'El momento de la verdad' for the stockmarket

The Spanish phrase el momento de la verdad refers to that gruesome moment just before the final sword is thrust into the bull during a bullfight. It literally translates as 'the moment of truth' and has come to represent a deciding instant, when it becomes apparent whether something will succeed or fail. I think we have now reached such a point in the market. It has fallen straight through the usual supports in the current decline from the April high and today reached the 50% retracement level. The XAO Indicator has turned red and if the All Ords falls just another 45 points to under 4770, the Elliott Wave picture will change direction and indicate a downward trend. After that lower prices would be expected. Check out the position of the stochastic indicator. It is in a similar position to March 10. At that time it only declined for another day but the market fell another 230 points - that's why I have called this a moment of truth.

An interesting observation

In my April 6 post I wondered whether it was the mini-crash following the Japan earthquake which was an over-reaction or the rally that followed. At the time I observed that by the time the earthquake had happened most of the down move had already taken place. That led me to conclude that something else had triggered the decline. If that is correct, that 'something else' has yet to become apparent. (I doubt is the strength of the dollar, but honestly I wouldn't know). The fact that the market was already falling sharply when the earthquake occurred seemed to have been forgotten in the rally that followed. I think we all just assumed that the decline was about the earthquake but in reality it could not have been. And there's something else. In bear markets, rallies are usually fast and furious - the sharp 2-day rally of April 20/21 could be such a rally. Is it possible that the rally from the March lows was a significant bear rally - a 'bull trap' to suck the bulls back in on the pretence that the previous mini-crash was really only about the Japan earthquake? There was such a rally in October and November 2007. It was so strong that it was hard to accept that the massive decline that followed would last. Could we be looking at such a situation again? (Refer to March 30 post).

Here's the chart of the XAO Indicator.