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Saturday, January 30, 2010

Weekend Charts [Update Sun 11:11 AM EST]

[Update 11:11 EST: The story below is the kind I read every day that gets my blood boiling.
http://www.marketwatch.com/story/overseer-bank-bailout-program-has-mixed-results-2010-01-31
The overall gist of all the FED"s actions is to boost home prices. They constantly peddle this as good for America when we all know its bullcrap. America's wages are deflating, taxes, fees and "other" (i.e.- monopoly greed) costs are going up constantly,  and the FIRE economy jobs are not coming back. The reason people are defaulting is that homes were overpriced and overpaid for and people don't have the income to service the debt!  And they still are by far.  Why should one be a debt slave to own a home?   This does nothing to help homeowners. It of course only helps the banks.

People are not borrowing because a generational shift in mood and attitudes toward debt are occurring and the FED is lost on this point.   Banks are not lending because they too are human subject to social force moods and risk taking is diminishing.  Asset mania has likely peaked for more than a generation.

Its madness.  The FED and government  will eventually succumb to social force demands that we stop the spending/debt insanity.  But not before they have ruined us and hyped our expectations.  The sad part is that those who continually take on debt do so because they see a moral hazard and that underneath they think "who cares what does it matter anyway? I'm living for today. Someone will take care of me". There is a perfect atmosphere of "OK things are bad but I'll never go hungry. The government will take care of everything."  That is a dangerous, long-standing paradigm that is about to be shattered in P3.

The government can only "take care of things" by resorting to fascism or dictatorship. And that outcome will be very bad for all.  In any event, these are not conditions in which the stock market goes back to DOW 14K.

Education is in a bubble. Pro sports are in a bubble.  Housing is still overpriced. Government debt is in a bubble, High yield debt is in a bubble.  It is likely that health care too is bubbling. Government workers at all levels are in a bubble. Pension funds will be ruined if a drop occurs to 600 SPX and does not come back up.
All these bubbles must pop. Standard of living will revert to the mean rate of climb.  8% annual returns is a lie. Yet every "plan" and promise was based on this folly.  Raising taxes only cripples us more. Yet you bet it will happen! You can also bet that interest rates will go up. Might take a year or 2, but they have no where to go but up. A mere 2-3% rise will cripple the debt loads we have now.

How can one sleep at night owning stocks on the long side in these conditions? A coordinated terrorist hit on our fragile power grid could cripple the country for months.   Think Google will remain over $500 if that happens?

One could say this is the greatest transfer of wealth (even unintended) in the history of civilization.  The "people" didn't notice or mind as long as we got our slice of the pie. The problem is, the people were promised a lot. And breaking the promises and taking their possessions, does not go over well with the American populace.   We are armed to the teeth for a reason. Life, liberty and property must be defended.

In the end, Elliott Wave Theory explains it all.

[Update 10:15 AM: The DJUSFN's wave structure looks nice.  There are several notable things:
1. A breakaway untraced area as marked by the blue box. This blue box area occurred one subwave earlier then the rest of the market.  So the financials were leading down.  In that respect they may have bottomed for Minute [i] where the alt is marked.
2. RSI low occurred somewhere in wave (iii). Slow-rolling, positive divergence on RSI and MACD developing.
3. One thing that doesn't look right is how pink (iv) is higher than the black iv.  In  wave counting, its best that these 4's price peaks occur lower than the previous 4. Its not a hard rule that I know of, just that its aesthetically better-looking.
4. However the pink (iv) took the shape of a double zigzag up from the low which is a complex overlapping counter trend wave.  Just looking at it you can see its not an impulse.  Bearish if your a bull hoping to get a big turnaround in the market.   There is of course the possibility that where I have Minuette (iv) marked is  really a Minute [ii] (it hit the 38% retrace mark.) But no need to have that as primary count just yet.

The RUT is making nice waves.  Reviewing the entire price drop to date there are several logical things we can perhaps glean from wave, technical and price action standpoint:

1.  There are mostly overlapping waves in the entire structure save for one place where the green box area is marked.  This is the identifier for the "third of a third".  This area is also consistent with every other index or subindex so that is probably the best place to mark it as such. 

2. Since we identifed the middle third area, then placing the entire decline's 50% retrace Fib right at the lower edge of this area is a logical and typical place for this Fib marker.  This middle third area is what a wave [ii] would try and challenge in any aggressive retrace.  In simple terms, this is the area the market must not only take back, but hold to advance the bull.  If a wave [ii] came back to this challenge area and failed, then a wave [iii] commences if this is P3 like we are saying. The [iii] wave would be the real barn-burner with long areas of droppage and no retrace, of which this initial drop has really yet to exhibit.

2.  To say we have not had a wave [ii] is probably a safe assumption for several reasons:
   a.  There has been no "here comes the bull" moment to give doubt to the bears.
   b.  The wave structure does not exhibit a sharp retrace like a wave [ii] of typical 50% retrace.
   c.  The market is yet even oversold on the daily. Getting close and McClellan's Oscillator is very low, but we have  room to run a bit more.

3.  The yellow area is heavy resistance and naturally lies right below the middle third area.

4. The past few days seems to have been the playing out of the 4's and 5's to the upper half's 1's and 2's.  Sideways-type structures with a bearish tilt.

5. If a triangle indeed occurred as I have Minuette wave (iv) marked, the apex area could mark a turn spot.

6. The target for (v) would be a combination of the width of the triangle using the "Z" method (thanks Kenny - and I'm not sure I marked it quite right), the apex of triangle, and channel lines where (i) (iii) and (v) connect.  This is a powerful combination  of targets if we have the chart correct.

So there you have it.  A logical look at the wave structure and a potential turn point.  A hard down Monday opening will finally bring out more shorts and produce a bearish sentiment perhaps in the media and among traders which is probably what the market needs to go up.  

Wave structures are a game of probability, not surety.   It counts well enough and satisfies the most guidelines so now lets see how it plays.

Friday, January 29, 2010

Elliott Wave Update ~ 29 January [Update 4:15 Pm EST]

[Update 4:15 PM: The RUT is still evolving.]

