The Market Pulse

Today's session was highlighted by the index gapping lower at today's open. Much of the heavy selling was done, as usual, in the ON session, so the market could be manipulated by the few and U.S. participants could only sit on their hands for the session.... that is unless you were placing bullish bets.

Back on May 2, 2011, I spoke of two possible alternative counts that are still working behind the scenes. They are an:

a.  expanded flat

b. a running triangle

You can read more about these interpretations by clicking here then fast forward to today's charts and you'll see that these alternatives can't be ruled out at this time. I won't mention them on a daily basis until "price" confirms that either alternative is actually or had formed. What's important to take away from either of these patterns is that BOTH eventually lead to a new high.

In yesterday's edition of "Heard On The Street", I left readers with the above chart and  said, "that the decline from 1367.25 has been contained within a corrective price channel; is choppy and that four waves have been completed within it. I'm looking for w.(a) of w.z to terminate near 1318.25- 1317.75 for tomorrow's trade that will be followed by w.(b) up and a final round of selling to where w.z = w.w at 1294.25. Note nearby structural support of 1290.25 and the .618 retracement of 1290.50 are nearby."

We certainly got the decline, albeit a bit lower than I expected. Earlier today, I alerted Twitter followers that anyone who is running bullish counts should be concerned. Here's why.

1. Notice that RSI broke the key level of 40 indicating that the uptrend may have ended and that a change in trend is underway.  

2. Gaps are not typically found in first or w.a positions. They're usually found in w.3 that would imply heavy selling is on the horizon.

3. The weekly 2-4 trendline is now being challenged (see weekly chart above) for the first time and a break on a closing basis would be mean that a significant top had been made at 1367.25, even though I do not have a satisfactory way of labeling the structure and that a more bearish posture should be adopted.

For the ON session, expect a small countertrend move that targets 1321.25 or 1326.75. Look for an updated chart tomorrow morning.

Best of Trading