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Saturday, May 15, 2010

Weekend Charts and Stuff [Update Sun 8:05AM]

[Update Sun 8:05AM: I hesitate to post the squiggles only because there are more than a few possible interpretations and we need to see how Monday follows through.  Was it just end of week short covering or a base-then-turn-up by end of day?

But here they are and one thing is it really only counts as 7 distinct waves down so far which implies corrective. 9 waves would be better for the bear case. (Hey I didn't make the rules or guidelines). So yes an early morning Monday bearish new price low would be perfect here.

[Update Sat 10AM:  I hadn't realized that the April peak of the 1930 rally had a "flash crash" (LOL) at the end of its  first wave off the top. So as today, in 1930 there was no discernible subwave [iv] of 1 (we'll just call it that to keep the references simple).

The similarity of the 1930 rally to today has been pointed out by many including me at times. Robert Prechter of EWI broke it down brilliantly in time cycle in his last two EW Theorist newletters (April's is free! Just sign and join the free "Club EWI" through the link on the left).

But the plunge from the peak to date is scarily similar including a rapid breakdown at the end of wave 1 in 1930. Then an [a][b][c] rally to wave 2 peak.  Then another dip, then a doubletop relief rally again back toward the wave 2 peak. When the market refused to go any higher, it gave up the ghost and gapped down and never looked back.
If today's market were to do something similar, we would likely see a persistent clawing, scraggly advance this week of prices back toward the 1170-1180 area or my blue box.   Perhaps the DJIA will challenge the superpcycle channel line yet once again http://2.bp.blogspot.com/_TwUS3GyHKsQ/S-6XZa1sy2I/AAAAAAAAFRY/sy7bjO93VwE/s1600/2010-05-15-PROPHET.png in yet another backtest.

Then there would be a wave 3 down.

Saturday 8:40AM: As per my previous post, there appears to have been a discernable change on this pullback versus all the previous ones. First of course the, now called, "flash crash" is one thing. And fear is more palpable and this shows up in the VIX. This is more evidence that something different is happening this time around.

I throw EW counts on the VIX because I try and connect patterns/fractals. For the most part this has worked remarkably well.  The purpose is not to do a long term count, but to track the extreme peaks and valleys of VIX major movements.

The weekly shows that the VIX has broken out of any possible remaining down channel lines since the fear peak in October 2008. To me, that simply indicates that long downtrend is over. A new trend has started and it certainly appears it is upwards.
Here is the daily and you can see my "falling wedge" note still up there (before it spiked).  A truncated wedge even showed the potential for an even more greater thrust and that is indeed the case. record moves in the VIX.
Finally the Supercycle upper channel line (blue) has rejected the DJIA. I have theorized before that the market recognizes this line http://danericselliottwaves.blogspot.com/2010/04/weekend-charts-and-stuff.html

The other night I pondered a backtest of this line in a wave 2 peak. It happened so far...

The remarkable thing is I have not moved this channel line since I put it up there April 1st.  I am convinced the market recognizes this multi decade-old line.  I also theorize that above the line recognizes the inflating of a great credit bubble.  The move to the lower channel line far, far below will represent deflation and a popping of the Great Credit Bubble.

The trajectory of the line represents what it will take for the Ponzi financial system to continue to operate as it has for the last 30 years and maintain itself in bubble mode (and inflationary mode). Thats probably why it so desperately tries to keep up with its ascent path. Of course I agree with Prechter that a great credit bubble cannot keep up and that a period of devastating deflation will occur with the massive destruction of all forms of credit including sovereign debt. Time will tell.

Incidentally the lower indicator is the Price and Volume Trend shows a big negative divergence at the peak. And it still displays its weakness despite the massive up day we had last Monday.
And finally my weekly accumulation chart showing a tremendous Elliott Wave pattern. I constantly hear people cite this advacne/decline issues as being proof of a great bull market. But something I hadn't realized until now is that there exists a great negative divergence on this chart.

The 2004 rise in the accum line to new heights was positively maintained with stock prices on the SPX. In other words, when the accum line made a new high, stock prices made a new high versus where the accum line peaked in 1998 (where I have "I" marked in pink). So relatively-speaking, there existed no negative price divergence when the accum was chugging to new higher highs in 2004.  This is shown with the green dashed lines.

But now we have an accum line that again has scaled to new heights sometime in late 2009 and kept rising. Yet we can see that stock prices (SPX) did not make a new price high relative to the last accum peak (where I have "III" marked in pink) in 2007.  The accum peak in 2007 occurred at an SPX price of well above 1400. We are nowhere near that level in prices now.

So, to me, this is a great negative divergence on a weekly basis. I don't even know if this is a vaild way of looking at things. But I do see an excellent EW pattern and it is nearer a top of V than not to say the least.
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