The overlapping up waves of the last day and this morning could prove to be a complex c wave in a contracting triangle. T-Bone seen this count and others as well.  I like the count because, again, the complex nature of the c wave is a "marker" that it may be a triangle wave.

This implies the move is either over, or will be after a a bit more down on Monday.  There is a possibility to get a protracted wave (v) but we'll go with the pattern for now.

E-minis

Another new low overnight in the futures. Lets see if that translates to the cash index SPX.

Thursday, January 28, 2010

All of a Sudden, I Feel Really Bearish Again [Update 9:45 New Chart]

[Update 9:45 PM. I have good reason to suspect something may be amiss. We probably shouldn't ignore the  top waves that occurred on the NASDAQ and Wilshire. After all, it sure counts well as a Minute [ii] flat.  So we may have already had Minute [ii].  But wave [iv] should alternate between Minute [ii].  The best option would be an expanding triangle with a failing, cheating [e] wave. (It actually is nice on the RUT).

Regardless, I tend to think those sideways waves at the top on the Wilshire need to be incorporated into the larger count sooner or later. I do not assume truncation occurred, particularly since it makes a nice 5 waves down initially from its peak. So there may indeed be enough structure to start incorporating.

The whole purpose is to get you to think. Look at the rejection points in red arrows. Interesting.]



Take it as contrarian play and count on a bounce! But really, I am bearish.

Disclosure: I have only covered my BGU so far.  I have core positions on QID, TZA and short JNK, QLD,  and UPRO.  I don't plan on covering anything for quite some time.  I did however plan on adding some positions after a Minute [ii] bounce.  But I am not sure the market will let us in with such an easy pick spot like a backtest of the 50DMA.  1000 got spanked down 4 times and I question if it will ever get breached again (yes I am bearish).

Allow me to explain.

Looking again at the break of the rising trendline in 1930 I notice that right about here is where the DJIA dropped dramatically outside its BB for 2 days and had a hard landing before it finally bounced.   Basically it didn't really have a "wave 4" at a low spot as we typically like to draw.  Its wave 4's were at a high spot like the current markets. Very near where we have our "third of a thirds".

http://4.bp.blogspot.com/_TwUS3GyHKsQ/S15ZxjWRh5I/AAAAAAAADtE/Nb5wvQJrHqo/s1600-h/2010-01-25-PROPHET.png

In fact the market tumbled badly from 1930-1932. I don't see why P3 would follow form of P1. In P1 things took a while to get warmed up and nice structures built upon one another. In this instance, I think P3 will be different in that it will grind you and surprise you. Sure it will have its oversold bounces but they may come from lower spots than we anticipate. There are simply no one buying the bounces at this level. Its as if everyone is expecting everyone else to buy the bounce.  After all, most institutions have already gone "all in" and cash positions are very low.

And let it be known that the squiggles show real selling going on, or lack of buying. There are no contrived gap down openings. Its impulsing down in nice 5 wave structures for the most part.  Its trying to rally but selling comes into play. The squiggle waves look quite different than anything corrective in P2.


Again looking at the DJIA at support, it really is no lock that it finds solid support at the levels I have marked.  Again, which support layer do you buy? We sliced through a few already with nary much of a bounce.  Yet there is no panic. The media shows some concern, but not as much as I thought they might!  Thats bearish!

The daily RSI on the 1930 chart got oversold before a hard bounce. Kind of like Japan did last month. I sense a we might just have to also.  I sense the 1060 big gap gets closed.  I sense a hard bounce may only come from the 200DMA spot which is 9400 DOW and the SPX is at 1011.  If everyone is expecting an average 10% "correction", then this market has a ways to go. Why would they buy? What if everyone is thinking 15% average?  AT the least the 200DMA should draw buyers.

I guess part of the reason is that the entire wave structure, while nice, needs a rip-roaring day!

Bernanke was reelected and the hubris of men who think they have such meaning to the market would be enough to send it in a tailspin.  Bernanke saved us! What better way than to have the market tank 500-700 more points right after he is confirmed. Pundits would be stammering over themselves. Particularly in the midst of a "great" earnings season. Of course if you follow this blog, you know its BS.  The market will prove men are not in control of things as much as they think.

We can only count things as they go along, and like trying to find tops, bottoms of waves are not always easy either particularly when things are in the bear of bears. P3 is not to be danced in and out of in my opinion unless the probability of turn is high.  And right now, there is nothing in glue that says we must bounce to that 50DMA.  

Now like I said, we can count waves the best we can but if we did have a Minute [ii], then things are ready to get rip-roaring and a true "point of recognition" will come into play.  And that means the market may not see above 1000 again. After all, they tried 4 times to take it back.

The daily RSI is the one to watch. P3 is the Ponzi wave and downside surprise is back in vogue.  

And if we get our perfect Minute [ii] and none of this comes to pass? Well then great! We are ready for it. However we probably are not ready for the speed and surprise of a P3 which is why we must give it credence. There are a lot of smart commenter's on this site that also say the same and I would heed to listen.   


Anyways good luck either way. If we get our bounce, great, then I get to enter more shorts. If not, I'm riding what I got.

Each must do is own due diligence of course!

Elliott Wave Update ~ 28 January [Update 6:50PM EST]

[Update 6:50PM: Here is a complete count pretty much of the bear market cycle wave c so far.  You can see we are looking for Minute [i] down.  We have yet to experience a Minute [ii], because wave 2's of any degree are supposed to plant a little doubt in the bears (just like P2!), particularly right off the top of a cycle high or primary high.  Bullishness is still very elevated overall which is why this market is falling in general.  Further down the road, in the heart of wave 3's at all degrees, panic and fear sets in.  I don't sense panic so my judgement is that this is neither a Minute [iii] just yet either]



[Update 6:25 PM: Banks looks like an impulse so far.]


[Update 4:55 PM: The RUT is making nice patterns.  There appears to be a bona fide expanding triangle that follows the rules. So I have it labeled as such. And perhaps one more wave down to go. However there is a legitimate 5 wave move up from its low, and since this is a big triangle, perhaps its in the Minuette (iv) position and not the iv.

The reason I suppose it might have more down waves is the blue box area or "third of a third" seems too low in the structure if today was the bottom. So I placed the 50% retrace FIB in the middle of the blue box and you can see the low end hasn't yet been met.]


