With the SP500 up 4.7% and the Qs up 6% MTD for September, the bulls may be getting a little complacent. The rally seemed to get a bit tired toward the end of the week. It would not be at all surprising to see a sharp one or two day decline to shake things up a bit and get the bears frothing at the mouth. The elliott wavers are anxious to short this rally as they are expecting wave 3 down to begin any day now.
The problem with that viewpoint is that leading stocks are acting great and new bases are being formed even as the market has moved higher. Look at STAR. It has formed a beautiful cup and handle over the last 8 weeks. There are many more like this. This is not the type of thing that you see at tops. A few other names that are setting up nicely are AMZN, CMG, GMCR and JCOM. These last ones still need some more work, but they don't look ready to break down.
Another factor that has developed over the course of the last few weeks is a large number of stocks that have completed 5 waves up from the March low. This is extraordinarily encouraging for the bullish case as it implies more upside after these stocks finish correcting, and many have been correcting even as the market has moved higher. As an example, F completed 5 waves up on 8/03 and is correcting now, AMZN completed 5 waves up on 7/23 and MIL and SOHU are currently in their 5th waves. There is a rotation going on here which will provide a floor for any correction in the broader markets.
We also have oil service stocks moving higher. Oil has coiled up, just like gold did in August, for a move higher in October and will support the move in these stocks as well.
The Qs and the Dow are near important resistance. We shouldn't expect 43.30 in the Qs and Dow 10000 to be overcome on the first try. There will be setbacks, but for now there is little evidence that a major breakout is imminent.
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3 comments:
"The elliott wavers are anxious to ..."
The following remarks are basically similar to what i wrote in one of my first posts here back when dinosauers still meant Sinclair:
Ever since i was introduced to Elliott Wave, i've felt my knowledge of it had mixed blessings. On the one hand, i feel it's something that every serious investor or trader should know more than a little about because there are concepts in Wave Theory that teach you things that no other mkt concept teaches you.
OTOH, there are too many inconclusive branch possibilities in Wave Theory. In this aspect, Wave Theory is like being an NFL quarterback trying to read defenses before a blitz crushes you. And there are considerable problems with over-reliance on Wave Theory.
In the 90's, Elliott Wave was largely discredited because Prechter stayed bearish while the stk mkt boomed. Investors hung on Prechter's every word in the 80's. I used to tell people Elliott Wave has its own validity apart from its most celebrated practitioner Prechter. Elliott Wave is what it is ON ITS OWN - organically; its interpretation isn't merely what Prechter or EWI says it is.
IOW, when critics pooh-pooh EW because of Prechter, that does not nullify the validity that EW has on its own. Prechter did the investing world a great service by reviving EW; but EWI is not necessarily the same as correct EW.
Someone has a sound EW forecast. Possibly even a mechanical engineer with little following or celebrity.
"The Qs and the Dow are near important resistance. We shouldn't expect 43.30 in the Qs ..."
If you're referring to 61.8RT, do believe it's 43.60.
Yes you're right, the 61.8 RT is 43.60, but the July 08 low is 43.30. Either way it's got to get through that zone. I don't think it will on the first try, but if you saw Terry Laundry's report on Sunday, it may be setting up to do just that.
I have to keep reminding myself to sit on my hands everyday. In fact it has been somewhat boring lately. Nothing like the excitement of October 08 and February and March 09.
Also, last week's COT report shows increasing bearishness from the small speculators. I just don't believe these "wrong-way" guys are going be right.
I think that we are going to get some shake-outs, but this market is going to bust through after October and put the bears on their heads.
I don't want people to think I am ignoring the bearish case, but I just don't see the numbers adding up to a top yet.
I think where EWI gets it wrong is that they rely too much on price and not enough on other data that supports or contradicts the intrepretation. At the moment I think Prechter is making the same mistake he made in 2003. I guess we'll see.
Don't get me wrong, I am very appreciative of everything Prechter has contributed to the field. Unfortunately, I think alot of people are not realizing that most of his public statements are not for traders, but investors. Investors that followed his recommendations over the last 9 years would certainly be in a better position than most.
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