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Saturday, July 18, 2009

Bulls Need a Close above 950


As I stated in other recent posts, I will be watching bullishness every day (as I have been). I am in EWI's camp that think this is a Primary Wave 2 up rally and that the rally should, in theory, peak in extreme bullishness. The only real decent indicator I have for that is what Stockcharts.com provides in the way of Bullish Percent S & P 500, or the symbol $BPSPX.

Bullishness % had a double top peak at the 956 high and corrected some 47%. Of course the rally this past week has reversed this chart somewhat. It is now heading back up. However the market is near its top yet the bullishness is far from its previous rally high. That is an eye-catcher.

All 3 main indexes rallied 7% this past week. 2 of those days were strong up days indicating a near-term trend change in my opinion. The market closed above major support for 4 days in a row near 878 and finally buyers seen the price action and jumped in figuring this was going to be the best pullback they can get.

EW theory is all about sentiment. I do like chart patterns and TA and such, but from here on out, P2 should produce a peak in bullishness. So I will be showing the daily SPX chart more often with the $BPSPX superimposed as an indicator. The bottom line is I look for a new extreme in bullishness to help identify a new top.

Its an earnings run season it seems. Only 1 week old, there certainly appears to be enthusiasm for it. For those readers who believe GS controls the world, summer low volume is perfect for them to pump it up one more time and hand it all off to the stupid Joe Q. Public, who, after a correction in fear of nearly 9 months (remember VIX hit extreme in Oct 2008) may finally be warming back up to jump in the stock market again. They don't want to miss the rally and CNBC is pumping it every chance they get.... Hey that's the way it works!

The market is due for either a Minute wave [ii] pullback or a Minor B wave pullback of course. How low it will go is any one's guess and depends on the fear factor (VIX) bounce and total sellers. The 50DMA of the SPX might be a good bounce spot. It may be a quick one too. Why quick? Because I suspect there is a ton of short sellers looking to get the hell out of their positions with minimal losses or if they are lucky, break-even. The 7% up draft caught a heck of lot off guard probably. But buyer beware, I am just making an educated guess.

The thing about this chart I posted is that there is plenty of room for bullishness to climb. And it usually only climbs with a price climb. In fact bullishness on this chart is still quite low compared to the 956 top. That to me does not indicate weakness but rather a significant correction in bullishness has occurred which will now allow prices to finally close above 950 SPX. Once they close above 950, it should clear the way for a run to 1000 perhaps more. Resistance lines support that thesis.

My second chart shows that 950 is the marker the bulls need to beat. They need a close above it which hasn't happened in a very long time. Once 950 is taken, it really is a free run to near 1000. Sure there will be speedbumps, but make no mistake, 1000 is the next MAJOR hump. First we had 750, then we had 820. Then 875, then 950. Those were major layers the market had to eat through roughly. I may be off some, I am just trying to recall some battlegrounds.

So I really don't see a total market collapse from here just yet. Why would it? If everyone was expecting a B wave pullback, and the market corrected some 30% and some 87 points, why must it go lower than 869? If it does I would consider P2 may be over if it was to head under 850.

A 7% up week big fat white reversal candle is nothing to sneeze at. A correction would seem in order, but the market sure seems to want to get on with rallying and a close above 950 SPX.

But its also about the DOW. And 9000 is a nice number.

108 comments:

  1. thks Dan your great work
    would you go long at current levels or would you wait for a market pull back ?

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  2. I would wait for a Fib pullback. Its getting quite toppy. The 50DMA is a good spot to try and go long if it pulls back to there again very soon.

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  3. thks much Dan
    i put some shorts on friday waiting for a market pull back in the next days given the last days run but agree with you downside looks pretty much limited.

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  4. Nice chart Dan!
    To be honest, the market is very very overbought short-term. If the market able to power up through 950 or to 970 or even 1000, then it will end quickly becuase lack of buyers up there. Result is a huge selloff that may end up as P3.

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  5. As you can see in this chart, SPX only manage to go up 5 days in a row since 2008. The sixth is usually a long red candle or a doji at best. So I think its health for the market to have a pullback before the final push to 1000+

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  6. i am going to go out on a limb with my novice e-wave ability and say S&P hits 964 before a significant pullback, just my gut and what i see not what i want to see.

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  7. Max,
    I tend to agree with the 960+ number prior to a pullback. this market is in a hurry to get to the top whatever that might be. another interesting point is that the market began to sell off last year in mid-august. people getting back to work in august as school begins etc etc. I think dan's late aug timeline is the latest possible with the potential for the peak to come sooner.

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  8. How about this:
    Everybody thought a pull back to 840/820 range. It never happened. Everybody talked about HS pattern, it failed.

    Now after last week everybody thinks it is next up leg in P2 and close above 950 means SnP above 1000.. I think it will close above 950, suck in everybody and will pull back significantly.

    Just my novice opinion seeing the action in recent weeks.

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  9. The solar ecplise will change the behavior or human being and cause a selloff next week.