[Update 4:30PM: Here is one potential count on the NASDAQ. It may need one more low.  I don't know if the triangle is correct, I labeled it as such because it thrusted down like one. There are other valid ways.

We still haven't had any big wave [ii] because there hasn't been any doubt among the bears. Its coming, the question is at what level will it launch from? If this is Minute [i] wave down, it has indeed chopped off some 7% of the market. Thats bearish as the Minute [i] off the top in Oct 2007 only took off about 5.5% I think. So this is more powerful as was theorized with this being P3.

However both the NASDAQ and Wilshire diverge in that their peaks occurred many days before the SPX and DJIA. I don't know yet how those top sideways waves fit into the overall picture as i am sure they do somehow. But for now I will wait until the structure reveals itself. Its one reason I have been ignoring the Wilshire and NASDAQ for a bit.



Well my first instinct last Friday I guess turned out to be correct. http://1.bp.blogspot.com/_TwUS3GyHKsQ/S1n2LXU8yyI/AAAAAAAADp8/dS8ahS89tF0/s1600-h/djia.png  I scrapped the extended wave (v) because the structure keeps unfolding and revealing its structure. I do not think this is a Minute [iii], rather just the end 4's and 5's of Minute [i] which keeps unfolding.  Kenny also shows the same structure.

It may actually have one more low to go.Notice the ALT: iv.  Perhaps only the NASDAQ does. I'll show that in a bit.

I made an error by ignoring the NASDAQ's structure for the past few days.  It needed more down waves which was probably an indication that the rest of the market would too.

E-minis

Lot of green up candles, it sure looks like the bounce. I think in order for McClellan's oscillator to strengthen back above the 0 line, we need a big up day finishing near the high.  An up volume ratio ending about 6.5:1.  It can be a tad higher, but if an up day ended above 10:1, its is a real concern for the bearish case.

They are debating Bernanke on the Senate floor today and then a cloture vote is supposed to happen. Need 60 votes to end debate and move the vote to a floor vote. I expect he passes cloture and wins renomination.

Prediction for cloture: 65. So today is Bernanke rally day? Or tomorrow? Or will they sell the news? Isn't the market fun?


Wednesday, January 27, 2010

Elliott Wave Update ~ 27 January [Update 9:07 PM}

[Update 9:07 PM: Apple again today showed huge volume. I take it as converging HFT robo-traders milking it as much as they can with recent "blowout" earnings and their mega-iphone unveiling.  I also assume when the HFT's turn toward another target, Apple will retreat along with the rest of the market. What I am not sure is if it has one more squeaker higher left in it. The HFT's seem to want one. I shorted a small slice of Apple when it peaked again today. As I was refreshing my AMTD account balance today it was funny each time I refreshed it Apple had something like a $206.8869 or some mega-fractional number behind it.  I kept thinking of how the the cold, calculating algorithms were sucking pennies from each trade like some ravenous pack of piranha fish stripping its prey to the white bone.]


[Update 8:35 PM: Apparently Cramer is down on Citibank http://www.zerohedge.com/article/cramer-now-negative-fins-says-bail-citi-which-can-now-break-print-price-goldman-sachs-bond-j  So taking a quick glance, indeed he turns bearish on what could be the final squiggles of a wave 3 down.  It appears to be wedging. Remember the botched equity sale a while back on C?  They still need to dump billions of shares on the market.  But they need that wave 4 bounce first.]

Speculative chart:


[Update 5PM: Here is the DJIA. Again, its drawn as if today's low is a (b) wave low. Notice the time scale divisions would work nicely if the DJIA went to where its marked.]


Today could be a (b) wave low of Minute [ii] expanded flat.  We'll only know in a few days. But the form looks good and the reasoning behind a (b) wave is sound: The markets dropped very hard and the downward momentum was hard to arrest and therefore the (b) wave corrective was forced to a new low in an expanded flat. Not all sub indexes followed to a new low so that would also be appropriate.

There appears to be good reversal volume also so this should be the Minute [ii]

No matter though, as the same thing is implied: a Minute [ii] bounce back up. The important reason I mention a (b) wave is that if today was a (b) wave, you can expect a (c) wave and then maybe thats it.  So Minute [ii] could retrace back to the 50DMA and resistance and the open gap at around 1115-1117 and then reverse on a dime and begin Minute [iii] down. Like I said, place your bets....



As I mentioned the last few days, the blue box looked like a good target. I marked this chart with today's alternate as Minute [i].


I'll have more later.

E-minis




Trying to form a floor.  Not looking great. Up/down volume patterns do not inspire bull confidence.

Here is a technical article explaining the overall market situation:

Tuesday, January 26, 2010

Elliott Wave Update ~ 26 January [Update 7:50PM]

[Update 7:50PM: JUNK makes a very nice impulse pattern down.]

[Update 7PM: Not sure if the market has any down moves left in it for now or not and if it does, I suspect it won't be a long-winded one. The McClellan's is showing a smidgen of positive divergence and a small move today should mean a big move in the indicator is on tap. Combined with a potential VIX buy signal (market bullish) and a completed impulse Minute [i] count, there is a good chance the market moves from 1092 on close toward that 1115-1122 area tomorrow and/or Thursday. A 22 point SPX move to 1114 is a 2% market move which is pretty good.  A move toward 1122 is obviously above 2.5%.

The 50 DMA resides at 1114.45. The first order of business for bulls to repair technical damage is to close above the 50DMA. At least a backtest should be in the cards.  The second goal would be to close above the 50% market retrace at 1121.

I think I pointed out in the past that Minute [iii]'s tend to launch from just above the zero line on the McClellan's.


[Update 5:20PM: Apple at the top, record earnings, new product coming out tomorrow blah blah blah.  Things can get no better which is why the stock is likely to crash back to earth.

The chart paints a bleak picture, and combined with EW theory, I have a near side target on a break of the trendline of  $170.


I still think it should land in the target box

The RUT has now what can be called 13 waves down which qualifies as an impulse pattern.  The SPX and DJIA were just not ready to break over resistance today.

