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Tuesday, June 2, 2009

Discussing P2 and Some Ramblings

A wave 2 rally of this magnitude will have an effect on everyone. I thought long and hard yesterday that I may be getting complacent.

I've thrown up a few charts on hypothetical P2 rallies and rally tops. I have projected the "what if" scenarios for instance what if the market performed a 50% retrace to 1100? I also speculated that the market may hit the 1040 area because that is about a 41% retrace and it seemed "doable" at the time. I am very doubtful now of that mark mainly because of what has transpired since that post.

But now the market broke out of another triangle to the upside pretty early and it is what it is. Although it has done the job, the market is showing signs of weakness. Certain sectors (banks) have not really participated, they have merely chummed along. I suppose they will join in to a certain extent on any move higher than 950, if it comes.

The waves are overlapping and corrective since the 666 low. That is the sign that this entire rally is corrective in nature. Overlapping waves when moving up in a rally this big means the market is moving against the grain, or primary trend, which is down. No matter how hard I try, I cannot count a giant 5 wave impulse from 666. It just ain't there.

I provided a simplified chart showing that if you look at the market moves in a simple way, you can see 2 zig zags as it was expected to be for P2. And you can see not one, but 2 triangles, one running and one contracting which satisfies the EW guideline of alternation.

A 42% rally has occurred from 666! Not in Fibonacci retrace terms but in that the market bulked up by 42%. If the rally hit 988 it would be 48%. And if the SPX hit 999 it would be really bad Karma. 999-666 = 333 for an exact 50% bulk up rally!

P2 is working on the sentiment. I see stories of runs to 1000 now regularly in the news. Most traders are beginning to expect it I suppose. Green shoots indeed.

Like I said I woke up and realized I was getting complacent. Tracking my little waves and realizing this thing may be sneaking up on me. P2 has to end somewhere. I can post all the "what if" charts I want but the waves trace out and we have to play with what actually occurs.

I suppose deep down I'd like P2 to last all year. I don't want mayhem and pain for the country. I like tracking rallies. Maybe that has worked on me psychologically.

The market hasn't had a 38% correction for P2 and perhaps it never will.

There is also something else to consider if you refuse to consider a "top" that may occur within 2 weeks time: Suppose 999 happened and the market fell apart to say, 800 in one giant bear wave 1 down. Now lets suppose it turns hard at that area and retraces for a rally wave 2 of 67%. that would be a 135 point rally back to 933! Suppose that took us until the end of August. Even a 50% rally would take us back to 900.

So in that sense the market could be sitting at 900-933 potentially come August. That wouldn't seem so bad from here would it? Except officially P2 top was back in June. So in that sense, the market may work in ways that keeps us on our toes and it always does.

I can only follow the EW guidelines as best I can and play the waves that trace out, not what we think should happen.
A running triangle in April meant the market was lurching upward even as it corrected in a bullish manner. The contracting triangle we just experienced means the market stopped lurching upward and contracted on itself to find the energy to propel forward yet again.

The most important thing about this last triangle at the Intermediate wave level signals the last corrective prior to the final actionary move of the next higher degree. So an Intermediate wave triangle means the last actionary move is occurring in the next higher level wave degree which is of Primary level (P2). This is important to remember and it is practically an EW hard rule.

EWP pg 51:" A triangle always occurs in a position prior to the final actionary wave in the pattern of one larger degree, i.e., as wave four in an impulse, wave B in an A-B-C, or the final wave X in a double or triple zigzag or combination."

In this case the triangle is an (X) wave of a giant double zig zag. This triangle rule is not to be dismissed easily. The unexpected breakout of it surprised me because perhaps subconsciously I didn't WANT it to be a triangle. Because that means P2's days are numbered. Maybe that makes me sad.

But in any case, it woke me up to reality. S&P is trading in la-la land.

Bear rallies have different effects on people. Look at yourself hard and ask yourself how it may have affected you. Do you see a P2 top coming soon? If you refuse to believe P2 may be over soon than it may have done its job well. Particularly if you're a permabear like me.