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  10. Hi
    Daneric,
    Dax - Medium term
    http://followmarketrend.blogspot.com/2009/07/dax-big-picture.html
    Between the range. Nothing new medium term.
    Nice video.
    http://followmarketrend.blogspot.com/2009/07/great-shape-of-us-economy.html
    Click to zoom in
    Enjoy

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  11. Market sentiment is too bullish as eveyone looking for 950+ or even 1000. As a EW trader, market tend to change and reverse at this extremes and lead to disappointment. Even the best EW technicans make mistakes.

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  12. Alex, i don't put too much stock (no pun intended) into that, here is a chart of new moons (yellow arrows) and full moons (black arrows) sometimes they work sometimes they don't I do follow an astrologer and he seems to make quite a few correct calls, if it lines up with an E-wave pattern they seem to work very well.


    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=9&dy=0&id=p87983663405&a=162940318&listNum=12

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  13. A lot of NYSE traders that I talk to, they still very bearish. Anyone that become bullish now is inexperience.

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  14. Dan:

    You need to guard against your tendency to justify past positions taken. You are s much committed to the P2 rally idea that you can't wait to see it happen. Such impatience on your part could be very damaging to your readers.

    I think there are greater chances that we will have a market low by early August and then your "celebrated" P2 into mid-September.

    What you need to realize is that there is plenty of time for the final rally to materialize and until it does you need to display temperance and discipline in your approach.

    Otherwise you look like you are more concerned about your TA skills that discovering and promoting the truth.

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  15. The volume is not supporting the moves last week... so longs should be very careful

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  16. Anything can happen in this world.
    Look at what Tom Watson did as everyone expect Tiger to win another major.

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  17. your right Nick,look at the Giants vs. the Pats. although i knew they would come through, as far as bullish sentiment, i dont think its at an extreme, here is a chart of the 21 day equity put/call ratio it's at an area that at least lead to consolidation, if not rallies, note how high it was just a fee weeks ago

    http://stockcharts.com/h-sc/ui?s=$ONE:$CPCE&p=D&yr=2&mn=0&dy=0&id=p23257882072&a=173286024&listNum=7

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  18. Adam and Eve double top...my personal hope.

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  19. http://thepatternsite.com/eadt.html

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  20. According to the weekly retail investor AAII survey, 29% of respondents are bullish - a tiny increase from last week. Meanwhile, 47% of respondents expect the market to decline going forward - an increase of 8% points.
    More interestingly, the AAII asset allocation to equities continues to increase. The last time we looked at this in early May 2009, it had recovered from the abysmal level of 41% - the lowest on record. Now it is at 57% with most of the increase coming from a reduction in cash holdings which were at one point the highest on record at 45%.

    http://seekingalpha.com/article/149684-sentiment-overview-increased-allocations-to-equities?source=yahoo

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  21. When retail investors(dumb $$)turn bullish its time to get bearish because they are the one who act at the end of each market moves.

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  22. dan,
    how do you expect market to close on monday ? highr ?

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  23. This comment has been removed by the author.

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  24. Hello,
    Just visit my website :www.anirudhsethireport.com and pls give me feedback.Written about SP500 and US STOCKS.

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  25. Phoevos, Dan is just relating what he sees on the charts. If he sees bullishness then that's what he sees. He doesn't owe readers anything since we aren't paying anything. I agree that a close above 956 would be a big deal for many investors...I think we'd see the last of the money pile in at that point.

    Every day is an interesting one for market watchers. We're at the 50 week MA, I'm showing some Fib resistances targets just overhead (976-1016 on ES). I'm not inclined to catch knives, so will daytrade until something is obvious.

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  26. The last time it pushed over 950, the prior high, there was no short covering and the market immediately reversed. Not sure there is really as much fuel there as people think.

    This is a classic boiling at the top of a range before a nasty spillover.

    There were no bulls piling in last week, just shorts covering, reshorting, and recovering. That likely is about over.

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  27. I had thought the S&P would get to 964ish but looking at the european ($ftse & $dax) markets they look toppy and completing 5 up, top might be soon, my count

    http://stockcharts.com/h-sc/ui?s=$SPX&p=5&st=2009-07-05&en=2009-07-25&id=p52183358556&a=168103272&listNum=12

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  28. I think Wave 5 almost done

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  29. looks like 4 of 5 moving now. as long as 5 doesn't extend like 3, we stay under 956.

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  30. since 3 already extends, I'm not sure 5 will extend

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  31. i'm with u on the extension dave. however, it is possible but not likely. i surely dont want it to but i guess its not up to what i want.

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  32. I think the 2nd mouse get the cheese in this situation

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  33. actually, i guess this is still only 3 of 5.

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  34. now the question is; was that minor 1 or minor a?

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  35. Market already make up their mine what wave it is

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  36. dave, i was referring to the entire impulse starting on 7/8 thru today. this wave that just completed may be either minor 'a', minor 1 or even 1 of minor 'a'.

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  37. Wave Trader,

    Morning, Looks like we have completed either Minuette (i) of Minute 5 or we have finished Minute 5. Although we wont know until 934.65 is broken.