I think the best way to view the entire sideways motion of the past few days as a Minuette (iv) that alternates from theMinuette (ii) in corrective form.  We could still easily get a much lower low in the 1080's tomorrow to hit that trendline.  Or today's late low could be a (b) as I have marked. Keep an eye on the alts.

Still looking for a Minute [i] low for now as positive divergence is showing on the hourly chart and the VIX "trigger" is now set as it closed back inside its daily BB.  But we'll see.


E-minis

New low overnight.


Monday, January 25, 2010

Elliott Wave Update ~ 25 January [Update 10:00PM EST]

[Update 10:00 PM: Final chart for tonight. This is the 1930 rally and see how it also broke the rising trendline and popped outside the bollinger bands (red box on chart). It then slipped back inside and then you can see one whole day where it completely gapped outside at the bottom (blue box). And this was right off the rally high.

What really catches your eye is that it only took the market about 1/3rd the time it took to rally to get back toward the market lows of 1929. That would imply in less than 3 months time, we could be sub-900 SPX. Thats the potential power of P3 - The Ponzi wave]


[Update 9:45PM: This chart below shows that the BB is widening which is what this wave [i] is supposed to do: set up wave [iii].  The 50 DMA spot also seems like an obvious bull target.  I threw this "gee whiz" chart up here just to show anyone new to EW theory that there is a potential drop coming that would be consistent with wave theory projections etc. This is why we count squiggles and look for every edge we can get... what amazes me is how much and how fast wave [i] dropped  - if thats what it is of course...]

[Update 8:50 PM: Hopefully the market will give us a new low tomorrow.  A straight-up look at support/resistance shows that a natural bottom for Minute [i] would be somewhere in the 1080's.  Then a swift retrace to the 1115 area. This would fulfill the "retrace to price peak of ii of (v)" and fulfill the initial target for a swift rebound post an extended wave (v). This is also where the 50DMA resides at the moment.

I also show perhaps if a swift rebound to 1115 results in a rejection back down, perhaps Minute [ii] traces a flat of some kind.  I show this only to get you thinking about how these things can play out. The squiggles and TA would give us clues in any case.  Why would the Minute [ii] trace a flat? Well perhaps time would be a factor. If there was a swift retrace to 1115 and then hard rejection, perhaps there would simply be a need for more time for a Minute [ii] to occur. Call it the "bulls refuse to quit buying dips" wave. But that is getting ahead of things too far obviously.  But it would set up a nice double shoulder pattern.

The 1115-1122 area I think represents a huge challenge for the SPX as you can see on this chart, it will be hard to press past that area.  I also don't count on the SPX rallying or closing above 1121-1122 as this is the 50% market retrace spot and I think might hold significance. However, the next obvious layer is at the 1130 spot.

[Update 7:10 PM: Souljester in comments pointed an observation in the EWI tutorial about 5th wave extensions. If this is a 5th wave extension, then we can expect a swift retrace rally to the wave ii price peak of 1114.95. Also the 1116.48 SPX gap which resides right near the wave ii price peak and is also heavy horizontal resistance.

The surge this morning was indicative perhaps of eager dip buyers who were then tempered as if knowing that the market required one more wave down.

If the SPX made a new low, and this pattern is correct, it might be a very good call buying opportunity.  As you can see, a break over the sharp down channel would probably relieve the down pressure and a sharp rally would ensue.  I will then be entering an aggressive short at 1114-1116 area (as long as we get a new low on the indexes tomorrow). For after the retrace, a wave [iii] of immense proportions down perhaps is right around the corner.

The upper retrace target area is the upper blue box area. But it has to chew through 1114-1121 resistance to get there.

Out of all the counts I like this best for now. However, the NASDAQ and such doesn't work as well]


[Update 5:50PM: Here is the SPX hourly chart. A marginal new low tomorrow somewhere in the 1080's  catching both horizontal and trendline support. would create positive divergence on the RSI and MACD which could indicate a turn is coming. The more aggressive count has the SPX heading much further down.  So we just have to see. ]

[Update 5:35 PM: The RUT and the qqqq's need at least one more wave down to consider the entire thing an impulse pattern.  We may get more than that.  If where the RED [1] price pivot is breached prior to any new low being made, its not an absolute count-wrecker, but it sure would be problematic.]

That is pretty much the case with the entire market. If that equivalent pivot (where I have black wave i marked on the SPX and DJIA) gets broken before new lows occurs, then its just complicates things. I don't expect it to.



[Update 4:30 PM: The DJIA pretty much is in sync with the SPX as far as counts go.


Today appeared to be a wave iv kind of sideways day.  There now appears to be a channel.  After some mulling over, the wave (v) might be the extended wave for the SPX. However it requires one more low to confirm the overall pattern and that should be tomorrow if my count is correct.

This is the conservative down count. The more aggressive is shown with the ALTernates on the chart.

I'll throw some more counts out on other stuff in a bit.

E-minis

Good Luck!  

Sunday, January 24, 2010

Weekend Charts [Update 7:20PM EST]

[Update 5:40AM. I had the print wrong on the SPX chart. The last high is shown as incorrect and cannot be what I had labeled so I threw it out.]

[Update 7:20 PM: As overly biased I am about downside, looking over some of the commenter's squiggle charts such as Kevin's, and trying to draw a down channel (its a wedge shape) one can certainly form a completed 5 wave structure down from the peak.  It doesn't work as well on the RUT, nor at all on the QQQQ's squiggle count I show earlier, but the SPX and DJIA both have a non-overlapping area we can mark a "third of a third" as marked by the blue box.

The other thing that stands out when I start drawing more trendlines is the entire thing behaved like a falling wedge complete with "overthrow".  Falling wedges usually produce violent reactions to the upside. And although the e-mini futures are not the cash index, so far they are a bit on the aggressive buy side.

We have a long way overnight obviously, but these 2 squiggle counts have caught my eye.   This would imply there would be no wave iv's or (iv)'s and we just go into a violent upside Minute [ii].

Am I changing my mind on things overall? No, the evidence of a trend change is there.  I just want to have some squiggle charts prepared for Monday's action either way.  So the market may indeed give bears a nice gift to enter short and the blue box target area(s) would be a good entry spot. We just won't know until that opening bell. The good thing is that if there is no violent reaction to the upside, then these charts are red herrings.