I seen a co-worker planning a stock transaction which I think his broker (yes he has an advisor) talked him into buying the other week. I queried him. He was buying Apple in the $120's. Its a good buy at the moment but if it tops very soon he will likely not trade it and he will hold while it crashes and burns. I think he was a buy and holder G-POP (general population) kinda guy and not looking for a quick buck. He is on the Apple bandwagon. It made me wonder. P2's effect on him was that he was missing the boat. I don't think he understands what shorting is. I didn't really press him. But I don't blame him for buying Crapple. At least he didn't pick GE or a bank.

Had the market dipped down to 860 one more time, I'd likely not have made this post and having this conversation. But it didn't break and it turned out to be a big triangle. The bull just had to keep pluggin the horns in.


  1. Great post Daneric.

    We all should be sure to be on our toes as you said.

  2. I feel we will need a geo-political event to start P3. Market sentiment has been overbought for a longtime and all news is interpreted as good. Stocks are trading at premiums similar to 2000 prior to the teck-wreck. Something will happen when we least exoect and P3 starts.

  3. Some very timely thoughts, Daneric. The markets do seem rather top heavy right now and could easily tip over with a firm push. On the other hand, la-la land is a nice, warm and fuzzy place and we may be there for a while yet. As we said in September, the higher we go, the harder we fall. PTRio

  4. Look at the chart of the SKF. It looks like it may have completed a large ABC correction. Also back in December and early January it formed a Double Bottom pattern as Wave A bottomed. Now look at the current chart as a similar Double Bottom appears to be developing which could mean Wave C has bottomed. If that is the case then as Dan says P2 may be closer to a top than most realize.

  5. Hmm, hurricane season could do the trick

  6. Great post..!!!! FYI, Oct. 21st. high was 985.44, and there is a 1007.51 top in November.
    The 200 month moving average is currently at 1010 for SPX.
    Dow is way behind the January 6th. high and may try to get closer....failing there....and generating the big negative divergence needed for the selloff. keep up your good work, tks.

  7. i think people need to stop waiting for some big catalyst to kick off p3. you don't need one. what was the catalyst for this rally? all we need to get p3 going is some momentum and for the gov and MMs to change their course of inflating the stock market. like money gets concentrated elsewhere like buying up treasuries. so my point being, that i think dan is key on; in fact, so much so that i think the top may be in. we just hit the dow 200dma, we've got 13 wave cycles in (by my count) on this rally - a nice fib #. i also think a p2 shorter than we thought, then a p3 drop shorter than we think will happen makes sense. we're still a couple yrs away from the "big one(s)" ask me

  8. I agree with John-blue here it wont take much to see this mkt start to trade down and build mo just like the upside

  9. Hey dano, really good stuff today. My one comment is, I just feel like you may be compressing P2 into such a short cycle. It could last 3-4 more months or even 6 months. I think a 3 month primary wave is probably not a likely scenario, do you?

  10. Daneric,

    Thank you for this chart and your lengthy, detailed explanation of your reasoning. Reading this really helps me understand what is definitely a new call for P2 to end sooner and lower than the current consensus has been anticipating. I really appreciate your repeated ability to "think outside" what most people are "expecting". I think you make a lot of sense -- and whether or not you turn out to be right, you have (once again) done us all a great service by challenging us to reconsider our previous ideas -- and to be mentally prepared for THE major turn (P3) if it happens before we thought it would.

    I have two questions:

    If we already have two completed zig-zags in P2, what form would a final rise to 988 take to end P2 in a structurally complete way?

    Or do you think P2 will end in a truncated way like P1 did?

    Thanks, Dan.

  11. Don't get too fixated on the SPX. The $INDU is already at the 200-month MA and is backtesting the old bull run channel. Because of this, I believe the turn is very soon and SPX 1000+ is a carrot and little more.

  12. kenney, you mthrfckr, you cost me tons of money cause you cant count, go fck yrslf , i will count myself with my fckng eyes closed and prolly be better off , you chimp mthrfckr.