to lock in profits before the elections. They can't take a chance on what the outcome will be, so the safe move is to sell ahead of it.
But, the short term charts are pointing up into tomorrow, so I do believe we'll see another chance to get short before the week ends. I think Friday could see some selling as the GDP will be released in the morning (could surprise?), along with it being the last day of the month for the mutual funds to close their books on the quarter, spells a "down day" on Friday.
Reasons for a down day on Friday:
- The short term charts (60, 30, 15, etc...) will likely peak Thursday by midday and rollover into the close.
- The mutual funds need to close out the quarter by the last trading day of October, which means they will likely take profits by selling some of their core holdings.
- Thursday will be the last POMO day for the week, allowing Friday vulnerable to any selling pressure as there won't be as much money available to buy up the market.
- The dollar seems too be breaking out now, and that should put pressure on the market.
- The VIX seems too be breaking out now too, and that shows fear in the market is coming.
Now... if it were only that simple, we'd all be rich! LOL. You and I both know that they are going manipulate the market to where ever they want too this Friday. While the evidence points to a down day, if they want to rally it they will. So too be fair, here are the reasons for an up day on Friday:
- There are Weekly options expiring this Friday, and they need to pin the market where they pay out the least amount of put holders as possible.
- The government doesn't like Friday's to be down, because they want to give the false illusion to the public that everything is "ok" going into the weekend, so they will go out and stimulate the economy by spending money they don't have.
- The elections are next week and the government (or at least the Democrats) want to hold up the market until it's over with and blame everything on the Republicans on the coming correction.
So, which will it be... a positive close on Friday or a sell off? Only time will tell, but I'm leaning toward a sell off... especially if we rally back up tomorrow morning to 1185-1190 area by midday. Of course we could roll over tomorrow at the open, if the initial claims and continuing claims numbers are viewed as negative for the market.
While I expect them to be better then expected, if they are too good then everyone will think that the Fed's might raise rates soon, and that they might not get the QE2 money that everyone is expecting. So, we really want them to met estimates or disappoint for that one more move higher in the morning too happen.
If they beat by a lot, I'd expect selling to happen pretty quickly. I'd like too see one more move higher, and then rollover into the close tomorrow and early Friday. But, you don't always get what you want. If we rollover at the open, then things could get ugly pretty quickly.
Best of luck to everyone,