Again it has the wedge shape as far as it stands right now.


I have suggested in the recent past that Google might some day make a new all-time price high as Apple, AMZN and IBM for example managed to do.  Now I have grave doubts about that (particularly if P3 has started in earnest).  Volume patterns have noticeably gone higher in the red down moves as of late. If this was a true wave (4) pullback, then volume patterns would tend to decrease less than the volume that carried prices to a wave (3) peak. This is TA and volume patterns at its most basic.

Particularly add in the fact that the founding CEO's seem to want to "cash out". http://www.marketwatch.com/story/google-co-founders-to-sell-55-bln-in-stock-2010-01-22 The media can spin it all they want (and they do) but make no mistake, they want their money. And who can blame them? Maybe Google bounces as an initial contrarian play, who knows. But insiders selling is not exactly a vote of confidence in the long run.

How many mom and pops who played Google on its run-up to $750 (and then got burned), sold it low and took a tremendous loss only to see it make it back to $630? How many then chased the stock yet again?  A viscous high beta plaything of the MM's just like Apple, AMZN, etc.




The qqqq's are but one example of the overall waveforms of the drop so far.  Again, it only has 7 distinct waves which can only be termed corrective (if it were to bounce immediately and overlap upwards again). A quick glance at the subwaves confirms that there really is no way to construct a decent 5 wave pattern with having the bottom marked at Friday's low.

Since naturally, if we are assuming a P2 top is in, then we must also assume there is more selling to be done prior to reaching a wave [i] low and a subsequent wave [ii] rally. Time-wise this makes sense as we have only been down hard for about 3 days.

There also is no clear overarching channel just yet other than a subwave channel.  This chart is bit aggressive to the downside in projectioning Monday's opening plays and its not worth fretting about now.  What I am showing is that we may be only seeing the top half of this structure.

This is how EW theory is supposed to go. You examine the evidence and give it your best count. You play by the rules and guidelines first and foremost and then see where the chips fall.  You don't assume or project the "tricky" right off the bat.  The best count right now is just how I have it labeled (although Monday's projection is probably aggressive).  It may not turn out to be correct, but we'll worry about that when we have to.

But I try not to be too dogmatic in things.  If the market gapped up Monday and rallied into where I have marked red [1]'s price range, that would start to present some serious problems for a downside count, at least for now. I am not suggesting the market will do that, I am rather saying that it would present problems and give pause if it did.

There are now some areas where there may be a "point of recognition", or a middle of a wave (iii). One such potential area is marked by the blue box. If this is the "third of a third", which roughly marks the middle of a wave structure, you can see we definitely have a lot more squiggles to shake out before a Minute [i] bottom is found.

Saturday, January 23, 2010

Speed, Surprise and Paradoxes



The speed and surprise of the 3 day downside move has yet to really dawn I think on just about everyone. Even bears, I think, are looking for playable up moves and expected bounce points for that perfect short entry. They may be disappointed.

I think rather sentiment is now the major determining factor on where this market bounces. There is scant worry in the market even after a 552 DJIA point drop. If this had happened in September the bearishness would be off the charts. In fact, that very sentiment prevented this kind of drop back then and enabled the market to dribble ever higher ad nauseum for 3-4 months.

The "correction" story is of course starting to gather steam. http://www.marketwatch.com/story/us-stocks-week-ahead-flirting-with-correction-2010-01-23 The talking heads will throw out a lot of support numbers and percentages and such so they all can sound smart. They will be surprised by the speed.

The other media "narrative" is that people are worried about Bernanke's appointment. Are all the world's financial markets so fragile that they rest on one man's shoulders? The next media narrative is that Obama is turning on the banks. Well, I have been telling you that eventually the social mood would finally catch up with government. And the mood is that government is reckless with spending and we the people are horrified. As well we should be. And now the politicians have finally caught on that this was not just a passing phase. Its a generational shift.

Don't get too caught up in the media narrative of the day. A lot in the end will make perfect sense. After all, by attacking the banks and dismantling the underlying financial leverage systems that allow this crack-induced market to continue floating above 10K is naturally going to help speed the deleveraging process of excess debt and risk. Raising interest rates will naturally make the debt burden that much harder to handle and naturally will help speed the deleveraging process and lead to asset price drops. There will be countless government actions from here on out that will all have unintended effects. And all actions concerning the financial markets will of course have the unintended effect of having them decline even further. Count on it.

Populism against the financial "evidoers" will extend to short sellers. And of course they will ban them at some point or another. Which will ensure the market drops. Even hobby info blogs like mine may come under attack as being "un-American".

Forces have been set in motion that are beyond any one man's ability to control. Heck, Time's "Man of the Year" cannot even secure his renomination less than 1 month into the new year.

Don't worry about earnings or economic indicators. Or the P/E "value" games. They lag. They should be topping out as we are turning down. The earnings game is a game played by the Wall Street crooks and the enabling media. Just know its a game will keep you safe. Jim Cramer is not stupid. He is a cronie. And the day he is finally booted off the airwaves and indicted years down the road is likely to mark the very bottom of the bear market. And I will buy hand over fist.

And yes, we have become so complacent and overly lazy, and particularly greedy (i.e. - everyone wants "easy" money), as a society that we handed a good portion of our financial markets over to Skynet. http://www.zerohedge.com/article/wall-street-journal-systemic-threat-posed-quants

How does that fit into EW theory? Well at the top of a Grand Supercycle, you feel confident enough to create such complex systems that no one understands and then somehow they wind up running the show. Naturally the things we do at the top, help determine we get destroyed at the bottom. Think of all the pension fund promises made over the last 20 years. We tied our entire future to the big market casino. We sold out any real economy to fall back on. Our economic well-being is largely determined by the velocity of money, not the productive hard work of real lasting wealth. And now finally overwhelming social mood forces will ensure that we will begin to dismantle the systems that allow money to achieve that velocity.

So yes, we turned all of America into one giant hedge fund. And how do you think that will turn out?

In handing over the keys to the big casino and dark pools to the "wunderkind" math wizards who created the Skynet systems will, of course, ensure the markets' very destruction. Guess what? If you unplug them the patient will die. If you don't unplug them the patient will die.

