Thursday, December 30, 2010
I will be reviewing the trading strategies in the strategy tracker for 2010 and giving my outlook for 2011 next week.
Tuesday, December 28, 2010
While not shown, one possible alternate is that the move from the early November high to date is part of a 4th wave expanded flat correction and the Qs could see another new high. That would not eliminate the above expectations for an expanded flat or running triangle, but it would change how it is counted.
Monday, December 27, 2010
Thursday, December 23, 2010
Posting will be minimal until the end of next week unless something dramatic happens.
I suspect we may see a new 3 year low in the VIX coinciding with a market top. However, the subsequent rise in the VIX should be limited to the July 1 high of 37.58 which is the origin of the declining wedge pattern. This should correspond with a wave C or 2 low.
Any sustained break of the 15 level would indicate the SP500 is ready to run to its all time high now instead of later.
Tuesday, December 21, 2010
When the market hits an area of weak support or resistance it is unlikely to hold that level. We can see that once the SP500 failed to hold support at the 5/12/06 high of 1326.70 for the third time in 2008, the previous levels of weak support from the 2002 to 2007 rally gave way rather easily which partly explains the severity of the crash that occured in 2008.
I have pointed out the likelihood for an intermediate to long term top at the current time window. Should the market top in this area, there is weak support at 1219.80 and 1200.44 and strong support at the August high at 1129.24. The previous July low of 1010.91 is an area of weak support. While double bottoms are common, a low that occurs well above a previous support zone creates a level of weak support. The next lower level of strong support is the 6/12/09 high of 956.23.
Based on the above, I expect that a top that occurs now would likely try to hold the 1200 to 1220 zone. If that zone fails, the 1100 to 1130 zone would probably halt the decline at least for a sizeable countertrend rally. If the 1100 to 1130 zone holds, then a new base should form to propel the SP500 back to the vicinity of its previous all time highs. If that zone fails, I would expect a retest of 950 to 1000 to follow before another rally could materialize.
The one thing to really keep an eye on here is if the 1256.98 level is taken out, there is little to stop the SP500 from racing ahead to its all time highs as there are no strong resistance levels remaining.
Monday, December 20, 2010
In any case, we are waiting for a MACD sell signal, which would be a negative divergence sell signal, as well as a break of the December low, which is now the low of the high month, for signals to go short this market.
For the time being I am still of the opinion that the coming decline will be wave (2) of [C] or wave (C) of [B] either as a triangle or a flat, but it will be many weeks before we will know how it will unfold. Even though this will be a cycle high, I am reluctant to conclude that it is the top of primary wave .
Saturday, December 18, 2010
Given the very long nature of the primary wave [B] triangle, it may be prudent to exit long positions at the end of wave (D) and wait for a new entry point at the low of wave (E) which should bring AMGN back down to current levels. However, there is no guarantee of that and wave (E) could just hang out high for a few months before it breaks out. So, pick your poison.
BIIB is slightly ahead of AMGN in the overall pattern, and it is disappointing that neither company is paying a dividend for the privilege of owning their stock during this huge consolidation, but I am personally accumulating shares in both as I think at least one will eventually have a huge runup similar to the 1990s. I don't know what the catalyst will be for the runup, but the pattern says it should come. When it does I will be counting 5 waves on the monthly chart to find the exit point.
Friday, December 17, 2010
Sentiment has reached extreme levels. See the article from Mark Hulber: http://www.marketwatch.com/story/sentiment-has-taken-turn-for-the-worse-2010-12-17?link=kiosk
Thursday, December 16, 2010
Wednesday, December 15, 2010
The High Low Logic index shows when there is a divergence in breadth with a large number of new lows occuring with new highs as it rises above the 2% level. It now stands at 1.93%. I have highlighted previous instances where the 2% level was hit that resulted in a correction or selloff. Notice that once the 2% level is hit, the index tends to fall with the market. Bull market conditions are said to exist when the index falls back below 1%. A sell warning occurs when the index rises from below to above 1%, which it did on November 5 and December 10.
