Sunday, October 31, 2010
Saturday, October 30, 2010
Looking at the pattern in the IWM, it looks like it could go either way. The IWM either topped on Monday or it will rally into Tuesday or Wednesday and then roll over. If the top is in, however, the selling should begin fairly quickly on Monday. One thing is clear, the action since mid-September in the IWM is not impulsive. It doesn't look anything like an impulse wave, so once the selling begins, the gains should be given back quickly.
Friday, October 29, 2010
Thursday, October 28, 2010
Wednesday, October 27, 2010
The NYMO closed lower and below the cited pivot level from yesterday indicating the rally is over for all intents and purposes. Anything they are able to do from here is window dressing.
We can't know what the extent of the decline will be ahead of time, but we do know that it will most certainly fit into one of three possible outcomes: 1) a large selloff to retest the July low to conclude a [B] wave flat correction, 2) a 4th wave correction to set up the completion of intermediate wave (1) from the July low, or 3) a 3 wave decline that sets up some sort or combination correction or triangle that extends well into 2011. Given the extent of the rally and the new highs by the Nasdaq 100, the likelihood of primary wave 3 down is very low at the moment. Only if we were to see a 5 wave decline to the July low followed by a 3 wave rally might we suspect otherwise.
Well, the monied interests have made a good run of it for a B wave, but I am looking forward to a better opportunity in early January.
Tuesday, October 26, 2010
I am still looking for an eventual retest of the July low. If it doesn't happen, I will be watching for a true 5 wave advance from the July low or a triangle that extends out into next year. I am now looking for shorting opportunities.
Until we see a true confirmation by breaking of the critical levels and a larger degree impulsive decline, we must assume the rally will continue, although the number of divergences is building which may lead to a more dramatic decline when the market does turn.
Monday, October 25, 2010
Saturday, October 23, 2010
An example is recent articles arguing that the VIX has reached an extremely low reading suggesting complacency. We did have a VIX sell signal on October 11 when the VIX closed below its 20 day x 2.0 SD bollinger band. The SP500 has basically treaded water since then, but that type of sell signal need not indicate a major top.
Using the 20,5 PPO when can see how the VIX is doing on a relative rather than an absolute basis. The extreme low readings of the oscillator came in May after the flash crash. Since then the VIX has traded in the "neutral zone" though it has reached the upper end of the neutral zone range. A touch or pop above the red line may indicate a near term top, but unless we see a falling tops pattern, we cannot draw any further conclusions. Extreme low readings do in fact appear to precede important market lows, and extreme high readings appear to occur at the swing high before the final low. We'll keep watching this indicator, but for now it is not telling us much.
The 5,20 PPO of the TRIN is harder to interpret. It is certainly neutral at the moment, but what is interesting is the fact that the oscillator has not moved higher with the rally. This indicates a lack of true buying interest. Notice how the indicator remained low in the range during most of the March to August period of 2008. Even though the market made two rally attempts that summer, the TRIN did not confirm the rallies. Compare that with February 2009 to April 2010 and note the frequent spikes to the red line indicating strong buying interest.
The fact that the Nasdaq 100 has broken out to new rally highs while most other indexes have lagged considerably coupled with the clear lack of buying interest as shown by the TRIN oscillator supports the view that we are currently in a false rally. Until we see spikes in the TRIN oscillator, we should assume that a significant correction will follow once the current rally from the July low is finished.
Friday, October 22, 2010
That said, we have a very clear ascending triangle on the 30 minute chart of the Qs. This is most likely a 4th wave triangle of minute or minuette degree. The probability of a upside resolution is almost guaranteed as the Qs are already trading above the triangle highs afterhours tonight, and it is rare to see a failure of this type of triangle. The triangle target range is 52.39 to 53.31 which should conclude the rally by Wednesday at the latest.
The XLF is still lagging the overall market, which should not be if this rally were for real, and the IWM may have already topped. One of the biggest "tells" is the complete lack of confirmation by On Balance Volume of the breakout in the Qs. One of the reasons that the wave count has been difficult is that (i) of [c] of X appears to be an extended wave, which is not typical for the stock market, but as long as wave (v) is shorter than wave (iii), this count will remain valid.
Until we see a 5 wave count of minor degree, I think the expanded flat correction interpretation has to remain the top count. If we do not see an impulsive move down by mid-November, then we will have to reconsider this count.
Thursday, October 21, 2010
Wednesday, October 20, 2010
Tuesday, October 19, 2010
Then, we will be looking for a breech of the August high to invalidate the bullish count, or a pullback that stays above the August high and a 5th wave of minor degree to confirm the bullish count. Either way, it is finally starting to get interesting.
