The XYZ top worked for the fifth time now since the March bottom. At the end of this missive we will look at what could happen next.
But first around the world.
ASIA
Japan finally joined the sell-off party yesterday and put in it first downward leg. Hang Send actually had a nice save into the close. At one point China was down over 2.5% and rallied hard into the close to put in a -.65% day.
Europe
Europe had a really nice opening with some nice new industrial order economic numbers but selling has set in and down they are. The majors being down around 1% as of 8 am.
USA
There are no economic numbers out today.
For Earnings we have:
Nice job to Tom's option plays members who had HOG puts. Harley Davidson another disappointing miss. GE put in some positive numbers and Huntington Banc was a surprise disappointment. The futures are hovering down just 1.5 right now.
Breadth Charts
40 DMA % Index
This chart scores a -6 today. We should get one more day here of downward movement on this chart before starting to grind back up. Let's see if this pullback mirrors the previous.
10 Day High - Low
This chart scores a -6 today. We finally after about 35 days have a zero crossing. This chart had been regularly cycling between +/- 40 but flattened out in the November, December time frame. It would be best for the bulls if we could get that -40 or even -65 reading before turning back to new highs. If we turn prematurely I fear a larger pullback in the future.
52 week new highs
This chart surprised me the most after the close. It scores a zero or neutral this morning. Yesterday we made more new highs than the previous day. Not enough to turn the momo indicator around but enough to put the chart in neutral. Watch the first 30 minutes today on NYSE for about 85 new highs to see if the upward part of the correction is already happening.
Conclusion:
I want to revisit the XYZ chart. This is a simple line on close chart where we recognized a topping XYZ three peak type pattern that has been repeating. The "Z" leg did happen yesterday so the question now is how low do we go? Is this a normal correction or the start of something more?
We don't know but we can put in some markers to help understand what is going on.
This is the same chart as above with the OHLC display mode turned on. You lose that XYZ pattern into what I had been calling the crew-cut top or others call a hairy top. It is a sideways consolidation that eventually sells off into a correction and has been re-launching a new leg.
This is a chart of Z+1. ( The day after the Z leg). On three previous correction with had an NR7 type day as we defined a bottom. On one occasion on Z+2 we broke through to make lower lows and more selling but on three occasions a bottom was defined on Z+1 and an upward leg followed. So expect a narrow range day today or and inside bar day. Mark the low and watch that low on Monday. A break of the low would mean a larger correction to come. 
I expect to be hanging around the bears goal line today around the 1114.80 SPX. The bears need to break the possible double bottom there from December 31st. (remember 12/31/2009.. we thought that was the start of the correction!). A break of 1114.80 could send us down to 1100, I actually have 1098 as the next major support area below. The Bulls need to hold today. A close above 1127 would be extra credit. There are some angry buyers from Wednesday that would like to average in here. Let's see if they show up.
On ESH10 I have us already below the low so we need to see a rally at the open to get us in the trading zone. I will be watching the 1120 area as an intermediated goal for the bulls and a close or price above 1125 would be extremely impressive. It is a wide trading range on a day I expect to be an NR7 so look for the pivots during the day and mark them for short scalps.
Good luck out there.. Hope to see you in the room or in the markets.
Marlin aka: RedlionTrader
