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Saturday, February 19, 2011

Weekend Charts and Stuff [Update 8:27PM]

[Update 8:27PM:

A LOOK AT THE SUPER CYCLE CHANNEL AGAIN
EWI has noticed what I had noticed over a year ago - http://danericselliottwaves.blogspot.com/2010/04/weekend-charts-and-stuff.html that the market seemed to be backtesting the supercycle upper channel line.  But Prehcter's recent EW Theorist had their channel in a slightly differing angle than I had mine. Lets face it, channels can be tricky. I went back to check and found out that I hadn't used a channel tool at all but instead 2 parallel lines....ugghh!

So I re-did the channel using the channel tool. And well, EWI and Prechter I think is correct on their placement of the channel. It was a bit higher than mine in time. Here is the channel basically that I re-drew and for your viewing pleasure, reproduced it here.

1.  Complete count:
2. Here is how it touches the I and II
3. How it touches III and IV
4. How the P[2] low in the early 1980's breaks under in a false break.
5. How it broke above in 1996, the beginning of my Advance/Decline NYAD weekly chart by the way and when the credit bubble really accelerated.
6. Interacting with it at the 2002-2003 low periods.
7. P[1] break away from the line in 2008.
8. And the current marker.  We are about there indeed.
CONCLUSION:
Although I am convinced my line was felt that I was tracking, I think it could be just a lower Fib fan line and not the true channel line. 

I really like the new placement of the channel lines and it makes more sense as the P[1] crash occurred from this new position when it could not retake the line.  I also like how the 2002-2003 closing marks and false break under align. I think EWI and Prechter are correct and we are upon the true upper supercycle channel line.

[Update 7:50PM: 
TOP TICK IN CORPORATE GLOBALIZATION?
I am certainly no wizard in examining corporate earnings and a corporate balance sheet. My realm is more social mood and waves. However I do have some breezy opinions I'd like to share because, well this is my blog and at the moment I have been thinking of this stuff a lot so I need to get it out. Besides I naturally think it is all intertwined.

It is obvious that the globalization that occurred in the 1980's, 1990's and 2000's has finally paid off big time for the corporations who took advantage of moving operations to cheaper labor markets.  The bull market in worldwide social mood from the 1980's onward encouraged corporations to move key manufacturing and services operations into overseas countries even if the markets were not strong democracies or even Communist countries such as China. 

This is not to dismiss of course technological advancements allowing greater productivity which had a major role to play. But lets face it, Apple is making a fortune via cheap Chinese labor who were willing to pollute themselves at a terrible cost.  How much control does Apple really have over their products when they are solely reliant on obedient and abundantly cheap Chinese labor?  Or a "stable" political system that promises not to attack Taiwan? These conditions cannot last forever naturally and one can only guess at the shelf life of it all.

Now that the bear market has arrived in the 2000's (and has yet to really warm up in my opinion) it is ironic that after all that  effort corporations took into moving operations overseas and to farm out other services may not look so good in a global bear market that is finally producing some political unrest and uncertainty in both expected and likely unexpected places. If Egypt fell, what would stop any other country? We are seeing that question answered rather quickly.

Its a cruel fate almost.  And the process to move operations back to the shores of America in the case of American corporations has already begun whether anyone realizes it or not.  The "globalization" effort may have reached top tick. It will be a long arduous road to get the United States back to where we were in manufacturing as we once were but my gut tells me we have likely started a long road to get back even if no one has started to actively think about it just yet. Such is the power of social mood theory.

Think this is crazy talk? Well I sure hope you do. For if no one can see it coming, then the better it may be that it will come to pass. And all this relates to the social mood bear market.  The revolutions occurring are likely to not be a very smooth affair.   And if this is a Grand Supercycle wave (a), we can expect they will get worse and many wars break out (this is what happens in a bear market of this degree). We can also see just how rotten the foundations were all along when given a small push. There is a lot of rot in the world and all it may take is a push. And naturally I think a lot of upheaval is in store to include the U.S and other parts of the Western world.

But back to the de-constructing of globalization.  We have seen deflation here in America.  In what you ask? Well wages, salary and pensions of course!  We see the public union issue come to a head and it is likely to get worse. The "haves" and the "have nots" are going to clash. The "protected classes" and "connected classes" and many odd bedfellows will battle against the bankster/political class and against each other. The battles have begun and we are just getting warmed up. And we'll need a  scorecard to keep track of all the battling factions involved. There will be odd temporary political alliances in the years to come.  The war on wages, greed, entitlements has come to our doorstep finally. And it will be an ugly war with multiple, overlapping factions at times. 

