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Wednesday, April 14, 2010

Follow up on "The Case for More Weeks of P2"

Back on March 7th I posted  I made some arguments that the market was indicating it was not yet done with moving up. And that has been the case. I mentioned about 14 quick points of order that supported a move higher. Here is a followup on those points:

1. Oil has yet to hit my retrace target of $86-$90 (my blue box target). Seasonality and the call for "recovery" may push it higher.

TODAY: Target satisfied. Oil has indeed moved higher and hit an $87 target. It might go higher still to $90.  

2. Exxon Mobil has a big gap down at $71.3- $72.83. Thats a big gap for the big workhorse stock in the S&P500/DJIA.  It might want to challenge that gap as it stands out like a sore thumb if oil heads up. That would push the markets when other stocks will be showing weakness (small caps perhaps)

TODAY: Target not satisfied. XOM is moving up. I still expect this range to be met. Next report date is 4/29 so maybe it'll go on an earnings run or will spike after reporting.  XOM need not hit my targets prior to P2 peak though.

3. Sentiment. New extremes and sense of permabullishness needs to set in. The Jan/Feb drop saw bearishness spike too high too quickly. It  could take a few more weeks to produce a sufficient bullishness to be maintained in a somewhat elevated manner when the market starts dropping for real. We are getting there again certainly. Public may also get more on board. They need someone to dump it on after all!

TODAY: Targets satisfied. Bullishness is hitting extremes again. Could go even higher.

4. The Nasdaq Daily Sentiment Index is still probably too low.  Needs further strengthening.

TODAY: Target satisfied.

5. IYR has yet to challenge its breakaway gap at about 50.

TODAY: Target satisfied. IYR is challenging 53.

6. The Value Line Index is very close to making an all-time high. It needs a bit more to do it. That would really screw people up and create bullishness.

TODAY: Target satisfied.

7. McClellen Oscillator has made a new recent high (overbought at 75). It might need some more market moves to create a negative divergence on subsequent wave C highs.

TODAY: Target(s) satisifed. McClellan's is indeed diverging.

8. Dollar has been consolidating likely for a  wave 5 of (1) move up soon. That move would correspond likely with the stocks'  "B" wave back after "A" wave tops.  Correspondingly, the Euro is consolidating likely for its wave 5 of (1) low.  Then after the Euro bottoms and Dollar tops, an Intemediate wave (2) retrace in each would equate to the final equity "C" wave to new highs.

TODAY: Target not satsified. The "moves" in the dollar, Euro and equities is occurring pretty much as described above however a wave (2) retrace in the dollar is not yet been met. SIDE NOTE: The dollar can correct "quickly" as you can see on the chart below. The last wave (2) took merely 7 days.

9. Financials have yet to hit their 38% retrace from their early 2007 highs. This would equate to $17 on the XLF.

TODAY: Target satisfied. XLF hit $17.05 today.

10.  Gold still has an inverted H&S target of $1300. I am not sure it is impulsing down as originally assumed.  Starting to look like a big corrective off the $1226 high.  They just started them new gold funds in early January. It is unusual that these funds start after a high is in place.  I am beginning to think gold has a $1300 possibility and we see it back it the news in a huge way. This gold breakout would correspond naturally with an Intermediate wave (2) retrace in the dollar

TODAY: Target not satisfied. However GOLD is hanging tough and has an inverted H&S pattern breakout with a target of approx $1252.  Any new high above $1226 would do. Would probably correspond with expected further dollar wave (2) weakness.

11. China's ($SSEC) market could make a new recovery high. Although everyone assumes it topped out last fall on its recovery rally, I am not so sure. The wave structure is unclear at best. Its been largely treading sideways not impulsing and starting to look like a big darn triangle.

TODAY: SSEC triangle still intact. Market moving like sludge. I can draw no conclusions other than it may not matter. The whole chart looks goofy anyway.

12. Some states are now leveraging up to chase high yield junk bond returns. If they wish to do so, the MM's will oblige them and let them buy the tops and chase it when they start falling.

TODAY: Buying junk of all kind is likely in a big bubble.  Target satisfied. Could be more zaniness coming.

13. DOW theory.  I would like to see a more solid non-confirmation event between the Industrials and Transports. I respect the hell out of DOW theory. All E-wavers should.

TODAY: Target not satisfied. Screw DOW theory.  I hope it stays in "bullish" mode so people stay...well...bullish.

14. Seasonality.  Public has been couped up in a nasty winter and Spring was in the air this weekend.  There is room for a blowoff complacency top and a sense of relief finally that more than a year has passed since the dark days.  That is when it'll bite them again when they finally release their guard.  Like someone facing death battling grueling injuries alone (ever watch "I Shouldn't Be Alive"?), when they are finally found and "rescued" the adrenaline releases and they go and die anyway as they let their guard down. Thats sums up the stock market right about now.

TODAY: Seasonality proved correct.  Now lets see how "Sell in May..." goes. Also the 1930 rally ended 16 April, so history shows sentiment can go sour this time of year in a historic drop. VIX is very low. Complacency rules and people are giddy bullish because earnings are blowing out and they are buying it so far.  

So there you have it. Most everything has been satisfied to my liking except awaiting the moves in the dollar and likely gold to help mark a top in equities.  It appears the "buy the earnings" may be in play here.  We are looking for a peak of Minute [iii] of C as best as we can tell.

And yes DOW theory bugs me too I must admit.  
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