Tuesday, December 14, 2010
For those with an interest in astrology and the stock market, Mercury went retrograde on Saturday December 11. It will go direct again on Thursday December 30. It has been my experience that one of three things will occur when Mercury goes retrograde: 1) nothing happens as the existing trend remains in force, 2) the market sells off on the retrograde, reverses at 9 calendar days in +/-, and then sells off again into the date it goes direct, or 3) the trend continues until 9 calendar days in +/-, and then the market sells off until the end of the retrograde period. A turn at 9 days in occurs quite often and would correspond to Monday December 20. It looks like things could be lining up for a turn around December 20/21.
Monday, December 13, 2010
Saturday, December 11, 2010
I married my wife in December 1987. We were in love. I didn't have a full time job, and I didn't know anything about the stock market or any other financial market for that matter. I wanted to live a simple life, but life had other plans. Little did I know that the crash of 1987 would affect me so greatly. Even though I was highly qualified for a variety of positions in the engineering field, the economy was in the doldrums and there were few jobs to be found. I needed a job badly, and I only had two offers. One required moving to another state to work at a stable Fortune 500 company where I would probably still be working today if I hadn't taken the other job that did not require moving.
The other job (the road less travelled, if you will) has led me down a path that has been an adventure to say the least. But adventures are rarely easy. They can be fun, exciting, fear provoking, life threatening and a host of other uncommon things. I was able to get my professional engineer's license, general contracting license and heating and plumbing licenses while working in the other job that didn't require moving. After some time I got up the courage to strike out on my own in construction in 1995. This was coincidentally the acceleration point for the late 1990's stock market bubble. I had no idea.
I had this sense that housing was about to take off. I was right, but we were not in the right geographical location to really benefit from the boom. So although we were able to develop a high volume of work, the margins were not so great, and the business was difficult.
I started trading in late 1999. At the same time several important developments occured in the construction business. We landed several large commercial contracts, and it really looked as though my dreams were coming true. The sky was the limit. My trading account soared, and so did the construction business. But then just as quickly, the tide turned. First of all, I gave back all of the profits in my trading account and then some. Then, one of the commercial contracts fell apart after 9/11. Things continued to get worse into 2002. It was in December 2002 at the bottom of the dot.com bust that I learned I had a thyroid disease. I was so physically spent that I could barely work, but it was at that time that I committed myself to really learning how to trade.
Over the next four years I worked to regain my health, maintain enough construction work to pay the bills, and I learned to trade. I kept a small account. My goal was not account appreciation, but learning how to trade safely, prudently, consistently and successfully. During that entire time I only added money to my account one time, and it was a small amount. By late 2006 I knew that I had achieved my goal of learning to trade. The only thing to do was to keep on keeping on. I did add a little to the account at that point, and I started using sufficient margin to generate sizeable returns. The experience that I gained during the four years from 2002 to 2006 has allowed me to keep drawdowns under control with appropriate position sizing and risk management. These two things alone have kept me out of trouble most of time.
At the same time that I reached a level of competence in trading. We decided to buy a development from a local developer that was getting out of the business due to health problems. The price was right. I had done a proforma based on a worse case scenario. If the worse case scenario was seen, we should get out around break even. I also knew based on the work of Robert Shiller, Harry Dent and Robert Prechter that the housing market was likely due for a downturn. We had hoped to have the small development finished by late 2007 or early 2008, so I believed that we could miss the coming disaster. Well, I was wrong. Things started off great, but just as we passed the halfway point in 2007, the bottom fell out. The contracts fell through on the houses we had under construction because the banks would no longer loan money to the buyers. We ended up sitting on those unfinished houses until 2009. Fortunately, our business bank worked with us and did not call the construction loans or it would have been all over for us financially.
Also, fortunately we had found a great new realtor who was able to find buyers for those homes. She also got us presale contracts on the remaining lots this year, and we have been able to finish the development. We closed the last unit on December 1. I did some touchup work the following week and everything is complete.
Back in 2006 when we bought the development, I had a strong sense that I needed a backup plan. By another set of fortuitous circumstances it was suggested to me that I should consider doing consulting engineering work by a draftsman that had done some work for us. I had kept my PE license active all these years and a friend referred me to a businessman in our town that needed an engineer. After an interview with him, he hired me to do all of the mechanical and plumbing design for his new microbrewery. He had already been brewing beer successfully for many years and is well known in the area. This launched my consulting engineering business. There have been many ups and downs and late nights, but after two years I was able to replace my construction income. This is what allowed me to continue working on the development even though we only broke even in the end.