What effect will this all have? Mass deflation of course. Our out-of-control budgets and entitlements ensures the battles will continue. The social mood bear market of Grand Supercycle degree will ensure that fight is long and arduous. The rich will lose some money, the poor will be poorer and the bankster/political class, eventually, will be facing jail time.  It just takes patience. The middle class? Do we even have one left?

Deflating wages and pensions and entitlements will eventually make America an attractive manufacturing base once again.  Coupled with a worldwide social mood bear market that will produce many revolutions and wars and a great deal of instability and political uncertainty, it will be the natural course of things.

It'll take a while, but perhaps on Grand Super-cycle wave (b) up many years from now, American manufacturing may be ascendant once again. If we don't kill each other first that is. 

[Update 4:32PM:  Gold's chart. Looking good for the wave 5 up. All that is required minimally is a new high but it would look better if it went higher in a blow-off top.


[Update 10:45PM: Nikkei/Dow relationship. Nikkei always seems to lead. They did after all top in 1989...
[Update 10PM: Here is an interesting chart and article I ran across http://www.businessinsider.com/these-charts-explain-the-real-death-of-the-music-industry-2011-2

One can easily make the leap that music =  a reflection of social mood.  On the first chart, we see a peak in 1976 which corresponds to the Primary wave [1] peak of cycle wave V. Of course we see the ultimate peak toward the orthodox cycle wave V near the end of the 1990's at around wave (3) of [5] of cycle V approximately.  Even the waves up in this music chart makes EW patterns.

So there you have it. If music is a direct reflection of social mood, this simple music chart kind of makes the point we are in a terrible bear market for the past 10 years and there is no bottom yet in site. 
Unadjusted dollars:
[Update 9:16PM:]
 Via Marketwatch: http://www.marketwatch.com/  They may indeed but that is an awful confident headline and the US market is not even open on Monday!

Still movin' on up 
Stocks expected to continue gains despite Mideast tensions. Markets closed Monday for holiday.

[Update 8:43PM: Lets take a look at that CNN story again on "Where to invest your money now"


Lets review his 10 picks and see if its not a contrarian indicator:

1. COMMODITIES.  Likely close to the top of a 3 wave corrective http://3.bp.blogspot.com/-avdj7sc_PQg/TWBPsSuuMBI/AAAAAAAAItE/IeeaJ-a_9Ok/s1600/crb.png


3. TIPS BONDS. Ok that is an extrapolation of the "here comes big inflation". End of the inflation trend?

4. Australian Dollars.  Did he call the top of wave [5]?  Feeling comfortable with the trend obviously!

5. MUNICIPAL BONDS
Does this chart look bullish? Or are we just hoping? http://1.bp.blogspot.com/-j_xyJ7ikLks/TV7o_z6hNAI/AAAAAAAAIsg/i10EwADxivo/s1600/MUB.png   Is he suggesting buy the dip?  Are we facing a wave 3 down? How about this statement he makes?:  "Yet most issuers in the muni bond market will repay their obligations without any problem."  What makes this guy so sure about that? Does he not know that it may only take a few major defaults to cause the whole market to melt down? What then? Its the whole attitude toward our out-of-control debt in that "it will always be ok, no worries."

6. LARGE CAP STOCKS.  This is an extrapolation of the already-has-rallied and doubled in 23 months S&P500.

7. DIVIDEND STOCKS. How about this statement he quotes:  "Dividends are issued by quality companies that have a history of cash on their balance sheets..."  Thats a crock of crap. Most dividend-giving companies are leveraged to the hilt to issue out dividends. (GE) In reality the most cash rich companies refuse to give dividends! (Goog, Apple, etc)

8. HEALTH CARE & CONSUMER STAPLES.  If there is any industry that is facing budget cuts over the next 10 years - less we face total financial collapse due to unpayable entitlements - its health care! We are in a health care bubble folks.  The passing of Obamacare helped mark the "top tick." 

9. STOCKS WITH LOW DEBT-TO-EQUITY RATIOS.  Recommending Tech companies, energy and Industrials. 

10. OVERSOLD STOCKS (BTFD!)

11. CASH. Cash did not make his TOP 10. Its almost an afterthought as in "oh yeah, I forgot cash damnit! - I'll make it number eleven on my TOP 10 list."