Monday, October 18, 2010
Some recommend using the mid-point between the two MACD bottoms as the centerpost, but I don't find that this works too well. The second higher low works best if there is one. If there is only a single low, then use that.
The third higher low with another momentum breakout in September could be pointing to another high in the making after the upcoming correction is over. We will have to wait and see if the MACD breaks down below the red trendline first.
The reaction to AAPL's earnings afterhours has not been positive, but unless it falls below 290, the 9/30 wave i high, we have to expect wave iv and v to follow to complete the current impulse. At that point, it will require a correction below the 9/28 low of 275 to confirm an intermediate term correction. If AAPL holds above 275 during the expected November/December correction, then watch out because a 3rd of a 3rd wave blowoff top will follow. If it does not, then expect several weeks, or perhaps months, for AAPL to build a new base before moving higher.
Saturday, October 16, 2010
Now, we can see that the XLF is in a 3 wave correction that has probably just completed wave B up and is beginning wave C down. Once wave C down is complete, wave (C) up will follow. Of course, wave (B) could morph into a more complex correction, but either way, it supports the view that another powerful leg up in stocks will be seen next year, if it is not underway already.
At the moment, there are a couple of alternates to be aware of. First, wave B up may not be complete. The rally in the broader indexes could pull the financials up with a retest of the August 25 low to follow before wave (C) up begins. Or second, wave (B) could already be complete as wave C down could have bottomed on August 25 and wave (C) up is underway now. Neither of these alternates seem to fit the recent action in individual stocks. BAC has already broken down below the summer lows, JPM and WFC appear ready to break their lows next week. And we have an unresolved issue with the foreclosure moratorium.
The decline from April to July was 2-1/2 months. If the XLF topped on 10/13, then it would bottom near the end of the year if wave C = wave A in time. This should coincide with a low in the broader markets and an opportunity to catch the next big move, but if the XLF breaks out to the upside next week, the bulls will be in complete control and a deeper correction in the broader markets will be much less likely.
Friday, October 15, 2010
My vote is for either 2) or 3), but I am seeing arguments for 1) and 4) as well. As I said earlier this week, AAPL is a big driver of the Qs with a 20% weighting. Today, AAPL advanced solidly above its median line (see 10/13 post), and it could very well continue to power ahead. However, I show a different view of AAPL using Keltner channels below. The last two times AAPL traded outside the upper 5.0 Keltner channel a pullback followed. This leads me to believe that unlike GOOG's action today, AAPL may pullback after it reports earnings Monday AMC. Should this occur, wave [iv] in the Qs would probably be underway. On the other hand, if AAPL powers ahead then we may be in scenario 1) in a 3rd of a 3rd wave.
From a trading perspective, even if we are in a 3rd of a 3rd wave scenario, we can see from the chart below of the Qs, that pullbacks to the 50dema tend to follow after the 5.0 Keltner channel is hit, and we are near that point now. Just like we saw last year, pullbacks to the 50dema should give excellent buying opportunities as long as the Qs continue to make higher lows. We should not let wave interpretations keep us from taking those trades if they show up.
There's a very good chance that wave [C] of x of the cyclical bull market is already underway. If so, there's no need to be anxious about missing it, as it should last several months, and there will be corrections along the way for new entry points. But there is still a better than even chance that a more significant correction back toward the July low could be around the corner. We may just have to wait for the giddiness about QE2 and the election to get behind us before it shows up.
Thursday, October 14, 2010
The VIX and the QQV turned up today, which is pointing the way toward a top after the VIX sell warning. An upward acceleration in the volatility indexes will likely coincide with a top. Tomorrow is expiration day and it will probably be volatile.
AAPL posts earnings after the bell on Monday. The results will set the tone for the rest of October. A disappointment, i.e. coming in under the whisper number, will be enough to end the rally. A beat will push the rally well into November.
Wednesday, October 13, 2010
The Qs bested the April high today as expected by the recent price action, but it failed to close above that level. Volume was only about 6% higher than at the April high, which is well below the 10% minimum to confirm a breakout. The weekly volume run rate is well below the volume for the high week in April. New highs are running well below the April high level.
Regardless of the price level, there is still nothing that convinces me that the entire rally from the July low is anything other than a B wave, which is what has been proposed all along. The only fly in the ointment has been the greater than expected retracement of wave A down. But B waves can extend above the origins of A waves, and it doesn't change the final outcome, which is wave C down. Wave B in the SP500 in 2004 lasted from 3/24/04 to 6/24/04. The Qs topped on 6/30/04. Wave C down bottomed on 8/13/04. The current B wave rally is only a little longer in time than its 2004 counterpart.
