By Mike Paulenoff, MPTrader.com (www.mptrader.com)
Coming into today we had an interesting situation. As of Thursday evening's close you had an S&P pattern (from Tuesday's high of 1032.75 in the December E-Mini contract down to Thursday's low of 1007 or so) that was in contrast to the decline in the E-Mini Nasdaq, which occurred from 1393 down to 1330. That pattern in the Nasdaq chiseled out what I considered to be a primary bearish leg, telling me the Nasdaq had peaked earlier in the week, completing the first leg down in what I think will be a multi-leg decline that is incomplete.
The S&P, on the other hand, as of Thursday evening, had not done that. The S&P had a chart that in my estimation was lacking the same kind of form exhibited by Nasdaq. In my comments to subscribers Thursday evening, I said one of two things had to happen: Either the S&P is going to take off and make new highs because it doesn't look bearish like the Nasdaq does, or it will catch up to the Nasdaq on the downside and that catch-up will make it a bearish chart, too.
Forward fast to this morning. After Oracle's news, which met expectations, the market didn't care. It actually sold the news, and then you had PPI and retail sales, both of which were disappointing to the market, and in the first hour of trading the market got slammed. In that decline an interesting thing happened: The S&P went down and made new lows, taking out Wednesday's, whereas the Nasdaq went down and did not take out Thursday's low. So, in effect, the S&P caught up in terms of price and form to the bearish pattern chiseled out by the Nasdaq earlier in the week.
So what we have here now are two indices that both have bearish patterns from the middle of the week high into Friday's low. Both of those patterns now are telling me that after an intervening rally -- which we're in now at mid-day Friday, which is really a holding pattern -- after the sideways digestion move is complete, I think we should roll over into another vicious decline. The question is whether this holding pattern will take the form of a rally to, say, 1022 in the S&P and to 1360 in the Nasdaq, or will we just go sideways in the current area around 1010 and 1340, respectively, and then roll over.
Seems to me that from what I'm seeing so far in the middle of the day, the market doesn't have too much "oomph" on the upside, and if anything it will probably roll over into the end of the week and will start on the downside on Monday