Within Spitting Distance

On April 2nd I showed a chart of the SP500 when it was trading at 1332 showing resistance at 1370.  The updated chart below now shows it is within spitting distance of that resistance at 1363.  I think there is no doubt that 1370 with be hit, probably on Monday.  The only question is whether the market pulls back from below, pulls back from above, or just blasts through without pulling back.  No matter which way it happens I think it is inevitable that 1370 is surpassed and once it is, there is no reason that a new all time high will not be next, even if it takes a little while.

Almost exactly a year ago the bears had a chance to take down this market with the flash crash event.  That possibility remained on the table until the end of 2010 as a double top potential still existed.  However, 2011 ushered in a move through the last truly viable zone of resistance at 1257 which was retested in March of this year.  While there are still many people pushing the bearish case, for all intents and purposes the bearish case was toast after the March reversal.

I gave one last shot at shorting the market in February and March.  When that failed there was nothing to do but get long and stay long, which has been a winning strategy since then.  I suppose there might be a chance for a summer correction, but the fact is that once the SP500 pushes through 1370 there is nothing to hold it back from a new all time high.

There is more to analyzing the market than counting waves.  We have to respect the fact that there is no such thing as a triple top (by this we mean that the market will not break down below the previous low - not that it cannot decline from a triple top), and this will be the 3rd time the SP500 makes it to the 1550 to 1560 zone.  WD Gann pointed out a very long time ago that any market that pushes to a level for the 4th time is almost guaranteed to break through.  This is what I will be looking for sometime later this year or early next year.

I still think that this may be an x or b wave of cycle degree, but we just don't know what the overall pattern will ultimately be at supercycle degree.  I still think it may be end up being some sort of flat combination or running triangle.  However, that is a long way out, and for now the trend is up until proven otherwise.

Nice Impulse In Soybeans

Soybeans have been lagging corn and wheat recently in the grains, but the pattern shows that by early next week July soybeans should be ready to move substantially higher.  Corn should lead the group higher and breakout by early Monday followed by wheat and then soybeans.

Please note that I do not trade futures using elliott wave or intraday, but use elliott wave to inform my trading decisions.  I use the same methodology that I use on the stock market and stocks, but with faster moving averages and tighter stops, typically a 3 day high or low stop or PSAR stop.

My adventure in trading futures began last year when I formed a partnership with a long time friend.  We got all of the paperwork completed and started trading in March.  So far so good as the approaches that I have frequently presented here for stocks has worked quite well.  The fact is that trend following is trend following.  You may have to adjust the parameters a little to accommodate different markets, but the process is the same.

The biggest thing that must be understand is the risk with futures.  I am continually amazed at how the PR campaigns from various brokers talk about how small an account you can have to trade futures, but the fact is that you really need $250k to comfortably trade a diversified account within the natural swings and volatility of the various commodities.  Perhaps you can trade a smaller account if you concentrate on a single market, but then you don't have the benefit of diversification, which can really be a problem when you go through the inevitable period of multiple losses in a row.

APKT Heads Higher

Some days things just seem to go your way.  Today was one of those days for me.  I had seen a very nice symmetrical triangle set up on APKT two weeks ago. When wave e looked near completion I entered an order to go long above the buy pivot high at 74.00 with a stop at 68.50 and a trailing stop of 10 points.  My target was a little more than 3 ATRs at 84.00.  Things certainly seemed to be working well until last night.

APKT reported earnings after hours and missed the consensus estimate.  Shares traded down to as low as 69+/- in after hours trading.  I assumed I would be stopped out today, but APKT raised its guidance and instead of falling the stock traded sharply higher today.  I pity the poor soul that sold 100 shares at 69.

This kind of reversal suggests my initial target was too conservative, and I now believe that APKT will hit at least 100.  There are a number of leading stocks forming triangles like this right now.  Look through IBD and also run a relative strength screen on mid-cap and small-cap stocks and you will see them popping up.  One example is JOYG, which needs to pull back for a couple of days to complete the triangle and form a lower buy pivot.

Looking For A Pullback

I'm showing what I believe to be the most likely wave count from the March low, which is a [i] [ii] (i) (ii) count.  Other counts are possible such as a running triangle, a flat or expanded flat, but I think we should regard those counts as secondary until we see evidence to the contrary.  If the count shown is accurate, we are due for a pullback before a powerful wave [iii] begins.  One thing to keep in mind is that since we are probably in wave [iii], surprises will most likely be to the upside.  Once the February high is cleared in earnest, the trend should accelerate toward 1370 to 1400.

Holding Pattern

It seems the anxiety du jour is Ben Bernanke's speech on Wednesday.  Does anyone really believe that he is going to go off the reservation with some unexpected announcement?  Maybe he will, but more likely he will stay the course because he believes in what he is doing.  This is one area that sentiment is hard to read.  On the one hand advisors are excessively bullish, but on the other hand there are lots of negative stories like this one to counterbalance the bullish sentiment.  When you add it all up it seems like the equity only put call ratio has it right with a neutral reading.

If the market reacts negatively, it will likely just be a shakeout that will quickly be retraced.  Consider the action in oil two weeks ago and where it is today.  A variety of time projections do not show a top until at least mid-May if not late June, so I see no reason to get off this train, particularly since I just got on it with the MACD buy signal.

Silver was the talk of the day with many speculating that a top may have been seen.  Don't count on it.  The previous tops in silver were double tops.  It may be different this time, but I suspect it won't.

The grains appear to be in a final leg up.  The DBA may benefit but a top will be seen in May or June.

SOHU had a nice pop today.  It may be in a 3rd wave in an ending diagonal.  In any case I don't think it is done yet.

Let's see if we can get through this week without any serious damage.  If so, the first week of May should be a nice one.  The first day of May is frequently a great day.

VIX Buy Signal In Force

While the bears are getting antsy the VIX has quietly given a buy signal as it reversed lower off of its now downsloping 50ma.  This is a pretty reliable signal, and it would take a lot to get a VIX sell signal at this point.  Some point out that a close below the lower Bollinger band followed by a close back inside it is a sell signal, but this generally works on a short term basis only and should not be relied on for the intermediate term.

I would not be surprised to see some selling next before a rally during the first week of May, but the trend is up and it will take a lot more than a couple of down days to change that fact.

Biogen exploded higher today probably completing wave (iii) of [iii].

Have a great weekend.

QQQ MACD Buy Signal Confirmed

The QQQ MACD buy signal triggered today.  This is a valid signal.  Given the strength of the futures in the pre-market this morning and the strength throughout the day there was no reason to wait until the close to go long.  I am long the QLD from 91.00.  There will probably be some more testing of lower levels before the Qs and SP500 clear the February highs, but the Dow has already closed at a new rally high, which is confirmation enough.  The main thing now is just not to get shaken out.  My stop on the QLD is 83.30, the wave [ii] low.

On my April 2nd post I showed a chart of Biogen - BIIB (http://tradercraig.blogspot.com/2011/04/big-picture.html) as an example of why I did not think it was likely we would be seeing primary wave 3 down any time soon.  Today BIIB closed at new all time highs confirming a powerful 3rd of a 3rd wave that has likely begun a multiyear run.  Even if we count the 10 year long triangle as a 4th wave instead of a B or X wave, the expected duration of the 5th wave thrust would be around 3 years or mid 2013 for completion.  Of course there will most likely be a retest of the old highs, but given the duration of the consolidation that should not be a worry.  It would take a monthly close below 77.65 to change my outlook at this point.  I am long from an average price of 56.69.  AMGN is lagging in the group but the pattern is very similar.  I expect it will follow suit in due course.

Given AAPL's afterhours performance the Qs are breaking above the March 3 swing high this evening.  I would not be surprised to see a test of the February high tomorrow.  Expect a pullback and then an acceleration in wave (iii) of [iii] in May into early June.  Waves [iv] and [v] should finish up in June which could lead to a more extended correction in wave (4) going into the fall depending on the degree of trend.  This rally could subdivide beyond current expectations if we break solidly through 1370 and 1400 on the SP500.

A Potential MACD Buy Signal For The Qs

The overnight futures have managed to hang on to yesterday's gains, but the action looks like an upward correction.  I am not sure what that means, but probably that a more complex correction is taking place - large triangle or ending diagonal?  Only time will tell.  Nevertheless, the Qs have now set up for a potential MACD buy signal as the MACD has pulled back to the neutral line while the 50dema has remained flat.  This is a signal I will take should it occur, particularly given the nice hammer reversal.

When looking at the 50dema it will either be rising, falling or flat.  Don't overthink it.  Small oscillations should be ignored.  Draw a line across it.  In this case it is basically flat.  When the first MACD buy signal occurred in March I would say that it was basically flat but beginning to turn down, so the signal was ignored.  When the 50dema is flat, we take the second valid MACD buy signal.  Once in the position the exit occurs on the second sell signal unless there is a valid intervening buy signal, in which case the position can be held longer.  I have a feeling this trade is going to go nicely and the bears will be disappointed once again.

Based on the FXI chart it looks like we will have some sort of low in early May.  It should be a higher low based on the current picture.

By the way, I am glad I took profits in VPHM as it fell 9.8% today closing below my entry point.  Had I not exited the position, I would definitely exit on the open today to take a SMALL loss.

Follow-up

It looks like the market will be making new correction lows tomorrow based on the current action in the futures. Even so, the previously stated levels should hold, i.e. 1280 to 1288 in the cash SP500 and 1284 to 1288 in the futures.  If those levels fail, then all bets are off with respect to a near term bullish outcome.

Looking For A Rally

I think the main take-away from today's action in the SP500 was the deep penetration of the strong support zone with a close above it.  The close could have been stronger, but the Qs closed at the top of the range.  While there may be some "backing and filling" this week, the market should be setup to rally in wave (i) or (b) as long as today's low holds.  Ideally it should hold above 1300.40 with a small rally to complete 5 waves up from today's low.

In addition, there is now a developing positive divergence in the NYSE McClellan Oscillator.

I really like the fact that the bearish talk has been steadily increasing over the past week.  I've even seen some (i) (ii) i ii counts.  I also really like the hammer in the Qs today.  It may take a little more time, but overall there is a lot of reason to believe that the rally will get underway soon.  It is possible that primary wave 2 topped in February, but the tenor of the market correction so far does not fit that conclusion.

In Wave (c) of [ii] Down

The rally on Friday did indeed end an upward flat correction for wave (b) of [ii] down.  The market is now in wave (c) of [ii] down.  I expect more selling today down to 1280 to 1288 in the cash SP500 and down to 1284 to 1288 in the June futures.  At the moment the TRIN is above 3.0 and a high close there would probably mark the bottom for wave [ii].  At the very least we are near the completion of a 5 wave decline from Friday's high on the 30 minute chart and some sort of rally should follow soon.  We can examine the nature of the rally to see if today's low marks the end of wave [ii] down.

I think this is just the type of action that is needed to bring some fear back into this market to set the stage for wave [iii] up.  So far today leading stocks are holding up quite well and this is quite telling.

The action today also clearly shows what will be happening with the US Dollar.  Standard & Poors lowered its long term outlook to negative for the US.  If the US debt situation deteriorates the Dollar will rally as holders of US debt scramble to buy dollars so they can get out of dollar denominated debt.

Next Week Is Truly Important For The Bulls

Well the elliott wave bears are ready for primary wave 3 down.  To them the rally over the last two days is wave c of an upward expanded flat that will lead to major selling next week.  But the fact is that sentiment as measured by the PPO of the equity only put call ratio has fallen, which doesn't support this view.  It seems more likely that the current rally is the very early stage of wave [iii] up, or at least wave a of (b) of [ii].  We will know very soon next week which way it will be.

You may not put much stock in this sort of thing, but the rally off the March low started fading around the new moon on April 3.  The full moon is Sunday April 17.  This will either coincide with a continuation of the upside reversal or a downside acceleration.  I tend to think the former rather than the latter.

As I noted an extreme reading on the McClellan Oscillator on Tuesday, I began to look for some short term trading opportunities.  VPHM showed up as a small cap leader on an IBD screen.  Note how it had pulled back after a strong breakout in March.  The moving averages remained strong.  I entered an order to go long on a 3 day high at 19.95 which was filled yesterday.  I exited the position today at 22.00 for a gain of 10.3%. 3 ATRs would have been 21.60, but when I saw the strong movement I raised my target to 22.00.

Have a great weekend.  Next week should be interesting.

An Alternate View

Today the SP500 made another low on the 30 minute chart.  This increases the chances that the decline from the 4/8 high is a double zigzag instead of an impulse.  This means that today's low could be the end of wave [ii].  We will only know once the current rally completes as either an impulse or an upward correction.  If it is an impulse, then we should see a strong rally in May.

It doesn't help that Google is down after hours, but we are only at the beginning of earnings season.  The current advisor sentiment isn't helping the bullish case either, but other measures of sentiment have become more bearish over the last two weeks.  Given the strong conviction that the February high was the top wave primary wave 2 by many, if the SP500 approaches that level there should be some strong short covering.

Correction Extending

We have what appears to be 5 waves down in the SP500 from the 4/8/11 high.  The most likely interpretation is that this is wave (a) of [ii].  Wave (b) should be underway already with a target of around 1328.  Note the positive divergences in the MACD and the Williams %R on the 30 minute chart.

