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Monday, September 14, 2009

The Zaniness is Back (Updated)





UPDATE: (added a qqqq weekly chart)

As you can see on this $BPSPX bullishness chart, it is not easy to get this chart where it is today at 85% bulls.

The public is reengaged and those sitting on the fence are just about ready to finally jump in (as I said before I track sentiment informally with people I know). The one guy I know who I particularly keep in contact is ready to buy stocks again. When I told him in early March to buy big, he laughed at me. But now he is itching to get in.

Some jumped in in August to catch the latest ride up. No doubt they are adding at this point. The trouble with "retail" (and that is no slight - I am a retail guy too) investors is they don't know how to read charts, don't understand market psychology and generally believe the crap they read and the CNBC junk they see on T.V. But thats ok. The worse part is they don't know when to sell. So the late summer public add-ons have seen some profits but they won't sell anytime soon. 401K's are limited in many companies. These are not even swing traders. They will be bagholders yet again.

I ask people why they think the market is going to keep going up and they really don't have an answer other than they all think they have a sixth sense or something. Or hope.

Some in comments are already asking for a new bull market count and ready to dismiss the idea of a P3 altogether. I take these requests as contrarian. Here is the bullish count: The market breaks above the old DOW high of 14,279.96. There's your bullish count. Honestly I don't have one at this moment. P2 is "allowed" a "normal" retrace from 38.2-61.8% (or even higher) Fibonnaci retracement. As of this moment in time, the DOW has retraced only 41.7%, the S&P500 retraced 42.1% and the NASDAQ 51.7%. The Wilshire 5000 has retraced 44.5%.

So we are approaching the low end of "normal" for a wave 2 of any degree. But the basic ABC "look" as you can see on my chart is beginning to take shape nicely. (NOTE: I simplified my counts for the purpose of this post) In a zigzag shape, (C) strives to usually equal (A). In price terms that would be 1158 SPX. I have to assume it will not reach that level because resistance is terribly high to get there. That is plainly seen on the chart. (But ok I admit it could - I just think its a bridge too far.)

But what if (C) only equals a .618 ratio of (A)? That also is a common expansion ratio point. That would be 1048 as I showed over the weekend so we are basically there.

The dollar sentiment readings are reaching major lows. Oil is showing signs of cracking for good. Shanghai is still well off its highs and retracing back up in a likely wave 2. Gold may be extended. The VIX is still going down, but its does show some strength.

And BKX is still well off its 24 August high of 48.6. In fact its only retraced 50% back toward that high despite the bitchin' little non-stop rally since the 991 SPX recent low. Laggard index? Or leading?

The SPX 5 minute chart is a valid count interpretation and an inverted H&S is only pointing toward 1053 maximum. So it may all be over soon. Or it may not. I have patience either way.

The more it goes up, the more wave evidence we have and I actually gain confidence in the overall wave counts. All trends end. And they end when sentiment reaches an extreme. And the surveys say we are getting zany again.

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