Big Down Day, A Reversal? – 06/23/11 © ™

• SHORT TERM – MAY 2, 2011+
• UP, CONFIRMATION NEEDED
  

• INTERMEDIATE TERM – FEBRUARY 2011+
  
• TURNING DOWN, CONFIRMATION NEEDED

• LONG TERM – MARCH 2009+
  
• UP
  

• VERY LONG TERM – JANUARY 2000+
  
•  WIDE RANGING DOWNTREND
  

The market was down about 250 Dow points (-2.1%) and then recovered to down 59 (-.5%).  The NASDAQ Composite was down 43 points (-1.6%) but closed up 17 (+.6%).  The NASDAQ is normally more volatile on the downside than the Dow Industrials except when it’s sold out and ready to rally.  Today was a good example of less volatility for the NASDAQ and a readiness to rally.  For the Dow it would have been a beautiful reversal if the market had closed up 100 Dow points but that didn’t happen.  Was today climactic???  Semi-climactic yes, but not climatic, and that’s why the Industrial’s rally fell short of making it into the black.  Nevertheless it appears that we have completed 3 steps down in the bank index (see last chart).  The banks have been the primary target of a Greek default and if the banks feel relieved, the rest of the market should too.  The only caveat is the bank index could be in a 5 step decline, but that should be a non-issue when the market has rallied high enough.

The market had  a lot of bad news today as highlighted in an earlier update.  That was the backdrop for a big fall in the market but it rallied in spite of the bad news.  How the market reacts to news is very important and today the market appears to have shrugged off the news.  We’ll know more tomorrow as a follow through would be expected.  The SP futures have rallied after the close and should indicate a good opening tomorrow.

The first chart is the dollar ETF and it moves inversely to the stock market.  When things go bad the world wants dollars and US Treasuries.  Things didn’t look great today and everyone wanted to move into dollars and the market went south.  If the dollar completed its 3rd step up today, the market should continue to rally.

06-23-11, DOLLAR EFT (UUP), 20 MIN BARS, WAVE COUNT

The second chart is the SP 500 futures since June 22.  The wave count is a completed 3 to the downside and the market is now rallying.

06-23-11, SP 500 FUTURES, 5 MIN BARS, SINCE JUNE 22, WAVE COUNT

If the trend channel is broken on the upside, chances of a decline termination are high .  Since the market has made a significant low in each July since March 2009 (July 2009 and July 2010) the chances are significant that a secondary bottom could take place in July.

06-23-11, NASDAQ COMPOSITE, 25 MIN BARS, SINCE MAY 2, TREND LINES & COUNT

The last chart is the bank index with 3 steps down and that should mean a rally phase has begun.  When the market surpasses a significant prior high, it should signify smooth sailing.

06-23-11, BANK INDEX, 60 MIN BARS, SINCE FEB 7, WAVE COUNT

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