Tuesday, February 24, 2009

Where's The Capitulation

While capitulation is not always seen at market bottoms, it is usually seen at important ones. Yesterday's action just wasn't enough to call it capitulation. Today's rally was probably wave 2 of (5) in the Qs and wave ii of 3 of (5) in the Dow. This means we could see substantially more upside before the downtrend resumes. A move back up to 30 in the Qs is within the bounds of the dowtrend as well as 7860 in the Dow. If they move much above those levels then we would need to re-examine the situation.

It appeared yesterday that we were beginning the capitulation process, and even though there was no downside follow-through today, one day doesn't make a trend. As I said previously, we must be willing to withstand the sharp rallies while we ride out the downtrend. If there is evidence of a change in trend, then we can act accordingly, i.e. there is no reason to bail on short positions just yet based on trend following methodologies.

Today's action in gold was also still within the limits of the uptrend. That may change, but I will want to see more action to warrant exiting a profitable position in gold given a legitimate upside target higher that 1029.

Patience and discipline!

3 comments:

dave said...

Because we had inside days in SPY; QQQQ; & DIA am suspicious of that we're developing symmetrical triangles in 4th waves.

more later; strongly disagree with your wave count

Regards,
dave

dave said...

Well, there goes the pennant. LOL. Now, i don’t have to worry about being bored to death. . .just squeeeeeezed.

Before i put aside my belief that we're still in (3) which long-term is much more bearish than labeling it (5). I'm labeling early January as the beginning of 5 of (3) for SPX & DJI. One can clearly see a sideways, choppy multi-week corrective period for DJI & SPX from approx 1/20 to 2/9, which i'm labeling as ii of 5 of (3).

Using 2/9 as the beginning of SPX iii of 5 of (3) one can see a second wave on 2/12 & 2/13 followed by six down days in a row before yesterday. Therefore, i cannot see us in a two wave of any degree, but instead a fourth wave yesterday & today.

Regards,
dave

dave said...

Btw, labeling us in (3) instead of (5) fits with P/E's still being too high and gives the mkt more time opportunity to reach a long cycle "undervalued" multiple befitting the economy.

Regards,
dave