SHORT TERM: market selloff starts overnight and continues, DOW -254
Overnight all the Asian markets were lower. Europe opened lower and closed -4.30%. US index futures were substantially lower overnight and the market gapped down at the open to SPX 802. It closed at SPX 816 on friday. The selling continued until about 11:30 when FED governor Duke speech was released: http://www.federalreserve.gov/newsevents/speech/F918CF1E7D0C4ABCBE1BDCB5E4918006.htm. After the SPX hit 785, holding support at the 789 pivot, it could only rally five points over the next hour. Then an hour later and at 790 the SPX headed lower. By 3:00 the SPX hit 780 and then bounced into the close. For the day the SPX/DOW were -3.40%, and the NDX/NAZ were -2.60%. Bonds gained about 1/2 point, Crude dropped $3.75, Gold slipped $6.00, and the Euro was lower. Support for the SPX drops to 768 and then 734, with resistance at 789 and then 848. Short term momentum was quite oversold at the lows. Tomorrow Case-Shiller housing prices at 9:00, and then the Chicago PMI and a Consumer confidence reading at 10:00.
After the market became somewhat choppy during its rally last week, it signalled either consolidation or a weakening in upside momentum. We maintained the short term count and allowed the market to sort things out even though there were negative divergences. We also noticed, over the weekend, that many of the uptrending Asian markets were overbought short term. The market resolved the situation overnight with a significant decline in the futures market, which carried over into todays trading. It appears the market was forming a diagonal triangle 5th wave during the past week. This would certainly explain the weakening momentum and the sharp selloff. As a result we moved our A wave to the SPX 833 high, outlined the diagonal, and are now observing the B wave unfold. Support should arrive at the 768 pivot, or worse case the 734 pivot. After that the market should resume its rally.
MEDIUM TERM: downtrend, market rally now pulling back
LONG TERM: bear market