But back to the topic at hand: This initial drop. Technicals paint a bleak picture. We are not close yet to oversold on the daily which is where I think we are headed. The HFT machines are scalping the shortside and Skynets are running into buy-side algorithm problems. Or perhaps, the wunderkinds have reprogrammed them since the 2008 panic to be more efficient at selling then they were last time around. How does that fit into EW theory? Well isn't it ironic that just when we are predicting a P3 wave of immense destruction, we wired all the bridges to blow up at the first sign of the enemy? Fate?

But what of the media narratives and such? Well let me ask you this: Why is the entire world pretty much marching in lockstep? Are they all just tied to Skynets? Well yes in a way they are.
But the real answer is social mood forces are in worldwide near-synchronous lockstep. Is it fate that we have put into place a complicated "global economy" at the top of a Grand Supercycle wave? The very fact that its complicated and overly interconnected will naturally ensure that each country will fall like domino's in the coming downturn of social mood forces. Our actions at the top, help ensure our demise.

And as each domino falls we will naturally try to sever our links with the fallen dominos which will of course speed the global collapse. Stay connected and die, disconnect and die.

Dismantling the global economy will ensure the patient dies. Keeping the global economy in place will ensure the patient dies. Uggh, there is that paradox again. We can find it over and over if we look around each corner. Pull your money out of the system to pay debts will ensure the patient dies. Keeping your money in so you remain burdened with debt will ensure the patient dies.

Ban short selling will ensure the patient dies. Let Skynet short sell it on untested algos and the HFT machines to scalp it until it all blows sky high will ensure the patient dies. I don't think these are false choices.

Ben Bernanke, I have come to realize is a bumbling fool. Tim Geitner on the other hand I think understands the paradoxes that I am alluding to here. He knows the system is in a no-win situation and he knows he cannot dismember the underlying apparatus. And now he will, of course, be marginalized. Not that he could keep it propped up forever anyways.

I think, in his mind to justify his actions, he at least gave the people an opportunity for an out. But that opportunity has already slipped 552 points in a matter of 3 days. And paralysis and greed still run strong.

And now a man from the of the last 16 year bear market is elevated to king maker in this bear market. Paul Volcker. Naturally trying to apply the same medicine will kill the patient. I think Paul understands the problems but I don't think he understands how bad the effects will be if the financial apparatuses are dismantled. I don't think Paul understands how badly America has become one big hedge fund. Maybe he does and maybe the guy reads EW blogs.

Regardless Paul didn't "cure" anything when he was the last Fed Chairman. Social forces cured it for him. We were going to march on up in a Cycle wave V of Supercycle wave (V) of Grand Supercycle wave [III] no matter who was doing what. Paul gets credit for raising interest rates but of course the market is what determined at that time what they would be. And when rates are sky high they can only go down. And now interest rates are at the basement level which means, well, you can guess that answer. And of course it will kill the patient.

Again my mind wanders from the task at hand: Just what is in store for the market this week? Well, the waves and technicals are pointed pretty much hard down. Dare I say sub 1000 SPX this week is in the cards? Its possible based on the only thing that matters: sentiment. Too much bullish sentiment and prices will keep dropping. Once bearishness comes back again in vogue, then it should find its first wave bottom.

I generally get the feeling that pro market bulls are just trying to protect their positions with use of puts and what not. P3 of course will not care about any of that. I also hear talk of "2004" as if we are in a cycle bull and now is the dreaded sideways choppy correction that will play out for a year or so. Well, the opening moves certainly don't paint that picture necessarily....

P3 according to EWI is supposed to set new extremes that out-do anything that P1 did to the downside. This would make sense as wave 3's of any degree are usually more powerful than either 1 or 5. And already, as Kenny pointed out http://kennystechnicalanalysisblog.blogspot.com/2010/01/market-update-for-january-22-2010.html the VIX has already set an extreme higher CCI reading than anything in P1.

Can you imagine all the bulls (and bears who got queasy) gnashing their teeth if the market keeps flying to the 999 level this week? All their technicals will be smashed to bits. All their supposed "support" will be an illusion. Already the 1113-1121 didn't hold very long did it? Hours?

I cannot suppose I know where the market will bounce for a first wave bottom and what the "news" of the day will be. All I can say is that sentiment needs to turn bearish like that "wall of worry" it had going for it for 10 months running. So far, it seems like everyone is looking around thinking everyone else is going to buy the dip.

I think the speed and surprise of P3 will catch everyone completely off guard. Even EWI, who naturally thinks that total market crashes can only occur after they have already sold off a bit, may themselves be dead wrong. There is really no comparison to a P3 at such large degree other than 1930-1932 I suppose...

As far as technicals go, this is where I switch gears once again and start paying more attention to waves rather than TA. In other words, waves trump TA for now. For instance I think its entirely possible that the market gaps completely under the daily BB and trades outside the lower band for a day. Also the daily RSI, may just head to oversold too.

I am mentally prepared to see just a tad above 1000 or 999 again by Friday. And yes, any bounce won't catch us off guard either will it? After all its expected isn't it? We'll just have to paint the waves every day and see where it gets us.

P3 will not pause and let the bears on the train nor allow the bulls the mental pause to switch allegiances in mid-stride. It never intended to. What about the kid with a ruler and a million dollars?

And all the captured market money managers have no choice do they? They too are trapped in a damnable paradox courtesy of the makings of politicians who don't have a friggin clue. As are we who own 401K's and the safest they allow us to do is have our money parked in "stable value" funds. "Stable value" is a paradox and should scare us away by fact that the crooks chose that name for it. I am not kidding.

Friday, January 22, 2010

Elliott Wave Update ~ 22 January [Update:4:55PM EST]

[Update 4:55PM: The RUT has only 7 waves down from a distinct price peak.  So far the waves have been overlapping except the last which finally broke under October support.   The RUT is the chart that leads me to believe (as I suggested in last night's post) that there is more selling left to be done before we achieve any kind of oversold bounce or a wave [ii].