While it is a bit frustrating to think that this correction could continue for another two weeks, particularly since it really feels like the correction has been going on since 2/18/11, and another two weeks would make it almost 10 weeks.  The ongoing correction should allow sentiment to turn bearish again and setup the next rally into late May/early June.

Caution On NVDA

SP500 Approaching Oversold Condition

The ratio adjusted McClellan Oscillator has quickly moved back down into the zone associated with market bottoms even though the SP500 is only 25 points off the recent high and 65 points above the March low.  That is not to say that it can't go lower or trade in a range for an extended period of time, but the evidence is beginning to build that this wave [ii] pullback is nearing its conclusion.

The 5 period RSI is now also oversold and it has done a good job at marking short term lows.  To confirm a low it needs to turn back above the 30 level.

It was interesting to see how oil and stocks sold off together today which easily dispels the myth that rising oil is a drag on stocks and vice versa.  Oil has risen from its 2009 low almost in lock step with stocks.  If stocks are going to head higher, then oil probably will as well, at least for the time being.  There will be a point where the two diverge, but I don't think we are there yet.

QQQ Correction May Be Nearing An End

The correction in the Qs appears to be drawing to its conclusion.  While lower prices are possible, the main element in the decline is a wave b triangle that would indicate that the decline is not impulsive.  Once this wave [ii] correction is over stock markets should embark on the strongest move higher since the March low.

The SP500 broke support at 1320.  A weak close today may lead to further decline into strong support around 1300.  However, there is fib support at 1305 which may be prove to end the correction.

Outside Reversal Day In Crude

Crude got hammered today and closed with an outside reversal day.  Was it because of positive changes in Libya?  I don't know, but I'm not ready to say that oil has completed its rally yet.  It is beginning to look like an ending diagonal is forming.  If so, there should be another push higher, possibly with an overthrow of the upper trendline to complete the rally.  Support is at the lower trendline around 108 and the March high around 107.  As long as these levels hold we should see another move higher.

The SP500 closed at 1324.46 today just below the low of the high week from February.  The 12 period lower Bollinger band is now around 1311.  We may see a move lower toward that level but as long as the market closes toward 1320 the intermediate trend should be higher.  The McClellan Oscillator is already getting oversold so the pullback may be nearing its conclusion.

Dollar Working Lower But Bottom In Sight

The US Dollar index continues to work its way lower, but it is likely in a final wave toward a bottom that will be somewhere between the November 2009 and the lower parallel channel line.  The RSI is not yet completely oversold and the MACD is turning down.  Dollar shorts should not overstay their welcome.  Even if the longer term future of the Dollar is lower prices, it would be reasonable to expect a substantial countertrend rally from somewhere out of the target zone before much lower prices are seen.

SP500 Still Consolidating

Even though there was an afternoon selloff (to be expected on Friday) the consolidation zone held as the SP500 closed well above 1324.61 (& 1320).  My take on this action continues to be that it is wave [ii].  Some are calling it wave [iv] and that's certainly possible, but the current corrective action is three times as long as the previous longest correction since the rally began in March, which makes the 4th wave scenario far less likely.

Williams %R has now moved to a deeply oversold level on the 30 minute chart suggesting that a strong bounce may be seen early next week if not an end to the consolidation.  Traders should expect that the consolidation will continue until there is a valid breakout or other technical buy signal on the daily chart.

SP500 Consolidating At February Highs

At the moment the SP500 is consolidating gains between the low of the previous high week and the low of the previous high day - 1324.61 to 1338.12.  Both occurred in February.  As long as it continues to close above 1320 we should expect the consolidation to continue within that zone.  This will setup the next advance which will likely begin sometime between tomorrow and April 22.

Given the impulsive nature of the recent rally the expectation would be for a new high to be seen.  Many will be calling for an end to the rally when that occurs, but the current consolidation is most likely a second wave which means a third wave is to follow.

Please refer to my post from April 2 for targets - http://tradercraig.blogspot.com/2011/04/big-picture.html.
The next resistance level is 1370.

QQQ Buy Setups Developing

The Qs have been lagging during the latest rally as the IWM has already made new highs and the SP500 is getting close to new highs.  However, the Qs are setting up some potential buy signals with a cup and handle or head and shoulders base pattern.  A move above the April 1 high would trigger a 3 week buy signal.  A move above the March high would trigger a buy signal on the weekly/daily strategy.  There is also the potential for a hook buy signal to develop in the MACD.  It hasn't setup yet, but appears to be working on it.  Overall, it looks like the the rally will continue as expected.

