The postulation that we are, indeed, witnessing a C wave extension of the upward correction out of July, as outlined in today's earlier post, gained credence with today's finish. The SPX gapped higher, held the gap, and closed near the high for the day. The index regained an important pivot point in the process:
We've also seen six straight down days on the NDX and have pushed short-term indicators into heavily oversold territory:
On the positive side (positive for bears, that is) today's massive volume on the SPX came the day after a potential near-term bottom, making the Monday action appear more like a short squeeze than the initiation of a rally. Also, if we are in the midst of an A-B-C correction, it will leave behind the rather odd characteristic of having the B wave almost entirely retrace the A wave. These are minor points, but worth noting.
Also worth noting is the action in the BKX, which tagged a very significant pivot point at 75 and immediately backed off.
I've been noting for weeks that as soon as the BKX hit this level, I would short the market aggressively. Naturally, the market gods spun the action enough to put such a move into doubt, so all I did was write some OTM calls on the banks. I have an easy stop with a BKX close above 75.
The miners were particularly weak today considering that metals held their own. GDX shed more than 5% in what is now clearly a continuation of its bear market move. A impulsive move off the July high was followed by a tedious consolidation which has now broken firmly downward.
We should see a minimum target of $29, as measured by the consolidation zone, or as low as $21 if this leg down equals the first. I'm not going to get greedy. The GDX puts I've held in captivity for a couple weeks will gain their freedom on one more solid down day. I believe such a day could happen at any time if I'm reading the gold chart correctly:
While gold has recently held its own pretty well versus the dollar's rise as well as versus silver, it just seems like one more panic day is needed before it can stage a countertrend rally.
So there you have it. We are stuck waiting for the market to reveal its hand. For the record, I am still carying my base short position. I'm not sure what would chase me out of it... perhaps a BKX close above 75 or an SPX close above 1300... but I'd rather me chased out by a 90% down volume day as the SPX hits new lows! Good night.