Bears remain in full control of the downward momentum extending their gains back to the bottom of the yellow wave 3 channel and also establishing a very steep downward (pink wave 5) momentum channel over the last 2 days. The bullish defense thus far looks very much as the French did against the Germans in World War II. Pathetic and lacking any serious effort or coordination. I continue to send troops home on each leg lower, remaining ready to issue a full retreat when the bulls finally manage to organize and make a stand. As long as the channels continue to hold, though, I'm going to leave a nice sized force of bears in play.
I'm also starting to work up a list of longs with price levels where it might be worth it to take a shot on the bull side with a tight stop if we continue to break sharply lower. We are going to turn at some point and if it is like the past bull surges in this bear you will have to be either very quick, or already in before hand to catch any upside safely. Usually it is the most oversold group that rallies the strongest when the momentum finally does turn. That would mean the transports could be setting up a strong bounce. I wouldn't be shocked to see a run to at least 2570-2600 (the bottom of the false bottom and bear flag of a couple weeks ago. From today's close of 2330 that would be more than a 10% move.
Bonds caught a flight to safety bid today, but they are still well within the confines of their primary down channel. A break north of the channel remains my stop out. It's worth noting in a relative strength (or in this case weakness) kind of way that bonds are still in their downtrend even as the Dow plunges below 7,000.
If I know Doc, he’s just waiting for that dollar index to break on through…
Doors – Break on Through: