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Sunday, September 27, 2009

SPX Channels (and a little rant)

I was reading the free EWI TA handbook and realize I don't often use a good technique for channeling to help identify a wave structure.

(<-------------Click on my links and join Club EWI to download for free)

Applying the channeling techniques to this last Minor C impulse structure works well in confirming where I have placed my Minute wave [i], [iii] and [v] tops seem to be a good count at the moment.

The base channel is the blue channel that encompasses Minute [i] top and a parallel line connecting wave [ii] low and the start of wave [i].

The acceleration channel is what wave [iii] exists in and I have that as the pink channel on the chart. Note the acceleration channel advances above the blue base channel. In this case the advancement was accomplished on weaker up volume ratio that the Minute [i] surge (which had a 14-1 day in it). This is what tells me that the rally is likely waning.

The deceleration channel is where Minute [iv] traces out. That is the black channel. Note that the end of Minute [iv] bounced off the top of the base blue channel which according to the handbook is a normal occurrence for the end point of a wave 4.

And then a weak Minute [v] - I have the substructure labeled as an ending diagonal type move - breaks above the deceleration channel to Minute [v] peak. The hard reversal helps me confirm that it was an ending diagonal move.

The drop since 1080 peak has dropped well back inside the base blue channel which according to the handbook is a clue that the 5 wave move up is likely over.

So what can we expect next? IF Monday the bulls find some moxie and attempt a run higher yet again, there are a couple of likely stopping points should my interpretation of the structure turn out to be correct. The first is resistance in the upper 1050's to 1060. The second would be the blue channel boundary itself. Perhaps a "backtest" of the upper blue channel line.

That is giving the bulls the best benefit of the doubt. Actually having the recent pullback low of 1041 as a Minute [iv] low is my alternate interpretation. However if that is the case trying to apply these simple channeling techniques would not work at all.

Ok now the rant:

The conventional wisdom for the past few months is that the government is "saving" the market in one huge conspiracy and that it is all unstoppable or that the FED can pull the plug any time they choose. Do not fall into the tempting trap of thinking you need to guess the FED's next move to stay on the right side of the market. Oh how short people's memories are!

The wisdom for 20 months since the summer of 2007 was that the government was going to save the market. Indeed the government tried every desperate measure during the whole P1 decline and yet the market lost 57% and 900 SPX points!!

Yet somehow everyone has now suddenly agreed that it worked! And that it will be on the FED's shoulders to keep it afloat. That you can think they can even keep it afloat is absurd. The pressure on the FED is tremendous. They are human. They are subject to the forces of social mood as much as anyone else.

Its ironic (or predictable) that people who do not believe that markets move on news or a self feedback loop will somehow believe in another reason.

The FED cannot control social mood patterns. They cannot control interest rates. They cannot control "prices". They cannot control "stability" They cannot control fear, nor greed! They cannot control unemployment levels. Worse yet they cannot even agree amongst themselves (publicly) if we are in inflation or deflation! They cannot induce confidence.

This is not to say that they are not corrupt and that real conspiracies do not exist. Indeed corruption and conspiracies have their part to play in the grand scheme of things. And corruption is on a roll no doubt.

Social mood is correcting a Grand Supercycle wave III advancement of over 220 years in size and length! That correction did not end on a sharp "V" after a mere 9 years and part of that nine year correction some prices made a new high!

The FED and government are not omnipotent. They are the herd. They are in fact powerless to prevent what the future holds. But this does not mean they are not corrupt nor will turn to fascism to enforce their hold on power. Regardless the financial markets (social mood) will not approve no matter how it all turns out.

The Emperor indeed has no clothes.
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