If wave C down is to happen, it will be soon. If there is no downturn by early November, then something completely different is probably going on.
Tuesday, October 12, 2010
We now have a VIX sell warning as the VIX has closed below the lower 20 day x 2 SD Bollinger Band. The last two occurences of this condition were 1/11/10 and 4/12/10. The SP500 topped on 1/19/10 and 4/26/10. It would be surprising to see the indexes hold for another two weeks at this point given how far advanced the EDT patterns are.
Unlike the other indexes, the Qs clearly have another down-up sequence to go before topping and will very likely make a new high above the April high, which is now only 54c away from today's close. The interesting thing about this outcome is that it keeps the longer term bullish view intact, as we are now back to a flat, expanded flat or triangle correction for wave [B] of the larger [A], [B], [C] cyclical bull market upward correction. There is no way to know which it will be, but a retest of the July low would be a great opportunity. We may just be looking at wave C of a triangle, however, that retraces 62% of wave B up.
The only thing that would derail these interpretations at this point would be a powerful and explosive up day that we would have to view as a 3rd of a 3rd wave. If we see that, then the bears will be crushed, but such a move does not seem consistent with the action in the VIX.
Monday, October 11, 2010
Stocks ready repeat of 1990s
The real opportunity is in those "boring parts of
the world" of U.S. and Europe, says Fisher Investments' Ken Fisher. In fact, it's like 1991 for stocks all over again.
Is he serious?
Market's unrealistically giddy about Fed
Feeding off weak U.S. dollar
Investors flock to ETFs indexed to commodities such as gold and to emerging markets.
But there's not a bubble here.
Market Pros: The S&P Rally Just Beginning
Well, the Pros must know.
Fed Certain to Act in November In a Big Way: Survey
Yeah, they probably will since the labor market is in the toilet, and they know it.
Is Fed Anticipation Setting Up a Sell-the-News Event?
How could it not be?
And yet the Dollar was higher today. A close above 78.45 should get the ball rolling. I really don't know why the Dollar would move higher now, only that the technicals and sentiment say it should. The market, stocks and commodities, will respond appropriately to a rising Dollar, by falling.
The Qs, on the other hand, also made a new high for the August/September rally today and appear to have completed wave b of a 4th wave flat correction that will eventually lead to a retest of the April high in November.
The FXE continued lower today,and we may have seen a bottom in the Dollar. Silver is testing the high of last Thursday's reversal bar, but in all likelihood, it should continue rollover over with a rally in the Dollar. We should know in short order if wave C down is underway in the most stock indexes, with the Nasdaq being an exception.
Saturday, October 9, 2010
Friday, October 8, 2010
What does this mean? In my opinion, it means that a new uptrend in the still ongoing cyclical bull market has been initiated after the crash we experienced earlier this summer. Unfortunately, various markets are not yet in sync with the new uptrend and are still in correction mode.
Below is a 30 minute chart of the QQQQ. It is very clear that the Qs are not about to top any time soon. The pattern appears to be either a flat or triangle in progress that will lead to new rally highs by early November.
The daily chart shows a 5 wave impulse in intermediate wave (1) up of wave [C] up. It is not insignificant that we are now seeing parallels between the current topping action and that of 2007. The SP500 and Dow topped on October 11, 2007 while the Qs and the Nasdaq Composite topped on October 31, 2007. The same type of divergence seems to be playing out now, but unlike 2007, it should not lead to a long term top as many are expecting. At present, only a move from today's close in the Qs to below the August high of 47.19 will derail this interpretation. I realize that others will be drawing the same comparision between now and 2007 and reaching a completely different conclusion, but I have been saying since the rally began in March of 2009 that those who have been tenaciously clinging to the expectation of a devastating decline in primary wave 3 down would probably be disappointed. The evidence is now beginning to bear that out.
While the Qs may already be in wave (1) of [C] up, other sectors are lagging as was the case in 2007. The IWM, Russell 2000 small cap ETF, is sporting a very clear ending diagonal triangle. It is rare that we see one as perfect as this, so it would be surprising if it is invalidated. As the IWM and the XLF are preparing to decline ahead of the Qs, we expect that the SP500 and the Dow will not be far behind. The XLF topped well before other markets in 2007. The IWM topped next, then the SP500 and Dow on October 11, 2007, and later the Qs on October 31, 2007. I take it as more than a coincidence that the IWM has completed a pattern on the day before the 3 year anniversary of the top in the SP500 and the Dow.
