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Thursday, November 5, 2015

Stock Market update Thursday 11/5/2015

If you were watching me tweet charts yesterday, we determined that this powerful rally is in fact a wave C, since wave 3 is ruled out when the Wilshire 5000 made a lower low (ruling out wave 2), back in Sept. So what does that mean to us as traders? It confirms that this is a snap-back rally, rather anything more sustainable. There's still the slight possibility that we're going to trade into a broadening pattern, as I tweeted earlier in the week - on a revised DOW chart - but unless and until that develops I have to continue to treat this as a sucker's rally in wave 2 (or possibly a wave b).
Looking at the Wilshire:
The pink line is where we saw yesterday's reversal - by the way. The red line is a possible target, and as I've said before "calling market tops is harder than calling bottoms".

As for the Dow it continues to hold above a channel which it never should have pierced in the first place, with the 200 day moving average currently trading trending @ 17583.

For all I know the powers that be have set some arbitrary target like DOW 18k, because they feel this will offer the market some psychological boost. I see it as a normal snapback rally, which overshot because of damage control. What I mean by that is that no sooner than the market crashed, we saw certain stocks immediately bid up to pre-crash levels as if nothing had happened. Not the plunge protection team, but anxious money managers, having an "oh shit" moment, and attempting to repair some of the damage done in the August crash. Breaking out the top of the pattern doesn't change the pattern, it only extends the rally for a few more days, and allows the PTB more time to take profits.

 Looks like we're seeing a head fake rally in futures this morning, after yesterday's reversal, and I have to assume that was a reversal, because wave 1 always looks like a harmless pull-back. Maybe we retest the highs, but this rally is already so over-extended, and I'd be an aggressive seller into any further strength.  

I wouldn't normally expect stocks to sell-off this time of year, because short sellers typically like to lighten up on their bearish positions, before they leave for the holidays, but this time could be different. after all we did see the market crash into the winter of '07 - '08. We could still see a short lived rally into OPEX, and into Thanksgiving, but a lot can happen in 2 weeks.

Energy has also extended further than expected, but this brings me to the most important point in this update. We've seen certain energy stocks extend their gains, lifting the Dow energy index to new recent highs, causing that sector to trade into an unexpected triangle pattern.

The price action also failed to interfere with the price action in what I've revised to wave "1". If this is correct then energy is headed for new recent lows.

I've revised this pattern to a wave 4 triangle which just happened to kiss the top of a bearish channel. Also, I happened to catch part of the Fast Money show on CNBC, and the ridiculous bullishness I witnessed points to an emotional wave E top.

That's all I have time for today, but Biotech also looks like it could be in a wave 4. I remains Net short that sector and gold miners as well. Maybe more on that in the next update. 


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