I am now officially no longer a contractor. I am leaving that business behind after 16 years. I find it interesting that I may be doing so at another important cycle turn date.
In late 2007, I decided to start blogging. I knew that this would be an exciting time for trading, and I got started right at the beginning of one of the biggest downtrends in many decades. It is my goal to replace my consulting income with trading income. That hasn't happened yet, but I started this site for the purpose of conveying to others what I have learned along the way, and as a way of forcing myself to maintain an even greater level of personal integrity with respect to my trading. I will continue to blog, and I have plans to expand this site to include for pay services in the future. These will be more along the lines of trading education, not stock picks and trading signals. I would rather people learn to trade for themselves.
At this time I am also starting a joint venture with a friend to trade a futures system that has proven successul over the last few years. It is a conservative system, and I expect that it will be profitable over the long run. I will let you know how that is going next year once we get everything up and running. This will not be a fund or for outside investment.
So, I am starting a new chapter in my life. I expect that based on past history future changes in my life will occur at important times in the financial markets as well. If so, they may be coming fairly soon as there will continue to be regular major turning points over the next six years before the next secular bull market gets underway.
Friday, December 10, 2010
The typical pattern for the 10 month cycle, which can vary from 9 to 11 months, is 12 weeks up - 4 weeks down - 4 weeks up - 12 weeks down. In a strongly trending market the up weeks will increase and the down weeks will decrease. At the beginning of a new 4 year cycle, there will hardly be any down weeks. This was the case in 2009. In 2010, we saw a surge off of the February 5th 11 month cycle low followed by a selling panic that bottomed on July 1 - just shy of 5 months from the previous cycle low. At that point it was quite reasonable to believe that after a 4 to 8 week rally, the market would sell off into the next 11 month cycle low due around January 6. However, this has not occured, and with each passing day it seems more likely that it will not occur.
Apparently, the force of a larger cycle is at work here pulling the market up into a high. More than a couple of analysts have noted the 7.25 year cycle that has been in play since the 1974 bottom. 7.25 years subdivides into four 21.75 months quarter cycles and is related to a larger 45 year cycle.
In comparing the 2009 low to previous lows, the 1974 low has the greatest similarity, in my opinion, so perhaps I should have given greater weight to the extent of the rally off of that low which lasted from December 9, 1974 to September 22, 1975 for a period of 1 year, 9 months and 13 days (21 months and 13 days). This is pretty darn close to the 22 month cycle period I have been discussing for the last few months.
I had hoped that we would see a low this December or January to set up the next leg of this cyclical bull market, but it appears that will not be the case unless the market sells off hard into the end of the year starting Monday. Unfortunately, triangles have formed all over the place which indicate more upside over the coming week. (BIDU is an example) This strongly suggests to me that we are moving up to a major cycle high as indicated by the basic price tee in the chart of the Qs.
In support of this view is the fact that sentiment has reached extreme levels as measured by the TRIN, the PPO of the equity only put/call ratio, and sentiment surveys. In addition, the Absolute Breadth Index is setting up for another top, the High-Low Logic Index appears ready to breakout for a sell signal, and the McClellan Oscillator and Summation Indexes are diverging strongly against price as are the MACD and RSI. Volume has also been below average.
In short I now believe that a top of Intermediate if not Long term significance is near at hand. If so, we should see many weeks and possibly months of down to sideways market action. At the moment it is too early to say whether this is the top of the infamous Primary wave 2. Personally, I don't think it is. Rather, it is more likely that we will see a larger double top with highs 10 to 20 months apart after which a more powerful down leg will ensue into the 2016 low.
So what is there to do now? Based on the above I will not be buying stocks or adding to existing stock positions until there is a clear cut unambiguous cycle low. I will be trading the Qs and the metals using my basic trend following strategies, some of which are shown in the Strategy Tracker.
The selling after the end of the year may be surprisingly strong. Be prepared. If the market were to top in the same time as the 1975/76 rally, the top would be December 19, 2010, which is also amazingly close to the winter solstice date. However, I suspect the powers that be are working to keep it afloat until December 30 if at all possible. Unless we see selling materialize in a dramatic fashion beginning early next week, there is little doubt that the coming cycle turn will be an important top.