Here is the hourly on the RUT.  Now people may be finally getting that "hrmmm, maybe I should cut back on the small caps a bit" feeling. The RSI just entered oversold and the waves are only 7 down and all have overlapped so far.  So that suggest that there is more selling to be done on the RUT and hence the overall market.

The speed and ferocity of this initial drop is a stunningly beautiful impulse wave in development on many indexes.  This is evidence that the trend has changed and that the primary trend (cycle degree actually) is down and has reasserted itself just like we said it would.   There is even a difference between the impulses now versus the big corrections of July 2009 and late October.  These are purer.

There are many ways to count this, and I am not even sure I have the correct degree but here is one taste.  In any event, I still show the market inside an initial wave (iii) down and it may be getting close to finding support for a 4th wave to occur.  Then after a Minute (iv) corrective up, a slower wave (v) down should occur and eventually we are seeking the bottom of Minute wave [i] as best as I can tell.

There are no positive divergences on anything to suggest that we are ready for a rebound wave. the hourly RSI's and ROC show bear mode.

I'll have more charts later.

E-minis [Update 2:30PM EST]

[Update 2:30PM:  The market hasn't given anyone an obvious good short entry.  I suspected that might be the case.  And there is still a complacency in the media.  DOW off 400+ points from a recent peak and its business as usual with little concern. Back in September and October, the "worry" would have been right out front, and thus stocks continued to go up.  No longer it seems.

Why the bullishness still? Heck 79% of the S&P  have beaten expectations so far which is on its way to a record.  The lagging economic indicators seem to be pointing up but social mood has shifted down. To the layman, nothing makes sense at the moment, and most market observers are no doubt calling this the overdue "healthy correction".

Notice how the media provides all the "answers" on why the market moves?  They are making it up as they go along. They are telling the story of whats in their heads at the moment.  But people listen and swallow the narrative the entire time no matter which direction we go in.

This SPX chart shows the RSI oversold on the hourly.  Usually this occurs somewhere in wave 3 and then a divergence develops at the bottom of wave 5 and a turn is coming. An oversold bounce = wave 2 of higher degree.

[Update 2PM: I think a lot of people might be looking for a bounce or even some form of wave 2. I am not sure. I count 7 waves down on the DJIA.   That either means this thing is not done or it was all just corrective.  I am not buying the "corrective" part so logically I must count it as an aggressive series of 1's and 2's.

In a sense, I think everyone is looking around expecting someone else to buy the dips.  And yet....

And for you conspiracy buffs, Team Bernanke and Geitner day's are apparently numbered so maybe they ain't such team players anymore? hrmm?


The RUT has had nothing but overlapping waves and doggedly holds onto its October peak.  I sense that sentiment is still way too bullish still and the markets will head down some more until we see some bulls screaming for a change.



You can see the hard break under support finally after 4 tests.


Thursday, January 21, 2010

There is No Contrarian Upside Play to a Ponzi

[edit: I cut a few profane words out]

I was just pondering all the recent events that have taken place over the last few days from the Massachusetts election to Obama turning hard on the banks. It all of course can be best explained by Elliott Wave theory.

If this is a true Primary wave [3] down in a cycle wave c, then social mood has already turned south and the markets are just now reacting. This can probably be seen somewhat in several "consumer confidence" type charts that came out recently in which mood dropped very drastically and unexpectantly.  The corrective P2 wave is now likely over and mood is shifting for the greatest down wave we have ever seen as a nation.

And of course it was predicted that social mood will eventually come to bear on the "herd" - i.e.- the government.  The government's actions lag badly the will of the people, but given enough time, it will catch up. And what is the mood of the people?  Pissed I would say about several things.  A Republican winning in MA is one such piece of evidence (I think any incumbent is in danger - Dem or Repub - i.e. - throw all the bums out).  The number one thing is economic and specifically fiscal irresponsibility and obvious corruption of the Congress and our political leaders and the corporate cronies.

The general populace has already started to contract its balance sheet and the government was lagging badly by partying like its summer 2007. Social forces are now unleashed that will help prevent the government from spending like they did in P1 and P2.   The political will to spend lavishly on corrupt projects and pork is slowly coming to a halt. Not to mention when the banks get in trouble yet again (which they will), who will have the political courage to bail them out another round?  Another $100B to AIG? You think?  Think again.

So government has finally sensed that there is real anger and the most common theme between the political left and right is the banks, greed and such. So the attack on banks have begun in earnest which can be expected at the beginning of P3 . But the actions are too little too late as forces are already in motion. Besides the real problem is that government will not help in the areas that people need help. Perhaps its a bit of political theater: focus the people's anger on an enemy in order to deflect. I happen to think the banks are a good target. I too am pissed at the banks and I have no doubt that Obama  and many other politicians are too.  I actually sympathize. But in end, some revenge and justice may be extracted (GS's coming doom), however, there is no direct benefit to the average American. Mood will still be sour.

But of course this punishment will have a negative affect on the middle class as all punishments on corporations results in that punishment getting passed down to the people in some form or another. Particularly the banking system as it is structured now. So in no way will it squelch the general anger of the populace. It will in fact compound it. Attack on the banks will have no real impact on average Americans except in the negative ironically.

(Not that the banks don't deserve it or this is not a good thing in the long run, its just that it will help no one's balance sheet problems and will help expedite a collapse in asset prices)

What American household balance sheets need more than anything is a moratorium on interest rates for their credit cards, their mortgages and loans. And that will not happen.  Hey we are willing to pay our debts, but a losing battle is a losing battle.  With interest rates so low so long, they have only one place they can go: UP! So Obama can punish the banks all he wants but in the end, it will actually exacerbate the situation by causing stock assets to drop, interest rates to rise and compounding pension and budget problems nationwide.  And no American will be directly helped and actually in the end be hurt. And hence I can predict that social mood will not perk up, it will turn even worse. The snowball is in motion down the hill and it will steamroll everything.

Asset mania has peaked. The future actions of the government will ensure that it remains so. Risk is being reduced and now forcibly so upon the banks. It was predicted.  Every action the government takes will cause the further financial destruction of assets and a further financial death spiral. Count on it.

Simply put, everything the government touches turns to crap and the people know it.  Hey $13T in debt - $100 T in promises...need I say more?  Why do you think people are drawing the line at health care?

