Posted on November 3rd, 2009 at 3:30 PM

We already know that the major indicies have been showing potential trend reversal tops (i.e. Elliott Wave 5) since mid July.  Even with this technical info the market keeps making new highs leading traders to wonder, "Is this a new trend, or do we still have a chance to change direction?"  In our mentoring sessions I have been telling traders that I am cautiously bullish on the Daily timeframes and will take advantage of any buying opportunities I see.  The reason I use the term "cautious" is due to both the Weekly Charts and the Daily charts showing potential turns lower.  I will remain in this cautious state until we take out a major low on the Daily chart (which we can talk about in another post).  But in the mean time let's look at our Weekly Charts and show while we are still cautious.

The Weekly Chart of the Dow Jones shows a Wave 4 retracement meeting 3 out of 4 of the rules for a classic Type One Sell.  Our main concern here is the fact that we exceeded a 140% retacement on the Oscillator.  If we discount the Elliott Wave here due to the Type One rules being violated the progression of the trade concept that I use says that we must look at the Stochastic False Bar to see if the shorter term trend is still in control.  As long as this move stays below the 61.8% retracement I believe that this down trend is still in control of this market, if we take out that level of 10608 we have a failed retracement signaling the end of the profit taking wave and the potential beginning of a new uptrend in the market.

The Weekly chart of the S&P still shows us that the Type One Trade is still in control as all 4 rules are being held.  If the Osc or the PTI breakdown we still have a 61.8% level of 1148 that must be taken out before I am ready to declare this market down trend over.

The Nasdaq shows us a complete failure of both Elliott and Stochastic rules and this market must be considered a possible new trend up in the making and that our profit taking phase has failed.

Our scorecard is 2 to 1 on the Bear side long term, as long as the odds favor the bears we must remain in our "cautious bull" mode on those dailies due to the weekly pressure.  We've seen this pattern happen before where the S&P and DOW both remained classic sell trades and the Nasdaq painted a different picture, in that case the DOW and S&P won and the market fell to new lows once again.  I'll post that example in a future post.

Ron Wheeler

eSignal Learning

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