Thursday, December 9, 2010
As has been the case since the November top, it remains to be seen how far the selloff will go and which elliott wave pattern will win out.
Wednesday, December 8, 2010
Tuesday, December 7, 2010
Sunday, December 5, 2010
Overall the pattern in the FXI is long term bullish for stocks as it suggests that once the correction is over in US stocks we will see another leg up along with the FXI. Exactly how the pattern will develop is still open for debate, but we may see a sharp decline over the next two weeks which corresponds to the August decline in the FXI. The nature of that decline and the subsequent rally will tell us a great deal.
Saturday, December 4, 2010
The rally to new highs appears to be wave [b] of 4 of (C). OK, I give in. Since it is so obvious to everyone, it really must be true. Yet, I had said that if the SP500 rallied above 1207.38 we would have to reconsider the bearish case. Now that it has happened it is time to get on board the train even if it is nearing the station. Without getting into all of the details, there are very good reasons to believe from cycles work that we will see selling from early next week into December 20+/-, but that will likely just be wave [c] down at this point. Thereafter, a rally into January should follow. Again, a fall below the July/August highs before wave 5 is seen would reinstate the larger wave (B) or [B] view.
While some may see the positive in this view, I definitely do not. Unfortunately, this outcome raises the specter of a very much less bullish resolution to this cyclical bull market than I have heretofore believed possible. In other words, it is beginning to look possible that the Robert Prechter camp could be on to something. The problem here is that we are heading into a cycle turn date of significance which raises the possibility that once wave 5 is complete the entire rally from March 2009 will be complete. The next large time frame turn date is in the late 2012/2013 time zone, so we could be looking at a two year bear market very soon.
The only thing that could save the bull market would be if the coming 5th wave is only wave [v] of 1 of (C), or wave 3 is wave [i] of 3 of (C). The question is how will we know? First, we will be looking at the character of the decline. Is it impulsive, or is it corrective? Secondly, we will be looking at sentiment. Does it get extremely bearish very quickly - perhaps even more bearish than the July low? If we see a corrective pattern and quick turn to bearish sentiment, then we are likely looking at a 2nd wave, and an even more powerful rally to follow.
The PPO (50,5,1) of the CPCE has been an excellent measure of sentiment during the entire rally from March 2009. It has remained in the neutral range during the entire rally from the July low. Wave 5 should produce and extreme high reading in the PPO. If it does not, then we may be in the middle of wave 3 instead of 5, with a more muted pullback coming after the January high. A pullback that remains above the December low would be the most bullish of all.
The low volume of this week's high coupled with low TRIN readings is consistent with a [b] wave high. We should see a retest of the November low before wave 5 begins in earnest.
For those who are interested, since 2000 the Nasdaq has been following the pattern of the Dow from the 1929 high. If this repetition continues, January will be a high followed by a two year decline (see the Dow 1939 to 1942). While such synchronicities can be helpful, they can be just as dangerous if you believe in them too much.
Thursday, December 2, 2010
The problem is that instead of a cycle low, which has been my thesis since this summer, we could be looking at a cycle high. This might very well coincide with a completed wave (C) of  or [C] of x for the rally from March 2009. Unfortunately for the bulls, this would mean a long and significant decline is very near upon us.
The alternative is that the 5 wave advance from the July low is just wave 1 of (C) or (1) of [C]. In this case, a multi-week pullback in wave 2 or (2) should follow a top in December.
At the moment the wave [B] flat correction or triangle interpretation is still on the table so there is no reason to jump to conclusions just yet, and there are quite a few indications that a top is imminent which could still derail the wave 4 view: 1) the Absolute Breadth index is making a double bottom with its November 1 low suggesting a big top is near, 2) the Summation Index is still falling with a negative MACD, 3) Volume on the latest short term rally has been anemic, and 4) the JNK is not rallying with stocks suggesting that the appetite for risk is falling.
I think we will definitely see some kind of top tomorrow or early next week that may last into December 21. Whether it is just a part of wave 4 will not be known until then.