    What do you have Minute 4) labeled as? We didn't get the E wave for the triangle. It should be a moot point though as we can confirm Minute 4 might be done unless we have an expanded Flat.

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  38. onechi,

    i have e / minute 4 at 936.59

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  39. onechi,

    i agree. we will have to break 934.65 to confirm or possibly 936.59

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  40. This comment has been removed by the author.

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  41. WaveTrader,

    I'm leaning towards this being still Minute 5 and we have more upside to go.

    From todays action, we either had a Truncated 5th of Minuette (i) or (iii) and an ABC for Minuette (ii) or Minuette (iv).

    The only bearish scenario I have is a leading diagonal down froma truncated 5th at 948.70.

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  42. onechi,

    that was what i was thiking earlier about the truncated 5th of minuette (iii). it is certainly a possibility.

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  43. i think it can still go either way. im also seeing a zigzag down. we will know shortly.

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  44. Wave,

    Something to note also, we are heading towards the top and possibly out of the bolinger bands today on the daily chart.

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  45. looking like a 61.8% retracement of that impulse down starting at 946.35

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  46. looks like a flat is playing out.

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  47. WaveTrader,

    It doesn't feel like an impulse that's for sure.

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  48. i still wonder if this scenario would work. surely setting up for it.

    http://2.bp.blogspot.com/_SRSTWZ5iCVs/Sl4G-bPcYyI/AAAAAAAAAQY/qIB5ISdHLxo/s1600-h/spx-flat-lg.JPG

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  49. Wave Trader,
    Your expanded flat is an X wave of intermediate degree?

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  50. onechi, i was speculating that the exp flat was part of a double three combo at minor degree. zz1/zz2/flat. zz1(956.23-888.86),zz2 a minor X (888.86 - 931.92).

    again, this was a stretch of the imagination. but lets say this plays out, this exp flat ends at 847 if c were 1.618 of A and that would complete minor Y of the combo.

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  51. will obama's health care speech send the market lower?

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  52. A floor trader called this "Classic Distribution."

    Get off the rug.

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  53. I see we're on wave 4 and triangulating..

    http://2.bp.blogspot.com/_2IV2qZlbgks/SmSwtBHfB-I/AAAAAAAAAGY/gwiIrblcCNE/s1600-h/chart.jpg

    or

    http://elliotwavetrader1.blogspot.com/

    I am getting ready to go 100% short sometime this week.

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  54. Elliot Wave Trader,

    Yes, this can qualify as Triangle. I am ready to go short as well.

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  55. Elliot Wave Trader,

    The triangle doesn't fit very well into the form now. This is my perspective. Its starting to look more like an ending diagonal for Minuette (v) right now or Minute [v] or Minor A.

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  56. Yes the form changed but the result will be the same. Today's high should be broken to for the 5th wave.

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  57. Did the 5th already end at the beginning of the day?

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  58. the recent wave count is too extended

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  59. Dave,

    I think that was the 5th of Minutette (iii), now we are on Minutette (v) apparently but we can not confirm until a new high has been reached. This could end up to be some sort of complex consolidation of Minuette (iv).

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  60. you are right OneChi, I think 1 more push for v is possible

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  61. not sure if 956 is the wave 5 target.

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  62. UKX, DAX already finish their 5th.

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  63. 3pm fireworks getting set up.

    Start the music.

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  64. WaveTrader,

    A lot of resistance at 950, I don't know if we can get to 956.

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  65. ya. thinking this is still more a diagonal and if so, sub5 of this diagonal should be right near 950 and coming soon!

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  66. WaveTrader,

    This is looking like ABCs all over, I have a complex WXYXZ for subwave 2, and abc for 3.

    If 950 is broken there is a slight chance of short covering to 956, but I don't think its in the cards. But then again I am only a beginning at EW. Those are my thoughts.

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  67. I see a pop end of day as (5th)

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  68. onechi, i appreciate any and all thoughts. i'm a rookie as well.

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  69. finally a pop. where do we go now...?

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  70. Not finding many buyers > 950. Uh .. oh.

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  71. 950 is looking like it may hold yes?

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  72. I am going short here with a tight stop.

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  73. could this possibly be a subminuette iv of minute v? so maybe a little more to go up?

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  74. WaveTrader,

    Do you mean Subminuette iv of Minuette V? I don't think it can be because it made a new high. A new high is only possible in corrective mode if its an expanded flat, running triangle.

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  75. seems like the market has tons of upside here, maybe we'll see S&P close at 1000 on friday

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  76. i think 951.05 may have finally been that final push for minute v

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  77. it suppose to be the final 5 but the market stay there.

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  78. i think there is a little more to go

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  79. 951 is either B or another 1. If it gets broken we might have more upside tomorrow.

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  80. I got stopped out. I guess we will see 956.

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  81. Let just wait till 956-960

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  82. Bulls have their close over 950 and the after hours are still heading up.

    Vix is green for the day.

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  83. may be a pop early moring then drop drop drop

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  84. Let see what master Dan come up with

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