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Friday, June 28, 2013

Elliott Wave Update ~ 28 June 2013

Today's bearish price action in the last 30 minutes of trading has been a continuation of a trend of selling into strength that has been occurring according to Sentiment Trader's "Smart Money Index".

Their explanation is as follows:

"The idea behind this indicator, popularized by money manager Don Hays and existing with many variations, is that emotional trading takes place at the beginning of the trading day (as traders react to overnight news event and economic releases) while the "smart money" takes the day to evaluate price action and input their orders before the market closes. 

Due to that assumed tendency, we want to bet against the opening action and bet with the closing action.  The way we calculate the index is to subtract the performance of the S&P 500 cash index during the first ½ hour of trading and to add the performance of the S&P during the last hour."

This chart does not yet reflect today's price action, but you get the idea: The SMI has been declining quite persistently since July of 2012!
So the nightly futures ramps has allowed big money to "sell everything that is not nailed down" during the course of the normal trading hours.

The wave count:
Weekly shows a "backtest" (and perhaps failed) of the up trend channel.
Amazingly, on a monthly time scale, the market is still very much in overbought territory. Note the double negative divergence of the RSI over a period of 15+ years.  And since we are looking at a monthly chart, this would be a valid technical observation for such a timeframe. Also note the drop in volume since 2009.

(By the way, its the first monthly decline in 9 months!)
And finally, all the Federal Reserve members have been out there "jawboning" for the past week since Bernanke hinted at tapering.  Some have seemed incredulous that the market "over" reacted the way it did.  The hubris of them all is telling. That they think and talk about how they should be able to control rates or markets is a bearish signal.  The Fed is the biggest player yes, but the world markets still dwarf them overall.

30 year bond prices. I've had this wedge shape for many months on this chart.  Yes sentiment on bonds are low, but we all know there could be a "panic" bottom yet to come. Has there yet been a "panic" in bonds?  
This Gold chart, which I have had in place for a long time, looked ridiculous just not too long ago. Yes it held up longer in a great distribution pattern, but eventually broke down. Sentiment is again low as in bonds. 

The paper gold price is leveraged 100:1 perhaps.  Why wouldn't it suffer as anything else?  Can you redeem a gold ETF for physical? No of course not. So what makes it any different and subject to price delcine? Gold is also subject of random government confiscation and price controls.  

Hypothetical scenario: Lets say you bought 100 ounces of physical gold at $1800 = $180,000. Now lets say Gold eventually goes to $500 in a deflationary collapse and the dollar index soars to 200 (lets just say double at 160). Your gold will be worth just $50,000 in nominal terms and only $25,000 or less in real terms.  

And god forbid if the government then wants to confiscate it.  At that moment in time, you're not a happy camper huh? Refuse to turn in your gold and you may be branded a "criminal".  Gah!

I love physical gold but the odds are always stacked against us. The little guy never can seem to win. I am not trying to talk anyone out of their investment either physical or either paper!  I am just saying, what you cannot imagine could happen, and may indeed happen. The wave count suggests a major [A]-[B]-[C] decline is on the way.  And if you can ride that out, I commend you.

For it is in the future hyperinflation (after the credit collapse) that gold should really shine. But again, it may be outlawed by then.
Dollar is still poised for a surprise rapid advance upwards. It too has been lagging far longer than originally thought. But sellers seem to be exhausted.  A Google websearch for the term "destroy the dollar" gets 23,400,000 returns. Its not dollars that will get destroyed first, its the bonds that are backed by dollars.

Bonds would sell first wouldn't they in a credit collapse? It always seemed so obvious to me. Yes, at some point the dollar will be deemed "just paper" but before then, bonds are just promises of paper. We need to go through a deflationary credit collapse first.  Dollar should reign supreme during that collapse. Only after the collapse is "complete" will they be able to produce hyperinflation, and that seems a long ways (years) off.



