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Friday, February 19, 2010

Weekend Charts [Update Sun 7:45PM]

[Update Sun 7:45 PM: E-minis.  Best count I can come up with short term.  Should be making a new e-mini high by this count.
[Update 12:00PM: A lot of people are comparing the 1987 thing. So I guess I'd throw 1987 up there so you can see how the crash of 1987 unfolded.  Yes eerily similar to today.  I am not saying a crash like 1987 is going to occur. However a wave [iii] or 3 down will be quite painful regardless. if it happens.]

[Update 11:10AM: The RUT is leading the charge up.  It has corrected exactly 75.1%. It resides just under top resistance.  This should be more significant resistance than anything so far.  Seeing how the RUT behaves the next few days will be interesting.  The 78.6% FIB resides a point or so above if it does have another squiggle left in it.  Anything higher is really calling into question just what the heck is going on. But the subwave count looks good so we shall see.

If anything, the RUT argues that a Minute sized wave down occurred and not a Minor.]

[Update 10:30 AM: I have largely ignored the Wilshire and NASDAQ because they both had questionable top areas and this the start count points were open to interpretation.  This is actually quite normal for a major top area to show non-confirmation between indexes.  However I actually put a great deal of faith in the Wilshire counts because they make very nice waves and are pretty much the entire market.  

Back on 2 February I kicked out a chart that that took into account for this top sideways wave area in the Wilshire (and NASDAQ has the same for that matter) and called it a Minute [ii] mostly due to the length of time it took.  

The SPX and DOW admittedly make a better looking ABC down rather than a 5 wave pattern and yes its looks a lot like August 2007 (even the credit scare is the same storyline)  However its acceptable to count them as 5 waves down particularly when viewed in the backdrop of the larger market count.  

In addition, there is a 38:1 down day that people are conveniently overlooking.  This strong downside day shows that people are willing to sell and dump. This cut a wound in the market that has yet to fully heal of course. Yes we have had a great burst up the last few days, but when the upleg is over and needs consolidation, that will be the real test. 

So again looking at the Wilshire, if one were to count it in a simple manner, you really would have no choice but to paint it as 5 waves down and 3 waves up (so far).  So why anyone would be arguing at this very point where a wave 2 may peak that the bears have it all wrong is beyond me. 

The perfect time ratio between peak, wave 1 and wave 2 would actually be closer to this coming Wednesday morning or late Tuesday. Perhaps this extra time would be needed to shake out more bearishness and have everyone abandon the bearish wave down count altogether.  We cannot abandon this count between now and Wednesday or even Thursday because the WILSHIRE 5000 rules all.

Is it a Minor wave or Minute?  At the moment, that question is moot. Only time will tell.  

[Update 5:20 PM:  BIDU's weekly shows that, like Apple, Amazon, IBM, etc and a lot of other tech stocks that have enjoyed all time highs these past few months, the long-term charts betray the moves as likely 5th-wave type moves. The last of the asset mania craze is borne out in a select few stocks.  Crowding and herding behavior yet again.
Bidu monthly shows the volume patterns.  Also the ultimate oscillator is diverging. Look at the candle moves on this thing. One possible stopping point is the top of the monthly BB at $511.  Keep an eye on that if it ventures that high this week.  Stochs have been overbought for a while now.

But like I said, I am gearing up for a market wave 3 down and assuming BIDU will follow and that its in an Ending diagonal pattern.

[Update Sat 4:00PM: The DJIA has the best trendlines. If this is indeed a wave [ii] or 2, then prices shouldn't be hanging out and slowly rolling over in a big way.  It could, but wave two tops are not a consolidation area or the top of an intermediate zigzag where you can expect that kind of price action or "distribution". 

So what we have is a sharp rally that has reached the underside of a significant trendline. In addition, it is overbought on the hourly showing divergence with overlapping squiggles at the top. It is also sitting under big resistance and has retraced over a healthy 62%.  In addition, an RSI trendline break is imminent. Its also post-OPEX. 

The Ultimate Oscillator is oversold on the daily. It doesn't often get that high. Volume has retracted every day  on the DJIA for the past 5 days. The daily BB was pierced on Friday.  McClellan's is also at a trendline and more overbought at 56.23.

All in all, its the perfect setup for a wave 3.  It has the look, it has the technicals, and it even has a news "event" to mark the wave 2 price high.  

In addition, the obligatory anti-wave talk is peaking which I like to see.  And that is ironic because EW theory is about 5 wave structures. Yet even though this makes a near-perfect wave 2 in price and time, the doubt and "laments" about the theory having so-so usefulness right at the top amazes me.  Yeah we can bitch about the squiggles.  And yeah, I could of waited more patiently for cheaper prices.  Rear-view mirrors are always clear. However all that does not change what is presented before us now.   And some prominent wavers are actually thinking the March 2009 low is the end of the bear market completely.  I mean based on what? A sharp Minor wave two rally? I too think thats a good sign.

It doesn't even pass the common sense. And although financial markets do not operate on a lick of common sense, we are still in a bear market and people are getting angrier every month. And the government is not doing anything but making things 10 times worse.  Now I read where five select states are getting housing  aid. Oh that'll go over real well in the other 45.  The political payoffs, cronyism and open theft continues unabated.  The CEO of Government Motors gets a $9M "package" and we are supposed to be just fine with that. After all , its not the usual $25 million they have been siphoning off for the past 10 years. The coming fiscal deficits, pension shortfalls, and public union wars are just beginning.

Oh the bear market is certainly not over by any means.  

So yes, someone asked me that stupid phrase "trade what you see". Well, the above paragraphs is what I see this weekend. And I also see a market thats seems desperate to not drop ever again just because it would be ruinous to the entire world.  Which means it surely will in a very big way. 

Yet the market is floating on a pack of lies (fraud and accounting tricks) and massive debt loads (that everyone knows in their heart we will never repay) and leverage.  Slowly but surely they become unraveled by the very people who don't think their actions will have that type of effect. Social mood will demand changes. And dismantling Ponzi financial markets is an outcome that seems to have its own inertia and cannot be stopped even if we wanted it to.

After all, everyone knows we cannot repay our debt. Everyone.  At first it seemed "doable" and rational. Then it took asset bubbles to keep it going. Then we rigged the system so that we cannot shut the monster off even if we wanted to (see pension funds that cannot be altered by law, public union packages, massive government social programs, military commitments).   And finally we just pretty much said "screw it", lets see how high we can rev the debt engine. Some in power want to collapse the system for a further power grab anyways. 

So everyone knows the money will never be repaid.  So I guess an 80 year bull market is starting. Yup.  Makes perfect sense.  Good luck with that.  

I revamped the overall counts on BIDU a bit.  I still think its going to reverse big time.  I still think the ED pattern fits best.

And here is the squiggle count of the post-gap move.  I actually think a smaller ED may be forming for the high.  But maybe I just want to see it because I am short BIDU. However, that sure is a nice chart yes?  Now we must see a $1 overthrow (LOL - it can drop in premarket for all I care heh) and then BOOM, the bottom drops out.  Maybe Google announces a big settlement deal in China. 

Of course this largely depends on having the market count correct in that the SPX is ready to go down in a 3rd wave.
And finally a quick comparison of Google and Baidu.  Notice they pretty much follow each other in performance over the years until now.  Now there exists a huge performance divergence and I think this divergence is flashing danger to Baidu.  Either Google must rally hard (and it might) or Bidu drop or both to close the divergence.
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