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Saturday, November 7, 2009

BKX and the Topping Process

I been doing more pondering on this rally from the 1029 low. I still clearly think its a Minute [ii] wave retrace and as I pointed out on the Wilshire post
, it could be a deep retrace.

One of the reasons that supports that is the financial BKX chart. It has yet to even retrace 38% which is odd. I do think one of the reasons the Wilshire makes a deep retrace on Minute [ii]'s is that it gets every sector to turn back in a retrace mode to some acceptable degree. And for wave 2's that's typically more than 38%, more akin to at least 50%.

So some sectors will retrace deep (qqqq's and DOW maybe) and some will not (financials). in any event, they should all retrace an acceptable amount.

Any major topping process, stocks and indexes all top at their own rates. Indeed when the market becomes fractured it is just one sign of a topping process. Certainly the Russell 2000 topped many weeks ago. The DOW may not have actually had its high just yet. Impossible you say? Certainly not! When one looks at the Oct 2007 top, the NASDAQ actually topped in November. And guess what wave it topped on? You guessed it, Minute [ii] of the Wilshire!

For instance the price of gold is now topping. I can see the DOW also making a new intraday high. It wouldn't faze me.

One recent aspect of this initial decline is that certain sentiment surveys turned very bearish, very quickly. This is troublesome to think that the market is ready just yet to drop again come Monday as I would like to think. I now have given that serious pause.

Another factor to consider is time. A 9 day drop = .618. Therefore .382 = about 7 days of retrace. So far its been a little under 5. So we have perhaps a few more days to play with.

Technically, as I have shown the McClellans has always been at least at or above the zero line on Minute [ii]'s and it is still -13. Also there is nothing technically screaming "decline coming" dead ahead for Monday. It may still take a few days to flush out a negative divergence of some kind although this doesn't always have to be the case.

So this brings me back to the BKX chart. Many have supposed this is a 4th wave triangle setting up for a thrust down. It certainly follows the rules but I rather think its a trap. The MM's have not yet pushed on the financials. They are allowing shorts to load up as this will help it retrace.

I think a pop is coming to BKX on Monday, and it will be some media leaked timely news item or "sector upgrade" based on whatever by whoever. Like I said in a recent post

I think the MM's have poured their money in certain sectors to get this thing going again and will switch out to the lagging sectors come Monday/Tuesday. A trap may have been set for bank shorts who have been lulled to sleep perhaps.

So again, Minute [ii]'s near major tops have a habit of allowing for differing indexes and stocks and such to make their final highs (Gold, DOW?, AMZN, etc, etc,) while other sectors will have likely weak retraces (banks?) that barely get to an acceptable number.

So again, if we have a triangle from Friday, then the next move up should be a "c" wave of a second zigzag. (by the way, Kenny and I proposed this double ZZ pattern before EWI for those that wonder - but no matter no one "owns" a count and we only wish to nail this thing true!)

So even though I'd like to think the SPX has maybe only 10 points more of upside, that is poor thinking on my part. It may have 1.5% or so. My daily SPX chart has a converging trendline apex at about 1080+ in a few days time. A double backtest of two MAJOR trendlines? A failure of course would be monumentally bad for the bulls. And that is exactly what I am predicting here. A push up, and eventual trendline resistance and such will be too much and the bulls will relinquish.

Actually the big players will just start to short the crap out of it if the technicals are screaming "going down!" The subsequent downward sucking sound will be like a huge vacumn and take a lot of folks with it.

No doubt that a new DOW high, (and perhaps even a new dollar low - the jury is still out) will firmly place many readers into the "EW's ain't worth crap" side of the house and I'll likely hear all the usual stuff. A new DOW high should no doubt re-strengthen the perhaps overly bearish sentiment, strengthen the McClellans back above the zero line, and line this sucker up for a nasty Minute [iii] downward.

So yes I have been pondering a lot about Minute [ii]'s just over the past 24 hours and what I have learned I think helps prepare for the coming week.

What conditions would cause me to say the market may have more P2 left in it? An outright 10-1 up day (90%). A Wilshire retrace past 76% will also be a red warning sign.

If none of this comes to pass, well, then so be it, maybe I didn't learn anything after all.

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