The start of the big drop tomorrow

I was wrong big time on the ending of the correction. Hopefully Mister Market always clarifies its course. My version is below, the most likely outcome is the start of the 3d wave down tomorrow. The ending diagonal seems to be about complete.

Correction is about over?

The correction which has started last Friday has a good chance to finish today. My target for SPX is 1083 and for NDX 1785. EUR/USD continue to be weak, confirming my previous call on euro. The next week should be strong on the downside for all risky assets.

Uncertainty, once again

Friday's session has put under the test my opinion about the structure of current decline. Today should be critical. Will we slow down and roll over under the red line or will we go higher, until the really important resistance of 1104 (for SPX). I'll be watching the leaders (techs), once again.

For the moment, I'm sticking with the previous count. However the target of this 3d wave may be much lower than 1000 for SPX and 2000 for Nasdaq.

Fast and furious

In the not so distant past the market was taking its time to correct. After a 1st wave, we could expect 50 to 62 percent of retrace in time as well as in price. Not this time. We have really entered a liquidation mode. We're in hurry to liquidate all this "risky" stuff we've hoarded since the beginning of March '09.

So, yesterday (Feb, 4) we have completed the first minute  wave (1105 -> 1063 for SPX) of the 3d minor. Usually, the third waves are strong and often extend. So a reasonable target for this minor one could be at near or below 1000 on SPX and 2000 on the  Nasdaq Composite.  We'll reach the bottom of this third very quickly, most likely next week.

The first minor wave is about over

The stock market had only good news on Friday with Q4 GDP, Chicago PMI and consumer sentiment, all shooting higher than was expected. But the stocks faded, especially in tech sector. And if someone thinks the decline in stocks was driven by an expectation of the future rise in interest rates, he must look at treasuries. Their rates have declined strongly, - not exactly a situation of eminent rise in FED funds.

All this has given one more proof, if one needed, that markets aren't driven by news.

In my opinion we have approached the end of the first minor wave down, as shows  my Elliott Wave count for Nasdaq and SPX:

I'd like to add that I consider the beginning of the first minute wave  January 11, the same day as for Nasdaq. Indeed, even if we can't see it on the charts of cash SPX,  the March's contracts on SPX, have put in the absolute top right before the bell on the  January 11. That top wasn't taken off when 2nd minute wave topped out. Thus, one of the most important rules of the Elliott Wave Principle ("Wave 2 can never exceed the start of Wave 1") is preserved.
The obvious conclusion of this count :  the most likely, this Monday (February 1st) we'll start a corrective rally. The possible targets for this move are shown by red horizontal lines.

Should I stay or should I go?

This week, market is seeking to stabilize after last Friday's sell off.   It's difficult to be sure in very short picture. We can push much lower today (my privileged call), in which case it will be the 5th minor wave of the 1st down, as well as we can stay in the range of previous 2 days or slightly rally in order to work out short term oversold conditions.
Let's look where this market is heading in the nearest perspective.
In my opinion, both SP500 and Nasdaq Composite are heading to test (and pierce) their 200 days MA.

And that should happen within weeks. After that, we'll certainly have a tradeable rebound  and then the real things will be able to start. Currently I think that we will start the new Big Wave down somewhere in April heading in what Yelnick has called the Summer of Disillusionment.

Don't wake a hungry bear!

I should note that equity market was greatly prepared for the yesterday's sell-off.
From the technical point of view, we have passed the 10 months time frame, which is 62% duration of the previous bear market.
Fundamentally, we're in the 3rd quarter of upbeat earning reports and given the 60%+ rally, the cost reducing efforts of US companies are at present more than fully discounted by the market.  What we need to hold, not speaking about  the rise, is the growth of sales, that means a real, consumer driven recovery. But the unemployment, which is rising along with cost cutting programs, can't provide any confidence to the consumers.

On the political front, Democrats have lost an important election, and it's not a good thing in the mid-term elections year. That's why in order to gain some popularity, Obama has to do things which will please its voters. And what else will be more popular than an exemplar punishment of the authors of the current crisis. The same who were responsible during decades for pumping money in to the system. All this is deflationary and mister market feels it.

