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Sunday, October 25, 2009

Oil, Dollar, Gold, Sentiment, etc.

Oil looks to have one more Minute wave to a high. I can see about $85 where [v] = [i]. Coincidence that oil seems to be peaking on the week that the Oil Corporations report? Either way, as others have mentioned, there is a point where high oil costs begin to be seriously counter-productive to the overall recovery effort. Also nothing turns social mood more than high gas prices which will surely follow.
The dollar just keep dribbling on down. I still expect a final "panic sell" spike but it doesn't have to be. Regardless it is tough to tell how much more it needs to drop. Certainly the falling dollar has caught major media and political attention lately. However sentiment is not yet quite a bearish extreme. So the jury is out.
Gold also seems to be consolidating for a move higher. Like oil, I show a Minute [v] due to go higher at the least. This will probably be in response to further dollar weakness I suspect.
The CPC's 10 day average would be nice if it closed the lowest on this chart. This also does not have to be. I merely want to point out that if it does close the lowest under .77, then it would be evidence that the trade has become as "one-sided" as during any time during the past many years.

I didn't show the VIX chart as Kenny beat me to the punch and I agree with his analysis completely on both the short VIX squiggles and weekly found in this post. And that suggest probably the VIX hasn't yet bottomed.

I generally am ok with my SPX chart I showed from Friday. I am willing to adjust on the fly, its about all we can do.

But it seems to show a muddled topping process (and possible last squiggle triangle) as I have suggested as like what happened at the end of the (A) wave. But like EWI and Kenny mentioned, the "buying climaxes" suggest a topping process more than a consolidation move.

I generally don't see the market making much more of a new high than it already has. But I am a biased short so I have to be willing to see things for what they are, not what I want them to be. For instance I can see a squirt above 1101 to maybe 1105 or a bit more, but I am not sure it can run to the 50% retrace spot at 1121 or heaven forbid, 1158 or more. (But if any wave can do it, it will be P2)

But there is good reasoning for my thoughts about this because, I am just guessing here, it would take strong market internals I think to make a move much above 1100. And that wouldn't match perhaps too much with a "rolling top" occurring nearer the 1100 level as I am suggesting is happening. A blowoff top? I cannot be certain. Many indexes seem "done" or close to it. Many have shown reversals on their weeklies.

I think overall when you look at the underlying fundamentals (7 bank closures this weekend for instance, record debt, housing, unemployment, etc), investor sentiment (reaching higher than at any time in past years), and market value (high P/E ratios), one has to think the risk/reward favors at the very least, a serious trimming of any long gains made during this rally.

Particularly when the primary count for the long term waves going back hundreds of years predicts the most crippling downside move ever to occur in the market's history.

As Erik of suggested several times in months past in comments that the day they announce the 3rd quarter GDP is the day the market tops for good. The ultimate "sell the news" event. UK had a surprising negative GDP so there is nothing certain. In fact, its almost as if the market was waiting just for that very day to occur before deciding what to do.

The consensus estimates are around 3.2% which is a pretty good clip. You can look at it several ways:

1) GDP comes in at a surprise upside number more than 4%. This would setup an "expectation" that the market is absolutely going to soar from that or that any downside will be limited. But perhaps it does the opposite after a pop. This "great news" will keep investors generally bullish on any price decline. And that will help defeat the "Wall of Worry" and allow prices to truly decline.

It may even allow, dare I say, a "Black Swan" event.

2) GDP comes in way lower than expected (less than 3%) and the market sees the reality of the situation and sells off.

What do I think? I don't worry about "news" too much as you can see from above how impossible it is to predict market moves based only on "news". Read one of my first posts for more on how I feel about news.

So you can see, I can "fit" the news story no matter how things turn out. You can bet the media will and you can bet they will have to change a headline or 2 along the way because the changing market situation will force them to change their "narratives".

The wave structure and TA suggest downside is not far away and that a distributive, "rolling top" near the 1100 level is occurring. It is likely to be muddled and shake out a lot of traders including bears out of their positions as has likely already happened a bit last week.

Good luck this week!
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