What is funny about cash is he quotes a guy named Taft who quotes Warren Buffett: "There is nothing wrong with 10-15% cash", Taft says. "Warren Buffett said to wait for the home-run pitch." 

So the implied reason for keeping cash? To BTMFDMF!

MY CONCLUSION?:
The entire fluff article is of little value from an investment standpoint in my opinion. It may be however a very good contrarian signal.

[Update 7:52PM: A sampling of stories around the financial sites.  All of course are upbeat and positive.   Even the ones that try and balance the bear side, wind up justifying the upside and even more upside. 





And check out this story on the top 10 things to invest in. Guess whats dead last? Cash. 



[Update 5:54PM: Top long term alternate counts.  The secondary alternate is not very satisfying.  I still prefer some form of downward flat as I have in my primary count.   

As you can see, the alternate count pretty much align with my primary count (Supercycle wave (a) downward flat) which is why I don't harp on it too much.  At this stage its a moot point. 

However one has to concede a few points about my top alternate count:
1. It already qualifies as a valid pattern as the Wilshire has retraced some 91% of the orthodox Supercycle high in 2000.  A flat requires a minimum of 90% so that guideline can be considered to be satisfied already. 

2. The true cycle wave c has yet to start and would consist of 5 primary waves down of devastating degree. 

Top reason I still don't like my alt count:  Time-wise and "look" wise, it doesn't seem correct.  I rather think this P[2] is connected with P[1] within cycle wave c. It just feels right and the sheer sharpness of this rally wave seems more a wave 2 than anything even if it is a monster.

I do not prefer the secondary alternate "x" wave count as a combination corrective is not satisfying in this case. I rather keep it simpler.  Plus we would lack that big "third of a third" spot that I feel is coming in the years ahead - the one point in the bear market that leaves no doubt we were right all along....

[Update 4:32PM: 
NEAR TERM WAVES - EXTENDED MINUTE [v]?
In observing extended wave fives of any degree, I notice that the corrections tend to be sharp, shallow zizgags and very little "sideways" action.  The unfolding advancing sub-waves always carry the price higher which is another sign of a possible extended wave five.  This is probably due to the nature of an extended wave five event. An extended wave five tends to have to get somewhere fast and make up a lot of ground. It doesn't have time for long sideways corrections. It is a wave with a purpose.  It is also a "panic" wave sort of which is why you can see it in commodities. In this case, the "panic" may be the fear in missing the rally.

The wave evidence of the past few weeks has a slight hint of a possible extended wave five, in this case Minute [v] of Minor 5.  Short shallow zizgag corrections followed by quick price advancement of the next subwaves one and three.  Another clue is that the wave structure doesn't "look" right shoehorning it into the typical "third wave is the longest" scenario. 

I also like to view extended wave fives from the perspective of "what would have made a nice 5 wave structure?" and then turn that spot into the first subwave one of the next lower degree and go from there.

Extended wave fives also confuse the market players. Not seeing a "normal" clear 5 wave pattern leaves the market open for a myriad of considerations.  In this case, there are many who are proposing that the extension is in fact main pressure point in a "third of a third" wave of primary degree.  In this case, the wave will not "look back" and will continue to advance for many weeks.  Needless to say, I do not take the view that this is a "third of a third" primary wave [3] up for a myriad of reasons, one of which is the sentiment picture does not support that view at all.  http://3.bp.blogspot.com/-uJxezvLyhrA/TWBQAIx2OiI/AAAAAAAAItQ/YRJtXPah1Vk/s1600/naaim.gif


Another reason is the technical picture is likely to feel resistance http://2.bp.blogspot.com/-dThkwhQxR7A/TV8R9tc1m6I/AAAAAAAAIs8/A2z5uxBfq4Y/s1600/wilshiremonthly.png

Additionally we already have "non-confirming" events occurring. http://1.bp.blogspot.com/-OP3CD7QuhLU/TV76gK6uIrI/AAAAAAAAIss/XiflyUTcR-k/s1600/index.png 

Extended wave fives mark the end of an advance of importance.  In this case, we propose that Primary wave [2] would be coming to a top of historic importance.  In fact wave (C) would be .618 of (A) which is a very satisfying structure. That I could not see the size and scope of it from the beginning bothers me, but again, I try and learn and get better.