Milton Friedman On Capitalism

This is a great interview (IMO):
http://club.ino.com/trading/2011/04/this-one-guy-has-it-right-in-my-opinion-what-do-you-think/

The Big Picture

The SP500 cleared resistance at 1257 in January which for the most part eliminated the bearish potential.  Now after a retest of that level in March it is headed quickly toward the next resistance area around 1370.

Bears are hoping this will be the end of the rally from the 2009 low in minor wave 5 from the July 1 low.  However, it is more likely that we are in minute wave [iii] of minor wave 3 of intermediate wave (3) of primary wave [C] from the July 1 low, or alternatively, in minor wave 5 of intermediate wave (3), as I have labelled it.  The latter would leave waves (4) and (5) still to come.

The main point that is being overlooked in so much recent analysis is that if the 1370 level is hurdled, there is no more significant resistance for this market, and if it can make it back to the 1550 level, it will be the third time since 2000.  A fourth move to 1550 would almost guarantee a breakout [ref.  W.D. Gann], which would lead to a 600 to 1600 point move.

Is such an outcome probable?  I really don't know right now.  I only know that we are lot closer to such an outcome than is being suggested in the media.  Perhaps a more likely outcome is a move toward 1550 and another failure as cycle wave x fails to break out.  What comes afterward is any one's guess at the moment.  But the failure of potential cycle tops earlier this year now point to the rally extending well into 2012 and possibly 2013, so there is little reason to be bearish except for the occasional short term setups.  Even that is probably not worth the effort now.

As I said earlier this year, I would attempt to take advantage of shorting one more time at a potential wave (B) top.  Afterward I would be long only until wave [C] ends.  That is what I said and that is what I am doing.  Wave (C) down never materialized, so that is history.

As an example of the longer term potential we have Biogen.  BIIB appears to have completed a decade long triangle in mid 2010.  It is probably in the first impulse move off of wave (E).  A correction should be expected in the near future followed by a powerful 3rd wave which should propel BIIB to much higher prices, perhaps well beyond the first targets of 124 to 172. The prior upleg was 6 years long.  The current leg could be beginning a similar multi-year advance.  One stock doesn't make a market, but this type of action is not consistent with a near term resumption of a bear market.

Another example is CME, which is still in the process of setting up for a strong 3rd wave that should take it up to 500, at least.  Again, this type of action is not consistent with the resumption of a bear market.

Just to repeat myself.  The market is in the process of heading toward the next resistance level of 1370.  If this level is broken, then much higher prices could be seen over the next one to two years.  How high remains to be seen, but even within the context of an x wave, we could see the SP500 exceed its 2000 high by 338 points.  This would project a target of 1890+/-, or about 40% higher than current levels.

My pet stock KKD was pummeled yesterday after it missed earnings expectations.  If you fall in love with a stock, expect to take some hits.  I still like KKD, but its technical prospects have deteriorated.  Fundamentally, the company is doing everything right, and I expect that the stock will be rewarded at some point.  However, barring a major turnaround in the next two months, the current technical picture makes it unlikely that it will return to the 2003 highs during this decade.  My current view is that KKD is tracing out a complex upward double zigzag.  It is probably in wave B or X down now.  Wave C or Y up will probably top with the overall market in a year or two with price somewhere between $12 and $16.  I am long from $1.50.

Qs Near A 3 Week Buy Signal

A move above this week's high of 57.90 in the Qs will trigger a 3 week buy signal.  A move above 58.36, the March high, will trigger a weekly/daily trend buy signal.  What is truly important to note is that the Qs held support at the 2007 high of 55.07.  There was one weekly close below that level to get the bears' hopes up, and then the market reversed higher.  I would not be surprised to see a pullback over the next week or two, which should give an opportunity to go long for the ride into the May/June high.

While there may still be a possibility from an elliott wave point of view for the correction to return, almost all other technical and trend following indicators are pointing up.  Even the negative divergence MACD sell signals from January and February were negated yesterday as the MACD rose back above the zero line to put that indicator in neutral.  I say neutral because the daily 50ema is still flat to down for the Qs.  A pullback to the 50dema with a hook buy or outright buy signal in the MACD would be an excellent long entry.  The fib targets on the Qs are 62.30 and 64.44.

A better choice of trading vehicle may be the IWM ( or UWM) as its relative strenght is greater than the Qs at the moment.