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Tuesday, March 31, 2009

Picking Up The H&S Theme

Kenny showed the H&S pattern. I show a slightly differing variation but downside targets are the same. I think though that this H&S pattern would be a battleground for several reasons. 1) The H&S neckline would be forming on the all important Primary wave 1, Intermediate wave (4) C-E line. 2) A breakdown of this neckline represents a move back into Primary wave 1 parameters and trendlines and 3) of course a loss of the neckline would mean a lower SPX H&S target in the 730's around the 62% Fib mark or lower depending on where the breakdown would occur. Basically calling the rally into question (which is what a wave 2 is supposed to do.)

So I favor the H&S neckline staging a false breakdown to 757 and then it reverses and recovers and smokes some bears who piled on at the neckline break. Sounds like something the MM's would do.

But mostly I do not favor this rally getting stuffed back deep inside old Primary wave 1 trendlines. There is much support at 750 area. But these are some things to look out for. A neckline that cannot recover means the lower retrace targets for wave 2 will likely be hit.
Posted by Daneric at 8:22 PM

18 comments:

  1. Thanks for this chart & comments, Dan. If you have time to answer:

    1)Do you think Wave 3 will start soon despite horrible 1Q ERs and econ. #s during most of April?

    2)Is 1000 area your target for Wave 3 or for all of Primary Wave 2?

    Thanks!

    ReplyDelete

  2. SRS, yeah the permabear in me cannot fathom a bullish wave to 900 let alone higher.

    But if they change M2M, it'll be reason enough....

    875 is p2 for starters.....hehe that is the previous wave 4 spot so have to start with that.

    But 1000 is reasonable. 1044 tops.

    ReplyDelete

  3. I have to agree with SRS. Also why would this pullback be done so soon? Should it not take a couple of weeks? We have to at least clear couple of weeks of earnings reports and profit warnings before attacking 900.

    I am not sure just how important M2M really is. Atually I think it will be far more important when the new Geithner plan is used to artificially boost values of bank's toxic paper which should take place in a month or so.

    Then again this market is full of surprises so ... who knows.

    ReplyDelete

  4. Thanks for your prompt & detailed reply, Dan.

    With your & Kenny's help, I'm trying to strengthen my confidence to go long for a few months despite what I know is a terrible economic crisis.

    For someone brand-new to EWT, and a convinced bear like me, it's kinda nerve-wracking to risk money on the "theory" of a multi-month 200+ rise in a severely contracting global economy!

    But I've been very impressed with your & Kenny's charts & comments, so my confidence in EWT's counter-trend concept keeps increasing.

    Thanks for everything, including inspiring me to the amazing usefulness of EWT!

    ReplyDelete

  5. bob_ninja,

    I share your sense about the timing of Wave 2 & Wave 3. And I HOPE your're right that M2M changes will NOT be a spark for Wave 3.

    Changing M2M rules & lying that bankrupt banks are "really" profitable offends my sense of truth and justice, let alone trading judgment.

    And the idea of Wave 3 disregarding & overriding horrible 1Q ERs & economic #s seems like willful denial of reality via manic, self-deluding behavior.

    Oh wait. That's right. I've seen lots of that before in this movie.

    ReplyDelete

  6. Try shifting the left shoulder over to the 803.24 and change, this gives you a double head. The right shoulder in time then looks as it should in a H$S formation. Re-draw the neckline from 766.20 up to your labeling at [a] and re-measure your targets. Also you can do something else with this. print the chart and fold it by splitting the low at 791.37 to look into the mirror.

    ReplyDelete

  7. Dan,

    So sorry to have to ask you again, but you said "875 is p2 for starters"...so if 875 is your initial target for p2, what is your guesstimate top for Wave 3?

    Thanks.

    ReplyDelete

  8. Davlee

    I only see two scenarios happening.

    M2M push which starts wave 3 and overcomes the bad Jobs Report on Friday and bad earnings next week.

    Weak M2M decision with G20 fallout, bad jobs report on Friday and bad earnings next week which brings us back into Primary 1 and new lows.

    I'm not in the Primary 1 camp right now, but I have a hard time seeing this market rally just on M2M. Market has jumped 20% already.

    Basically we turn around at 757 on Thursday or drop to 600 over the next couple of weeks.

    ReplyDelete

  9. Davlee,

    Thanks for posting your two scenarios & opinion. They helped clarify my thinking a bit.

    ReplyDelete

  10. Hey Daneric, I'm giving a presentation to my college class about EW and TA. I remember seeing a GREAT chart you posted on stocktock where you drew in the pattern of waves out of the EW handbook and showed how this bear market had played out exactly like it was supposed to. Can you post a link to that chart? I'd really like to use it in my presentation (which is on thursday btw). Thanks!

    ReplyDelete

  11. There is also a H/S at 780, neckline from 3/20 to 3/30.

    Also, M2M is already baked in and the read is that it will be a NONFACTOR. Sell the news.

    ReplyDelete

  12. Bob and SRS: You can see there are buyers on any dips (so far). Wave 2 may not take too long.

    K-dog, Kenny has the double H&S.

    Davlee - yeah I wonder whats gonna happen

    Caleb shoot me an email. I think I might have what you need

    ReplyDelete

  13. Hi Daneric!

    IF we follow the 1938 chart, wave three up would be an ABC pattern with A testing wave 1 highs, B almost fully retesting wave 2 lows and C being a real monster rally. that pattern would confuse so many despite having occured in 38. any thoughts?

    ReplyDelete

  14. Thanks DE. I agree totally. My problem is with the strength of 1.1.2. 3.1.2 will be thru the roof, which is fine, but not sure how in this economy. Greed rules. I'll just follow the trend and the waves and keep emotions out of it.

    I do still have my sneaky suspition of capitulation on this move (possible in 2.5.5.1).

    Thanks for all you do. Your work is supreme! Nice job linking the VIx and SPX. Again, I see it, but am having a tough time believing it.

    ReplyDelete

  15. one count that i'm following is 5 up to 803 on 3/19 "a" down to 766 on 3/30 "b" up to 833 and "c" down to 779 (a=37 1.618*37=60 gives a target of 773)

    ReplyDelete

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