FLASHBACK EARLY 2009
I would also like to reminisce a bit here. When other prominent wave bloggers, such as Tony C was calling for a new bull market rally during Intermediate wave (4) in late 2008, early 2009, followers of Prechter like myself said "hold on, we have one more big wave down, likely sub-700 coming." And that is exactly what happened and it caught the "other" wavers off guard.  They now folded this "new unexpected wave" into their long term counts and forgot about it.

I too went bullish in early 2009.  I had imagined we would see a big zigzag or a double zigzag or even triple ZZ rally P[2].  The problems came in obviously when the size and scope of P[2] was just too big for me to objectively see.  Who woulda thought we would see burritos at http://4.bp.blogspot.com/-ZbVa8GjhR0o/TWCSk8SUmcI/AAAAAAAAItc/40UdMkIu0b0/s1600/cmg.png  $268 when they were going for $38 at the depths of hell?  But that does not make the count wrong. P[2] still, at the moment at least, is one gigantic zigzag rally and its approaching an important Fibonacci relationship.

So here we are again and there are clearly 2 distinct wave camps and like early 2009, one will be fantastically right and one will be dead wrong. Caldero and such are calling this Primary wave [3] up of a cycle wave event.  This means we are near a "third of a third" although conveniently he does not have his primary chart labeled for it in that manner.  Regardless, this is a big event coming. Either it is correct, or it is not.   Regardless, it would mean we have a lot of rallying left to do and that this "bull market" is only half way over at best.

IS THIS A BULL MARKET ONLY HALF OVER OR LESS?
Everyone eventually looks for a top (just as we look for bottoms). Everyone has a bias. These are true statements whether you admit them or not.  If you are a serious waver, you must take a stance or else the entire exercise is no longer much of any use. One cannot objectively have as a primary count "new market highs" in a P[3] up count, and then have an alt count as P[2] up and new market lows.  It is not serious work in that case.

TOP ALTERNATE COUNT 
My top alternate count is that this is an [B] of cycle degree that will take a 3 wave form and we are in wave (C) now. Its just a matter of finding the top of (C). And then the true cycle wave c down would begin in earnest and be a 5 wave structure down of 5 primary degrees forming a huge flat count.  Regardless though, my top alternate count would still have the market in a huge downdraft. 


IMPLICATIONS OF P[3] UP
The implications of a P[3] up are huge to say the least. Firstly, one would expect the size of a P[3] to be larger by a Fibonacci proportion to that of P[1] up.  P[1] up was some 553 points and since their proposed P[2] was a shallow correction of not even 38% (a characteristic that smacks more of a (b) or [B] wave not a wave two) we might expect that a P[3] would objectively already carry the market to new highs if wave [3] were greater than 553 points since P[3] would have started at 1010 SPX. Then we would endure a sideways (or sharp) wave four and then a P[5]. How long would all this take?  2 more years?

CONCLUSION:
I do not support the P[3] up scenario. It just does not fit well into the longer term wave picture.
Another possible way of labeling an extended wave five count:
[Update 2:56PM: The DJIA is probably giving the clearest wave picture of the past few weeks.]
[Update Sunday 9:41AM: yet another P[2] high flyer that may be showing cracks. NFLX printed a  potentially bearish weekly candle.  I won't even put a count on it, rather it just shows the parabolic move it has made in stages.
[Update 11:15: PCLN. Seems counter-trend so a double ZZ came to mind.
[Update 11:02PM By request, CMG. It too makes very nice waves.
ORIGINAL POST
Apple. More hedge funds own Apple than ever before http://www.zerohedge.com/article/q4-hedge-fund-hotel-update-apple-now-held-record-195-hedge-funds and it may mark the top tick month. Apple has a certain "rollover" look going about it at the moment.

You likely have all the retail on board the stock. You have all hedge funds on board and likely all institutional investors.  Can anyone else possibly pile in to drive this wave five higher? 
Proposed expanding ending diagonal in AMZN.
The next 2 charts are via http://www.sentimentrader.com  The first is a the NAAIM survey. These are active money managers and the survey seems to be a good contrarian indicator at extremes which it is currently.  

Additionally the red "confidence" indicator bars measures how much deviation between survey responses. The higher the confidence, the less deviation and an indication of "group think". The confidence level has now been over 50 for a solid amount of time.  

So taken the survey level very high along with solid evidence of bullish groupthink, we should expect the market is going to start struggling going forward.
Unloved bonds suggests they may get some attention sooner rather than later.
BPSPX all-time high. Again, the indicator looks like it has struggled the last weeks to get here. Sooner, rather than later, the market should be struggling to get higher.  
CRB
NASDAQ100
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