In conclusion, I am expecting new correction lows in the IWM, XLF, SP500 and possibly the Dow. I am expecting the Qs to move higher in a 5th wave to complete wave (1) of [C] up by early November and then begin correcting in wave (2) down while other sectors complete wave [B] down. All of these corrections should be finished by early January to early March, after which, a very powerful rally that will continue well into 2012 will begin. Only a crash into late December will alter this view.
For me this has been a difficult trading year as the crosscurrents of varying views and sentiment along with extreme moves in stocks has made it difficult to follow the trend. It can be hard to pull the trigger long when half the trading community believes we are headed into financial armageddon tomorrow even if you know it is the right thing to do. This is why I have maintained several core long term stocks positions that I have not traded. One of these is Krispy Kreme, which now appears ready to blast higher after closing at a 2 year high today. Another one is QCOR, which is basing around $10. I also have positions in a few large cap stocks.
Shorting has been overall a losing proposition except for the very short term and day trading since March 2009. I suspect this will continue to be the case going forward even with declines on the horizon. For those who are short this market, be prepared to take profits and/or exit by late December unless the conditions change dramatically.
Thursday, October 7, 2010
The IWM appears to be completing wave [c] of B up in an ending diagonal triangle. Confirmation will come on a move below wave (iv). The continuing decline in the precious metals coincident with selling in stocks points to the likelihood that we have seen the top of wave B up in stocks. If this proves to be the case, the market should continue down in 3 waves until the end of the year.
Wednesday, October 6, 2010
It is interesting to note that the entire rally from the May low has occured within May's 5DOR demonstrating the importance of this period when funds and institutions are putting money to work ( or are trying to protect it ).
All I heard today was that the economy is better than people realize and we are in a slowly rising trend of economic activity. I really don't know what planet these economists appearing in the financial media are living on, but where I live there is nothing happening. It is dead, dead, dead - unless you want to speculate on foreclosures. I don't think the recent rally in the market has anything whatsoever to do with improving fundamentals in the economy, and everything to do with a falling dollar which is now approaching trendline support. A turn up in the dollar will change everyone's perspective very quickly.
Tuesday, October 5, 2010
The 10 & 20 month cycles are due to bottom on January 6, 2011. The fact that the market is showing this kind of strength 3 months from a cycle low supports my position that we will see rising markets next year after the current correction ends. Sometimes cycles expand as the current one has to 22 months. It is fairly simple to calculate. We have the bottom on March 6, 2009. The 10 month cycle low on February 5, 2010 - 11 months almost to the day. Another 11 months brings us to January 6, 2011 +/- 2-3 days. The reason I am bringing this up now is that we will see some sort of decline, whether it is a powerful wave C down or just a pullback. So even if you are in the bull camp, you would probably do well to lighten up and look for opportunities later in the year.
Monday, October 4, 2010
So far, we do not have enough evidence in the price action to confirm the top is in. In fact, the decline does not yet look impulsive. It may take a few more days before we can determine whether we have truly seen the top of wave B up.
Sunday, October 3, 2010
The recent new high in gold points to another rally after the current one is complete. My hunch is that oil may be developing an ascending triangle that could take several more months to complete. This is long term bullish for oil (and stocks) as it would negate the bearish pattern and increase the probability that oil will rally to new highs next year with a measured move target of at least $121.60.
Friday, October 1, 2010
Three of the most speculative Nasdaq stocks put in reversal bars this week. If the most speculative names fall, the rest will too.
The reversal in BIDU is about as powerful as it gets. Note the strong negative divergence in the weekly RSI.
Ditto for NFLX.
Here we are, finally, after a long and difficult summer at the end of a historic September rally about to find out who is going to be right. Will it be Robert Prechter and the P3 crowd? Will I and a few others that are pointing to a cyclical bull market correction to be followed by another leg up next year be right? Or will all of the bears be proven wrong as the market breaks out to rally highs into the end of the year? The last question will be answered in just a few weeks. The first two may take several months. But it is interesting to note that one long time bear is throwing in the towel according to Marketwatch: Peter Eliades. Such a public admission right at the top of the rally supports the bearish case, which is unfortunate for Mr. Eliades. October is setting up to be as memorable as September - just not what most are expecting.
But the most important point is that being right is not what trading is about. Trading is about making money by following a systematic plan with discipline. Sometimes it helps to have a heads up on what the market is likely to do, but the trading plan should not depend on it.