Wednesday, December 1, 2010
Of course, the descending bearish wedge pattern was invalidated. Even so, I am seeing alot of large cap stocks that have completed impulse patterns and are ready to correct. I suspect this market will try to hold up until early next week before another leg down gets underway. So far, the 4th wave scenario is still on the table. We'll see next week if it stays that way.
Tuesday, November 30, 2010
The other valuable piece of information from this triangle is that it will invalidate the possibility of a flat/expanded flat correction. However, we will still have to be on guard for the development of a double zigzag for wave (C) down which is now underway that could extend well into January.
Monday, November 29, 2010
Saturday, November 27, 2010
Notice how the JNK closed near it November low. This suggests that any continuation of the short term rally in stocks next week will fail, and probably in a sharp fashion to play catch up. Also, the pattern in the JNK fits with the expanded flat or triangle thesis that we have been discussing. The more violent the coming decline, the more likely it is that we will see the expanded flat correction as opposed to the triangle, or it may be that markets are mixed with the Qs in a triangle while other indexes complete the expanded flat.
In any case, the downward pull of the 10 month and 20 month cycle that is currently in force should bring a conclusion to the correction that began April 26. All in all, it appears that this will not be a typical December for a mid-term election year as the market may be down for almost the entire month.
Friday, November 26, 2010
Regardless, we will still be left wondering whether we are completing a flat correction or are in the middle of a larger triangle until the action in December plays out. One interesting possibility that I had not considered before is that the Nasdaq 100 could be forming a rare, but valid running flat. In a running flat, wave (B) exceeds the high of wave (A), but wave (C) does not reach the low of wave (A). This would be a very bullish outcome and really keep everyone guessing as most would see the 5 wave decline that fails to test the July low as a clearly bearish turn of events.
The fact is that the market action relative to current events is not dissimilar to what occured earlier this year, and we should be ready to take full advantage of any repeat of adverse market action.
Wednesday, November 24, 2010
Tuesday, November 23, 2010
The move down from the recent November high is clearly not impulsive on the intraday charts. This makes it difficult to conclude - as much as might want it to be - that wave (C) down in a flat correction is underway. On the other hand the various stock indexes are really not in sync with the impulsive count from the July low either. For some, the rally from the August low just does not look all that impulsive, which does not fit with the idea of a 3rd wave.
It is beginning to look as though we could be in the worst possible outcome for traders, one that I have suggested a few times, but had forgotten about over the last couple of months. Folks, we are probably in a very large [B] wave triangle. For the Qs, it would be a running triangle. For other indexes it would be an ascending triangle. This would explain the lack of clearly impulsive moves, the corrective quality of most of the swings, the slight new highs to new highs, the long wave (B) which is common in triangles, and the continuing strong performance by top-rated stocks. We are running out of time with respect to the coming cycle low due between mid-December and mid-January, so we would really have to a sharp decline develop soon in order to define the cycle low. Should we see such a sharp decline it would most likely be wave C of (C) for the triangle case.
If this is a triangle, then given the overall time of development so far, it may take well into March for it to reach a resolution. Fortunately, the fact that the Qs would be presenting a running triangle eliminates a bearish resolution of the triangle. My view at the moment is that we must wait and see if the July/August highs are touched to rule out the 4th wave count. If that happens, unless we see a powerful move that undercuts the August low before December 21, then the probability that the current market action is a very large triangle rises greatly.
So what should we do now? I will be looking to exit short positions at a 61.8% retracement of the July to November rally unless the August low is broken before mid-December. After that I will be looking to be only long until the top of wave [C] while using waves (C) and (E) of the unfolding triangle to build long posiitions.
Triangles can be frustrating affairs, but once recognized confidence in the outcome increases greatly. My hats off to the elliott wave bloggers that are keeping up with the intraday counts. Some are really good, and I plan to add them to my blogroll soon. However, tracking the intraday moves can lead to a myopic view of potential outcomes. Let's see if clarity develops over the next 3 to 4 weeks with respect to a possible triangle count.
Saturday, November 20, 2010
Of course, if the trendline breakout in the Dollar was just a fake-out, then this interpretation is not valid.
Friday, November 19, 2010
I suspect that we will see a little pullback early next week, more rally around the holiday and possibly into the end of November. Then a break of the September to November channel line will usher in a retest of the April/November lows. Once that level around 1170 to 1173 fails then a quick decline to the August high should follow.
