Friday, November 4, 2011

Market Synopsis - 11/04/11

Since the last blog post titled Vix Up 20% - WHY??, market has been going up. However, it seems like the trend is exhausting. Therefore, one should be very careful with tight stops (if long).


The primary reason why it seems like that the trend has reversed is because the initial decline from 1291 to 1217 was a complete 5 wave affair. 5 Waves represent trend reversal. Furthermore, this initial move from 1291 to 1217 was very violent, hinting to the possibility that we have entered a downtrend. The subsequent rise from 1217 to 1261 has come in the form of choppy market action. Choppy action is a hallmark of a countertrend rally (wave 2). Finally, recent rally has retraced 61.8% of the initial decline. 61.8% retracements are typical retracements for counter-trend rallies. All of these observations are shown below.




At the same time, the sentiment has become very optimistic again. This optimism in the face of a declining to sideways market is dangerous for future market rally. 


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