Monday, November 9, 2009
Dow Heading For New Rally High
The pattern in the Dow is slightly different than the SP500 and the Qs. It appears that the pattern in the Dow is going to be a flat or expanded flat. The action in the Dow underscores again what I have been saying since March - the risk in this market is to the upside. This doesn't mean the correction is over, but increases the likelihood that it is unfolding as a sideways consolidation or shallow correction. Be prepared to exit index short positions early when the November low is restested.
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5 comments:
"...when the November low is restested."
That would imply that you think the retest will be a 2nd wave pullback before a 3rd wave to the the upside. Si ?
Ordinarily, i don't believe in metrics or measurables to judge the value of something. However, i think it would really be interesting to quantify how right one has been using EW for near or short-term forecasting.
IF one was only right, let's say 25% of the time, wouldn't it be a waste of time, effort, & missed opportunity (going the opposite way)? Increasingly, i think that EW is a waste of time other than IT/LT & then only used in a top down not bottoms up approach. IOW, used only NT/ST when the IT/LT forecast is coming to a conclusion, but NOT to build a case bottoms up.
I think EW for many traders is like crack or meth (i have no personal experience in this area, thankfully, BUT i do know how difficult it is to wean oneself away from reading a mkt blog no matter how wrong it has been for ever so long. And i am not referring to this one which I hold in high regard. In the past, i have regularly read PH, TB, CF long past when i thought that they actually knew anything.)
I'll repeat something that i wrote in one of my first posts here a year ago. EW is something that it's very helpful to know something about & very harmful to use too much. It provides one with some insights few other theories do, but OTOH one also hears the train whistle in the proverbial tunnel too often, too. In the end, using EW bottoms up on a daily/NT/ST basis may have less usefulness than Parabolic SAR which I haven’t looked at in over 20 yrs
It certainly is easy to get hooked on EW when you really nail a turn and then believe that you can repeat that over and over. RP has never gotten over his "great" call from 1982, and I don't want to fall into that trap. I've had a few great calls of my own, most of which I haven't ever presented publicly, but rarely do I use EW alone for taking a position. My preference is to use it when the pattern is in alignment with other more mundane approaches.
The top down approach is clearly the best way to go about it. When I first learned EW, I wasted alot of time building up interpretations from the bottom up, but one soon learns that a good moving average can keep you out of trouble most of the time.
In the present case, I am reminded of late 2003 when RP repeatedly called tops in October and November as the markets marched continually higher into 2004.
But what I see as an opportunity at the moment is the confluence of a potentially completed pattern at a probable intermediate term cycle high against fib and trendline resistance. It is at such a moment that I want to dig down to see if the EW pattern is confirming that big picture or is it refuting it. For example, if the decline from the Oct 21 high in the SP500 had not been impulsive, but a zz I would have been very reluctant to take a short position last week.
For the moment we have a dichotomy in that the Dow Ind are making a new rally high while the others are lagging. This is extraordarily informative because it tells me the likelihood that the market is heading much higher later is significant even if the correction continues.
At the end of the day, to use a cliche, if can we can be on the right side of the market 40% of the time we are going to do very well as long as we can stay in the trend, and I want to use every tool in my bag to make sure I don't exit prematurely.
"For the moment we have a dichotomy in that the Dow Ind are making a new rally high while the others are lagging. This is extraordarily informative because it tells me the likelihood that the market is heading much higher later is significant even if the correction continues."
Ordinarily, the DJIA leading makes me suspicous of a moves sustainability. However, if one had paid too much attention to IWM/SMH the past week+ one would have completely misread the mkt.
I think that we may be in a period (don't know for how long) when mkt anomalies may persist for longer than expected. We may be in a period when the mkt wrong-foots us for awhile. Every trader knows, or should know, that mkt anomalies don't matter until they do.
Btw, i wrote my last comment before seeing your IWM/SMH post. I actually wrote it twice. The first time it disappeared into cyberspace when i clicked "publish"
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