Elliott Wave International has called the top of primary wave 2. This means that under their interpretation, primary wave 3 down is underway and will be a devastating decline lasting more than a year that will bring the major indexes down far below the 2009 low. They may be right, and if so, it will be the first time that they have had three successful market calls in a row since I have been following them.
However, while there may be myriad reasons why one could justify calling a top here, there are equally as many reasons why it isn't the top of the rally. The foremost reason being that from a simple price perspective the markets are still in strong uptrends. The second reason is that breadth has continued to expand with the rally. Finally, while overall sentiment is mixed, the small speculator is quite bearish.
As I stated earlier in September it may be prudent to take some profits and reduce long exposure as we move into October. This is a decision each trader will have to make. These are the times when significant realized profits can go up in a puff of smoke if you're not careful. It would not be surprising to see a bounce during the first part of next week. That may be a good time to take profits if you are planning to do so.
My view is that this is simply a minor correction in a still ongoing rally. It could easily last until the first week of October and end up being 8% to 10% in magnitude, although it will probably be more like 5% to 6%. Thereafter, markets should make new rally highs going into the end of October or early November. There are many stocks that are still showing bullish patterns, which doesn't fit with a top at the current juncture.
My opinion is just that - an opinion. Traders should follow their predetermined rules for exiting trades and not opinions.
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4 comments:
Craig,
If i recall, you were trading in 2004. How did you do in 2004 (2nd Q forward) & 2005 ? How would you characterize that two-yr period ?
I think that we are both by preference swing/position trend traders.
If bull mkts go uncorrected for a long time, they are then corrected by lengthy unvolatile choppy sideways dullness. Rally after early 2003 bear mkt bottom went uncorrected for a year to be then followed by two yrs of unvolatile choppy sideways dullness.
Remember all the NR7 periods that we had this spring & summer ? 2004, 05, early 06 were worse than that for much longer stretches. IMO, it's just physics. "Excessive" momentum is followed by "excessive" inertia.
Thanks,
dave
"...and if so, it will be the first time that they have had three successful market calls in a row since I have been following them." :)
As they say, "close only counts in horseshoes & hand grenades".
I have noticed that those who "believe" in gurus only notice the good calls. I think that reflects more upon the followers than anything else.
Just as it took a particular true believer to end up in Jonestown it takes a particular psychological profile to "follow" someone after being wrong for so long (since March) as many bear den blogsites' traffic show (similarly for permabulls in 2008).
For me 2004 and 2005 were difficult as I was using trend following strategies with a bearish bias ( due to overinfluence from EWI ) that did not mesh well at all with the market behavior. This led to a flat account for that period. My trading tookoff in 2006 as the trend re-asserted itself.
Personally, I think the catch this time around will be that traders will be expecting a similar period after this rally completes, but instead we are likely to see a resumption of the bear market. Although we could see a period of dull action during which distribution is taking place that leads to a new downtrend.
The key in all cases is correctly assessing the market behavior and adjusting trading time frames, targets and risk accordingly.
I hope that you are right about the swing opportunities ahead in 2011, 2012, etc...more cyclical bear & bull mkts within the secular bear.
2004, 05 early 06 were so bad that i can remember even after adjusting to daytrading that if i missed the high or the low that there was so little of a move left in betw the intraday highs & lows. I remember being in a hole with one account & recovering to double the account from being in the hole. However, it was day in day out; week in week out grinding my teeth constantly. I often felt like a dog chasing its tail.
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