If the correction doesn't continue as outlined above, then we could very see another huge runup into the end of the year. I think this is doubtful now, but this crazy market could do about anything.
Thursday, November 18, 2010
We got the bounce - all in one day it seems. The Qs closed below the middle of the range, which showed weakness on an otherwise solid up day. A move below today's low could put an end to this mini-rally. Today's advance did not qualify as a follow-through day as it occured on day 2 of a rally attempt. While some are looking for this little rally to continue for a few days, I think it is just as likely that it is all given back tomorrow followed by downside acceleration. We will see. A move above today's high tomorrow would likely lead to additional upside before the correction resumes.
A sharp bounce is not unexpected as the NYSE McClellan Oscillator had reached an oversold condition below -80. Reaching this level in such a short time from the top - only 7 days - coupled with a broken trendline is more consistent with initiation of a new downtrend rather than a brief correction. Other indicators such as the 14 day RSI are far from oversold, however, we must be open minded as the 4th wave scenario is still on the table until the July/August highs are broken.
We would like to see the SP500 remain below 1207 for the downtrend to remain intact.
For those following the IBD strategy, today's bounce would be a good opportunity to enter a short position or one could wait for confirmation with a break of Tuesday's low.
Tuesday, November 16, 2010
Today's range and close were very similar to May 4th, right before the "Flash Crash" episode. Another such event, or least a dramatic selloff, could be setting up. The only difference being that the market has become more oversold than it was on May 4th and a bounce may be coming first.
A valid MACD negative divergence sell signal was given on the IWM and the IWM can be shorted. Entry on a bounce would be advisable. Today's distribution day should push IBD to call the Market In Correction. If so, that would be another reason to look for a short entry. That said, we have to respect the support at the July high (August high in other indexes), so a staged entry would also be advisable, i.e. 1/4, 1/3 or 1/2 positions depending on your account size.
Another distribution day today should push IBD to call the "Market In Correction" from the current stance of "Uptrend Under Pressure".
Sunday, November 14, 2010
The signal at 1 was ignored by discretion. Signals 2 and 3 were not actionable according to the rules as set forth. It is possible that the signal at 3 could be considered an actionable long signal, but since the price low was well below the 200dema, the signal was ignored. In most cases, one would have expected a pullback to generate a second actionable buy signal. That did not happen here and a major rally was missed. However, this is not a reason to change the rules. Perhaps better discernment would have led you to conclude that was a valid long signal, and that would be ok, but having not taken it, I will not change the results retroactively. Even without the lastest rally, this strategy as described is up 16% for the year, which is excellent.
Currently, the MACD gave its second sell signal since the rally began, which is a strong indication that a significant pullback or correction is underway. A buy signal with a rising 50dema would be taken should it occur. This goes against my expectation that the Qs will fall below the August high, but that is not something that would fall under the umbrella of discretion.
One more advanced MACD behavior that I would take on discretion (but not include in the Strategy Tracker since it is not a part of the rules) is a hook sell signal. If the market rallies and the MACD attempts to cross above its signal line and fails by turning down without crossing, this would be a valid short signal.
Friday, November 12, 2010
It seems to me that we should expect the broader markets to be following the same theme. If that's true then the recent November top in the Wilshire should be wave (X), a double top. We will be looking for a retest of the July low. This will be wave (Y) down, equivalent to a C or 3rd wave in force, which may be surprisingly sharp. If we see a violent acceleration in the decline, it could shorten the end point for wave (Y) to mid to late December.
Given the moderated increase in bullishness associated with wave (X) up, the bearishness should become quite severe as the July low is approached creating the greatest buying opportunity since March 2009. Perhaps this is a hopeful interpretation, but while my timing of the count has been off since July, the form fits what I have expected from the beginning. We will just have to give it a little more time to see if it proves to be correct. Either way, an excellent buying opportunity should be here in just a few short weeks.
The Qs may diverge from the Wilshire and SP500 by correcting in a wave 2 of (3) of [C], but the overall outcome will be the same.
Wednesday, November 10, 2010
My cycle work is showing the next 10 month cycle low is due January 6. I had charted a probable cycle pattern for this year in the spring, but I had forgotten about it after the flash crash excitement. I wish I hadn't because that chart nailed the late August low and called for a mid-October high. It is now calling for a low in early January. Sometimes it is difficult to keep up with so many charts.
