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Monday, September 7, 2009

The Topping Process


Since the October 2007 top, there exists a pattern of what can be called doubletops in all the rallies. Sometimes they count well as deep wave 2 retraces after an initial rally peak. I suppose P2 will be no different. The NASDAQ or qqqq's or both also has a habit of topping at a differing time than the SPX and DOW. That shows a fractured market.

There still exists a small sliver of a gap on the SPX from 1028.45 to 1028.93. Unfinished business I suppose.

I think overall I have learned better when to give weight to waves and when to give weight to technicals and when to emphasize one versus the other.

For instance at the June peak of 956, I was ignoring technicals and fancying wave patterns that had no chance of playing out due to weak technicals.

However, at the 869 low, I was concentrating on wave patterns and calling for a turn back up. I was correct.

The recent retreat to 978 I again concentrated on waveform and suggested it could be the pullback low, and it paid off as a new high of 1039 came.

Now is again the time to place emphasis to technicals, price patterns, volume patterns and levels, candlestick patterns and plain old support and resistance and closing highs. Look for divergence between indexes and secondaries. This will show a fractured market. Now is the time not and try and guess what fancy overall wave patterns could end P2 although we will still try with all our might. That will work itself out in the end.

In addition, as Morgon mentioned in comments, the bear wedgelines and such are hard to decipher because they will show up differently using log and non-log scale. Overall we can see that the various indexes and secondaries are getting close to breaking these lines to the downside but for the day-to-day they aren't rock-solid indicators so I will stress them much less I think. When all the indexes break the up-sloping lines in both log and non-log scale, then it may be very useful indeed.

Actually squiggle wave counts are still useful rather than medium or intermediate counts.

So the emphasis is very much on technicals at the moment and believe it or not, squiggle charts.

Also, I think in general, people are thinking in absolutes and making assumptions particularly about the waves. They figure if 1039 was not the top, then we are headed to 1120 or whatever.

Rarely does it work that way. The truth usually lies somewhere in between exactly fooling both the bulls and bears. Bears will want to wait until the "magic" mark (whatever they conjure up) before shorting and bulls will stubbornly think their magic mark will be hit before selling. The end result is that the market proves both bull and bear to be wrong and takes the most money.

September is getting a lot of early press about how bad a month it usually is. That concerned me right from the start. Maybe September has a very nice 2-3 weeks and holds up in a messy topping process and the last week tears it all apart and September does turn out to be a bad ending anyways.

It would only be fitting.

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