The last time I had a post with that title was August 4th when the Qs were trading at 40.21. Certainly it was not a big stretch to project a move to 41.05 from that level, but then on August 9th, I demonstrated that the next move of significance would be to the 43.07 to 43.63 zone, which was reached intraday on September 23rd. Now, we find the markets in a pullback, the outcome of which will determine what happens in October. The next step is for the Qs to revisit the 41.05 level.
There are a couple of scenarios that could play out in October. If the current pullback holds above 41.08, then the next move up in the Qs could be a 5th wave. It would last no more than 2 weeks with a target of 44.50+/-. The second case would be if the Qs fall below 41.08 (closing basis) on this pullback. The move up would then be wave c of C with a target of 43.17 to 44.43. The last case is that we see 5 clear waves down from the September high followed by a lower high in October. Clearly this is the most bearish view. I don't think the latter case is likely since the current intraday pattern is not consistent with an impulse wave down in the Qs. However, we need to keep an open mind.
I think the risk to the long side will be increasing in October, so it's not the time to be adding long exposure. The market appears to be under institutional distribution at the moment. You don't want to be the last one standing when the music stops. If you doubt this, take a minute to think about the fact that the 3rd quarter was the best performing quarter since 1938 for the SP500 according to CNBC. With many funds closing their fiscal year, and after the collapse of 2008, doesn't it seem reasonable that a lot of players will be taking some money off the table? The fact is that I expected the Qs to hit 41.05 in September and 43.30 in October. Those targets have been hit. Without a strong impetus to move the markets higher to the 46+ level, there is no reason to expect now that we will see a sustained move above the 43.30 level until after a significant correction.
My long term view remains the same. After a correction to complete the 10 month cycle, we will see new rally highs in 2010. However, between now and then a correction of unknown severity will occur, and may be developing a little sooner than I originally expected. A large number of stocks are completing 5th waves, which is both long term bullish and near term bearish. So caution is advised. Shorting the coming correction is likely to be a difficult endeavor and not to be pursued lightly.
Oil appears to be forming a triangle that will lead to higher prices in October and November. Gold still appears to be heading higher. We need dollar weakness to support these and a solid close of the dollar index above 78.00 will derail the bullish prospects in those markets.
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If we don't count the Aug-Sept pullback as a w2 of a LESSER degree, are you willing to count it as a w4 of the same degree as May-July w2 to fit a more bearish scenario ??
The width (time) of the two pullbacks is so different.
The implications are very bearish because then each of the impulse up waves was then shorter than the preceding i.e., w5 < w3 < w1.
Eureka.
July onward is w 3.
Aug/Sept is subwave 2
Current consolidation is subwave 4 probably a triangle or pennant.
Good fit.
I think it is either your last count, which means one more high, or August was a running flat and the high was 9/23. In my view, this completes an ABC rally either way - wave W - to be followed by waves X and Y.
I have thought all along we would have a higher high in October, but it just looks right now as though it will be a double top at best.
The wave count is easier to visualize on a line chart.
Of course, we could just be completing a 3rd wave, but that doesn't fit the cycle, so I'm sticking with the ABC.
Unfortunately, I think the distribution we've seen this week knocks out the most bullish count that we had discussed before.
I took the opportunity to sell half of my long positions today. If we were looking at a more bullish scenario, we should have seen a stronger morning push. When I saw the TRIN soaring to over 3, that was a warning. Also, the moves in gold and oil were stronger than the move down in the dollar would have allowed for. Again, that doesn't bode well.
(Very happy I sold UAUA before the close - long from 3.60. They announced a big stock offering after hours. I am still amazed a how such a piece of trash can rally 200%.)
I'm long my core positions that I plan to hold until the top of Y, and a few others. If I see short opportunities crop up in October, I will be taking them on a hit and run basis.
A double top in the Qs is a no-brainer short with a target at the June high, but it will probably be choppy down and hard for most to stay in. Smaller size and wider stops will be the winning ticket.
The "Eureka" count would fit TL's mid-Oct high & spring 2010 low.
Unfortunately, within the July w 3 subwave 5 will be < subwave 3 < subwave 1. And subwave 3 of 3 (1st half of Sept) wasn't anything to write home about. That's not exactly like getting swept away.
OTOH, that's to be expected when EW became so popular.
"...August was a running flat and the high was 9/23"
Then Aug/Sept would have to be w4 of the same degree as May/July w2, correct ?
1) one thing that has impressed me about this "pullback" since 9/23 is the follow-thru selling; 2) the DJTA is really weak vis-a-vis 50E & falling below previous breakout highs; 3) No one has mentioned that last week we had a reversal week; 4) "When I saw the TRIN soaring to over 3, that was a warning" Totally agree. At the beginning of a decline it should be high representing smart money & at the end representing dumb money; 5) Despite being down 5 of the past 6 days ("seasonally end-of-the-month strong) we're not oversold on daily indicators.
We have penetrated the August highs for most mkt avgs except Q's/Nasdaq incl RUT,SMH & DJTA - don't like that at all.
"The trend is your friend"
Yeah, but i've changed friends.
It's interesting that this stk mkt damage has been done without the USDollar surpassing any important recent highs hourly or daily.
What if the stk mkt went down AND the dollar declined ??
We had talked about the dollar and stock market decoupling a few weeks ago when it appeared the dollar might be turning up with the market. Now it appears it may be the other way. As long as 78 holds on the dollar index, I think the dollar is down. Bernanke didn't help it any today either.
Craig,
I remember our previous talk. I think we have something here. Everyone wants to talk about the dollar going up. Some were even talking about both the dollar & the stk mkt going up, but no one is talking about the opposite. Both could go down as a sign of lack of confidence.
A lot of stk mkt damage was done today & the dollar did not take out any overhead pts.
Btw, while the Q's led on the way up, I think a lot of damage can be done with them trailing on the way down just as they did in Jan/Feb.
Note TL's last two T endings coincided with lower highs NOT NH's. Again, i think that will be the case with the mid-Oct "peak".
Given the 3rd Q that we had those two T's should have produced at least marginal NH's.
I think his two updates today are a great disservice to his followers. "1007 - However that is a worst case." We're down about 3.6% @ 1030 and traders should wait to find out if they're wrong @ 1007 ?
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