On the short term charts I've got an impression that we need, at least, one more wave down for SPX as well as for NASDAQ. Moreover, it's highly probable that one of these indexes if not both has put its top in.

And, in my opinion, we have a similar situation with currencies. In order to complete the pattern EUR/USD has to plunge one more time, probably toward 1.38.
In any case, we're only at the beginning of the second (3d in Elliott Waves terms) wave of dollar appreciation.

Risk appetite and some confirmation

I've been expecting the techs to underperform the broad market and especially big caps well before the markets start to roll over.  And that's what we have had.

 On the chart bellow we see the Nasdaq Composite to Dow Industrial Average ratio. It reflects the willingness of investors to buy riskier  (more expensive on the relative basis) growth stocks.  This ratio has put a top at the end of September and since, it has declined in the clear 5 waves pattern, meaning, from the Elliott waves point of view, the trend has changed.

So the rally in "risk appetite" has lasted a bit less than 10 months, and hence it confirms the coming reversal in the major averages (SPX, DOW)  which will mark at the same time the beginning of the 3d wave down for the Nasdaq to Dow ratio.

Watching the grass grow

While I've been expecting that this rally should last until the year-end  I didn't think it would get so boring. I definitely prefer the tops of bull markets, with their spikes as early bears get squeezed.
Nasdaq Composite goes nowhere since 2 months already.

Hopefully, there is DOW, the big caps are still desired.

And if you think we gonna break out on the upside, look at the high beta small caps Russel 2000:

And some of not so old leaders,

Homebuilders:

And Semiconductor Companies:

 Ok, ok, I know, the real story is about Gold. There is a lot of action. People are scared by coming hyperinflation and are buying gold as if there is no tomorrow. Personally, I'm far from being sure , most of them really understand why they need gold, but it continues to be the game du jour until it's no more.

Sell the news

The Fed was as dovish as they ever could, but we didn't managed to hold. Looking at the charts, I think the lows of 1027 (on December's SPX) should hold in the comming days. What we have seen yesterday was the most likely  wave A for those in the correction (semis, Nasdaq, small caps) and the wave (i) for, at least, Dow Industrial.
Looking bellow at charts of Dow, SPX and Nasdaq Composite we can see that only Dow didn't violate the trend line from the March lows. Moreover, Nasdaq has already put in a lower low, but it's not the case of 2 other indexes.

So, I'm still sticking to my Nasdaq's count, but may be with the correction about the year end. As for now, markets look a bit weaker than I've been expecting, so the top of this correction wave (since July's low) is closer and if this wave is the final one (I believe so)  at year end we will be significantly lower than even now.
May be a disappointing shopping season in the US and Europe will be a nail in this rally's coffin.

Missed!

What a pity, the Composite missed the target of 2200 by less than 10 points. Hopefully, FX market gives us a chance to  have another attempt before the real correction starts. In fact, USD is still looking like going to spike toward 74. That shall give  ~1.52 target for EUR.
The volatility has suffered a powerful reversal following the sell off, but such a thing often needs a retest.

Leaving the techs alone

While still waiting for a thrust to at least 2200, I'm looking at the Nasdaq to Dow Jones ratio.

For the intermediate bottom, it has turned up well before the indexes actually did. So, now I will look at it in order to confirm the trend change as well. And, as for now, the ratio seems to be poised to plunge.

Elliott wave count for Nasdaq

Previously, I've given a target for the Composite of around 2200-2270. Now it's time to enter in some details. Firstly, the current count for the Nasdaq Composite.

 

 
I think this correction of the entire wave 1 will not exceed 61.8%. Playing with fractals, we'll find that at the beginning of this bear market not the 1st of I nor the wave I were retraced more than 61.8%.

As for the timing, in both previous cases of 1st waves, the correction has lasted about 61.8% of the impulsive wave. That gives us a target for the year-end. But, since we're already near an important juncture, I think we'll get Nasdaq topping  in few days  and other broad indexes (SPX, DOW, XMI) doing so in December, while Nasdaq will make a double top.