Regardless of the final wave count at the coming low, it should represent an excellent buying opportunity. It should actually be better than the August low, in my opinion, as we will either be entering a powerful 3rd wave in wave (C) up or beginning wave (C) up.
I may not be able to post again until the weekend. We have been fortunate enough to sell (in fact they were presales) the last two townhomes in our development, and I working to finish them by Friday. We obtained the Certificates Of Occupancy today, but there is still alot of cleanup and punch list work to do. I can't tell you how relieved I am. After all of the craziness that has occured in the last 3 years, I am grateful that we were able to find a way to finish the project.
Tuesday, November 9, 2010
The Euro has probably topped as of 11/4 with a confirmed MACD hook sell signal yesterday. Stocks should follow the lead of the Euro and precious metals. The only question is what degree the pullback/correction will be: wave 4, wave ii of 3, or wave C. There's no way to know but the first real support will be the 50dema.
Sunday, November 7, 2010
As far I can tell, the PPO of the CPCE as shown above gave the best measurement of market sentiment during this latest rally. While many sentiment polls showed either strong or excessive optimism, the PPO of the CPCE stayed in the neutral zone. This was a great clue that the rally had the potential to run. We will watch this one more closely in the future.
Saturday, November 6, 2010
Friday, November 5, 2010
The primary reason for my thinking is that secular bear markets during the last century have consistently lasted 16 to 18 years, and since the 1980s and 1990s secular bull market was the longest of the century, it is reasonable to assume that the following secular bear market would be longer than the previous bear markets - possibly longer than 20 years if Japan is any indication. This means that the low in 2009 was just the end of the first corrective pattern.
However, X waves are corrective patterns in and of themselves which can make following them difficult even if you are confident of the overall outcome. The rally from March 2009 has certainly born this out as wave (A), for example, doesn't really have the true character of an impulse wave, though it has definite similarities in appearance.
We have been trying to determine over the course of the summer and fall whether or not the correction within wave x that began April 26 was over or not, and we still cannot be sure of that, but at least we can be sure that wave x has much further to go since all of the major indexes have exceeded the April highs. The only question left is whether we will retest the July low to complete wave (B) first or whether wave (C) up is underway, and if wave (C) up is underway, what are the likely targets?
There are four probable targets for the Qs: 1) wave (C) = 61.8% x wave (A), 2) wave (C) = wave (A), 3) wave (C) = 161.8% x wave (A), and 4) wave x = 61.8% x wave w. Assuming that wave (C) is already underway, these would give targets of 56.93, 66.79, 82.25 and 80.22 respectively. I think that the higher targets are definitely possible, and with the Qs closing today at 53.67 that represents a substantial return from the current or lower levels.
If wave (C) is already underway, then the current rally is most likely wave 1 of (C) or [i] of 3 of (C). If this is wave B of (B), then a substantial correction should be imminent with an expected low in January that retests the July low. No matter where we are in the wave structure, this is not the time to be buying stocks as a correction is long overdue. Better buying opportunities lie ahead at the low of wave 2 of (C), wave [ii] of 3 of (C), or wave C of (B). Regardless of how well or poorly you have traded this year, you can look forward to the continuation of wave (C) up, and the eventual decline to follow.
There will always be an opportunity. The main character trait needed to take advantage of the opportunities is patience.
Thursday, November 4, 2010
For an expanded flat correction, 1.382 x wave A (April high to July low) = 12.27 + 41.77 (July low) = 54.04 = maximum probable price for wave B. While it has been seen in some expanded flats that wave B = 1.618 x wave A, it is rare for the stock indexes. If we count the Dow's rise to October 2007 as an expanded flat, wave b was 1.54 x wave a, but this is a rare case. Let's see what happens this afternoon and tomorrow morning. I am looking for a reversal, but after that I will be squarely in the bullish camp.
The impending top need not be THE top for this rally. It could be a 3rd wave top , but consider the same chart from the 2007 top. We saw 53 trading days and 10.68 points followed by a dramatic 8 day selloff.
It could be different this time, but what is the likelihood that it will be? The risk in this market is high in my opinion.