At the bottom of the bear market they will enact great laws to prevent this from ever happening again. And of course so what?  By then there will be no need for the law as the bear market will have laid waste to the entire world. Ironic. Nature forces mankind's hand. Play with fire too long and the forest will burn down.

But we are no where near that spot yet. First we must recognize the Ponzi for what it is.  And I believe that is slowly happening to Americans.  We suck at math but eventually the number Trillion gets thrown around enough and we gain a certain consciousness. Indeed its happening. Lots of predictions that we have "XX" % to go on the upside and then...all bets are off.  Oh why say that?  One reason: massive debt loads. So the perception of a large Ponzi scheme has now infiltrated the consciousness of most every market predictor out there. And of course the common man is coming to realize. People are pulling their money. They trust no one anymore. Our rotten politicians have ensured the trust bond is broken.

THERE IS NO CONTRARIAN PLAY TO THE UPSIDE WHEN A RECOGNIZED PONZI SCHEME BECOMES SELF EVIDENT!  This is a law of Ponzis! In fact the moment they are realized to be Ponzi's they collapse rather quickly.  This is why I think P3 will "keep on keepin on" downward even when the point where a contrairan would want to play the long side.

Americans are also mad because we did what we were told. We invested in stocks, ran up debt to "consume", bought houses in the "ownership society" and supported the economy. And we sucked off the tit of big government which it promised us for decades that it would take care of us. And we seen our sons and daughters and brothers and sisters go off to war to protect it all. We did what we were told, now its seems like it was a big fat pack of lies. Just look at any unfunded pension plan.

However, our country and way of life is worth protecting but it is all screwed up at the moment. And in our effort to either "correct" things or to keep the status quo running as long as possible we will surely sacrifice our liberties in vain and clamor for more government! UGGHHH!  Underneath it all, Americans know they share in some the blame and they have already begun to correct.  But they do not share in the absolute corruption of the criminals that truly ran things into the ground beyond repair. They need to go to jail.

So even if we round up and prosecute every criminal that had a hand in the financial destruction, we will still have not one problem solved at the household level.

The ironic thing is most people are instinctively reaching for more regulation when the problem has not been lack of regulations in place, but enforcement.  What a mess. And there will be no best solution.

The math is simple: We need to destroy the excess debt and break the debt promises at all levels of society. And yes along the way, jail the criminals of which there are many. And yes it will be very painful but if we don't allow it to happen, fascism will surely result.   I don't want to sacrifice liberty for the illusion of security. In the end of course we would have neither.

And least you think I am anti-capitalistic, nothing can be further from the truth! TRUE capitalism would have washed the excess fraud and corruption and risk from society long before it got out of hand. But our corrupt overlords distorted the system and outlawed true capitalism.  Americans are angry at "socialize the risks and privatize the profits". We are not dummies.

Ok so we may go broke, but at least we should still be free.

I am not sure how it will all play out, but the math is pure and simple and doesn't add up. And until it does, this bear market will not be over.

Sorry I rambled.  I have little time.

Elliott Wave Update ~ 21 January [Update 5:30PM EST]

[Update 5:30PM: I think any reader of my blog knows that I agree with Prechter on the overall wave count of less than 1000 DOW to come in years down the road.  This "P2" was a massive corrective wave that eventually found its peak.  We are saying, by charting a triple intermediate zigzag, that P2 is likely very much over.  That means that you won't see the DOW above 10700 again for, perhaps, many decades. Its pretty much that simple really.

So yes, I am now counting down from the P2 peak in bears waves. The primary trend is showing evidence of changing. Impulsing down in squiggle counts in 5 waves and correcting back up in 3 waves.  The first real larger evidence to help confirm this view is a complete 5 wave structure at Minuette degree at least (pink).  It hasn't done this just yet as you can see on my DJIA chart below. But as we count waves down, the evidence should pile up.

Playing the upside bounces at this stage is quite dangerous unless your skilled and have kahoonas. As I tried to show on the RUT, a hard breaking "point of recognition" moment may be coming to the downside.  Yes today was a bad down day, but the apparent "strength" in the NASDAQ and RUT could just be laggards to the downside as I suggested. Of course we don't have any 5 wave structures yet at Minuette degree to make the argument "airtight".

But we do have technicals. And they are not painting a pretty picture for the bulls.

Technically, the indexes are seriously damaged and likely have more downside to go before our first solid oversold bounce wave [ii].  (Of course you skilled daytraders do this stuff all the time - play in hard markets). Indeed as it has yet to produce even a 5 wave structure at Minuette degree yet so that indicates its not done impulsing down. The indexes are certainly not extreme oversold by any means even on the hourly charts.

 This daily SPX shows an RSI break and a trendline break.  Selling has kicked in as the longish red candle on higher volume does not lie.  The top is likely in.


The Wilshire weekly also shows the overall weakness of the markets.  Notice the money flow was lower at the peak than even in 2007. The RSI channel up has broken under.

So yes, its a matter of counting wave upon wave structures assuming the P2 top is in. The structures build upon one another and so on. And no, there is no magic rebound rally taking the indexes to even higher highs coming in the Spring. This is "it", P2 top would be in. Thats the overall theory count.  But like I said, we need that first solid 5 Minuette down wave structure to start setting firmer targets and channels.  I am confident its coming.



I am using the RUT and INDU tonight because they had recent absolute price peaks from which to start a count.  Like the NASDAQ, the RUT has over lapping waves on the way down.  That usually indicates corrective waves, but in this case, it should be a series of 1's and 2's.  The "meat" of a wave (iii) down would break upper support and close the  "third of a third' wave up blue box  I show on the chart.

So the RUT may be ready to play catch up to the other indexes to the downside, or has other plans.

And the squiggle count of the RUT shows the overlap. But you can see it going down in 5 waves, and correcting up in three. Thats bearish.  Unless its just a 5-3-5 zigzag down of course. I'm thinking its just lagging to the downside as is the NASDAQ.

And the DOW also had a clean peak price from which to start a count from.  With all the bearish moves the past few days, it has yet to show 5 waves down at a complete Minuette degree. A move lower tomorrow will count as a 5th wave, at minimum.