Alright, I finally finished the Elliott Wave analysis I promised you the other day...
20/20 Hindsight Meets $20 Million Foresight
Pardon my continuing to kick myself for missing the golden opportunity the market's October decline presented. I only do this in the hope we learn something from it. Take a look at what hit me between the eyes tonight. How could I be so blind?
As you know, I am always looking for divergences — positive or negative — at turning points.
September 17th... there were the oft' noted RSI and MACD divergences relative to the July 15th bottom ... just as happened at bottom, March versus January. Oh yeah, I was all over that.
But look at volume going into the September 17th low relative to July 15th. Was this anything like March versus January? Quite the opposite! Volume in March diverged from January, and in so doing, confirmed bottom. Contrarily, volume in September widened ... this at a lower low than July ... confirming an urgency to selling ... and man, did we see a lot more of that!
I completely missed the volume clue. I wanted to show you, so next time maybe you'll wake me up.
Remember back in late-July when it had become clear imminent "capitulation" was moving off the table? MACD was rising to its 0 line and I indicated this needed watching. Yet look ... by September 17th it was solidly negative ... and falling like a rock. What was I thinking! Talk about your deer in the headlights...
That's enough crying for now over one big miss on some serious bank. So, let's play connect the dots...
Red dots ... a price-RSI divergence at a new high. That's a negative ... as in bearish ... and all the more so because the first print reached a buy-side RSI extreme. No wonder, then, once the price-RSI divergence registered it took two days for OEX to trade slightly higher.
Black dots ... a price-RSI confirmation of a new high. That's a positive ... as in bullish.
Green dots ... a price-RSI divergence at a higher low. That's a negative. This is what I was looking for when on Mr. Market Twitter I wrote, "Upon a higher index low coinciding with a lower 5-min RSI low will the market again be about to turn lower in its bottoming process." If you look at the 10-day chart of the NYSE Composite Index in yesterday's post, you will see this condition developing just before the market came unglued last week.
Connecting the dots it looks like we have a mixed bag. Now take a look at the 1-year S&P 100 chart above, and pay particular attention to the early February period when, like now, MACD was just beginning its break higher. Do you see how it came back down ... right at the start of the month no less? Well, Monday is the first day of trading in November, and all four of the Fast Money traders tonight said the new month's end would find the market trading higher, so be aware...
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