Bleak opex Friday still leaves stock markets open to interpretation for rally to push higher

The stakes were raised today as the opex stock market action pushed to a max pain level near the bottom of the weekly range but above the levels where they traded coming into this week. Not to mention all the wild prognostications! Bob Prechter put out his new Theorist yesterday predicting - you guessed it - the end of the financial world as we know it, starting today. Hmmm, kickstarted today?!! This is of course the same message he's issued several times during the rally, though he did call a bottom of sorts for the March 2009 lows. Previously he'd issued a beautiful chart showing the indices having moved back up 50% after a rally taking 50% of the time of the drop. Well, now it's 60% of the time, and ... a certain set of EW wave forms. I don't want to give out his copyrighted stuff. I will say again, i've previously considered the wave forms he asserts, and I think they don't fit the EW rules (such as, triangles are composed of zigzags, and ending wedges should have a shape that contracts in time and price - EW'ers know what I mean). Hey, let's talk about more forecasts, and the technicals too.

One forecast making the rounds including at CNBC, is a drop 20 - 30%, then a continued rally with the Dow Industrials to 15,000. Wow! Actually I'm not going to rule that out for a large expanded flat's B wave, but first, are we ready for a 20 or 30% drop? While the move was heavy down today, the major indices remained over their 20-day moving averages. Even the hourly SPX is still above its moving averages as you can see below. Money flow is still positive as you can see on the daily SPX chart, below. Sure, we've been talking about a turn Jan. 15-18, meaning now (especially for US equities which have a holiday Monday). But we haven't seen the 1160-plus levels we've been expecting based on several methods. And both ChartsEdge, and separately Terry Laundry's T Theory, are suggesting this rally leg won't crest until next week or the week after.

And if you read Tony Caldaro's Objective Elliott Wave update this evening, you see he's set up alternative counts showing that the topping wave count might be done, but may not be complete - the choppy movements are too ambiguous to confirm either way. For myself, while I'm reluctant to put out just one interpretation, I'm tending to see it as a leading diagonal of some level, which will be due for a deep retrace pullback at some point soon enough. But that retrace may indeed halt above 1082 or 1097, and then set the stage for more waves up. So this story ain't over as far as I can tell!

I like to look at other indicators too. The VIX remained under its 20-day moving average, and didn't make a higher high than it had earlier this week. So no sell signal there. It remains very possible for the VIX to spend a day underneath the approximately 16.91 area I've mentioned. The TRIN has been rather high especially today, without having seen its 10-day MA under .80 - so that didn't issue a classic swing sell signal either. Of course the TRIN can look oversold for a while in a downtrending market, but the stock markets are not downtrending at least not yet!

Indicators like the StochRSI and CCI are showing some negative divergence, which we've been expecting for a crest going into a turn, but not a breakdown that would seal it yet. And the selling volume wasn't enough to look bearish either in raw volumes or showing up in the volume-related indicators at this point. Obviously could change but also obviously could allow some more upside.

I really believe the most likely scenario is that this is a consolidation or correction move, with the real potential for higher into the middle of next week. Meantime, if you've been positioning for a turn you're probably doing fine; if you're daytrading you're continuing to have fun as the levels still work - technical weakness caused the SPX to lose the 1040-1044 area, then 1137, down to retest 1133 and back to retest 1137. Closing over 1133 was mildly bullish (though over 1140 or especially 1144 would have been more so).

Coming up this weekend, more interesting analysis! Meantime, enjoy your opex Friday evening!