E-minis


Thursday, June 27, 2013

Wednesday, June 26, 2013

Elliott Wave Update ~ 26 June 2013

Just one chart tonight is sufficient. The beauty of EW Theory is that it is a logical theory when all is said and done. You can almost break down the wave counts in a series of "if - then" logic statements.  This approach allows us to take some of the emotion out of analysis which is best.

Wave counts have rules and strong guidelines.  A 5 wave move is an impulse and a 3 wave move is corrective (to the next degree higher trend). So far since the 1687 top, we have what appears to be a 3 wave corrective so far. However...

The beauty of this logic is that if this decline morphs into what we think will be a significant wave down (and hence a historic top had been made), then this apparent 3 wave corrective (so far) must be a series of 1's and 2's waves down. Which also implies the market has not yet seen wave (iii) of [iii]. This is EW theory in a nutshell. Either it is to be, or isn't.

With that said the market's underlying technical's and fundamentals have "changed" significantly since any correction since the 4 year rally.  Credit markets are stressing (China) and bond markets are taking a hit. The dollar still refuses to be a whipping boy of the Federal Reserve and is stealthily gaining strength. Just as bonds have now suddenly garnered everyone's attention, the next panic selling should see the dollar come to the forefront of investor's attention.

This daily chart shows the wave structure. Is there a backtest coming to close the gap down from last week?  It could happen and it would fit nicely into the bearish count. Its doesn't have to happen of course but we all know gaps that size tend to be filled or at least challenged.
Good luck with any short term trades, being a bear is never easy in a bear market of cycle degree.


E-minis


Tuesday, June 25, 2013

Elliott Wave Update ~ 25 June 2013

Squiggle counts are a little murky. The futures chart shows that the rebound so far has taken the "look" of a choppy overlapping affair which indicates a corrective wave upwards.  Not yet 38% either.
Cash index SPX also shows a choppy upward wave so far which looks corrective at the moment. But it may not be finished.  But there are too many variables and this is just a "gee whiz" chart. I don't really like the count. But it did fill the gap down from yesterday.
 However if this is subwave (ii) of [iii], the retrace has not been very high at all  It should ideally go higher. Today was a fairly strong day technically with 87% up volume ratio on the NYSE so I would think there should be some more rallying just based on that.  The wave count would look better if prices went higher in a subwave (ii) of [iii]. There is that large gap down also.

 
CPCE: Not extreme yet.
Wow rates are taking a beating. Smashed through nearest resistance. Technically speaking, there is no reason why yields wouldn't eventually get to the next higher resistance. Things are getting interesting. However sentiment on bonds is getting extreme in the short term so nothing is ever a straight line.


E-minis


Monday, June 24, 2013

Elliott Wave Update ~ 24 June 2013

[Update 9PM: MUB selloff on heavy volume]
Not good.

Another heavy down session on higher volume. Down breadth has been significant and has "changed" the most since anytime since the 2009 low.

Note the 3 stabs under oversold lately (Blue Circle). We haven't seen that since the rally began. The nature of the market may have changed to "bear".
Squiggle count:
Daily shows heavy volume again. Clearly the next horizontal support level can be seen at 1536 SPX. Would also correspond to a down trendline touch.
6 month yield count is perking up as suggested last Friday:
I really like this BPSXP chart also. Broken trendline.





Friday, June 21, 2013

Elliott Wave Update ~ 21 June 2013

Squiggle count has (i) of [iii] low today. Could be a bigger bounce next week forming subwave (ii).
Daily:
SPX Weekly:
Our 6 month yield may have bottomed in a multi-month wave (2). I'm looking for a move up in short term yields and a breaking over of resistance. I realy like this chart and wave count.  A spike in short term rates I would imagine catches everyone off guard.
 

E-minis


Thursday, June 20, 2013

Elliott Wave Update ~ 20 June 2013

NYSE internals: 95% down volume ratio and 95% decliners versus advancers. NASDAQ averaged 89% and 84% respectively. Some ugly internals all-around.

Trendline and horizontal support broken solidly on heavy volume.
The up channel was solidly breached. Wave [iii] down looks like a good count at the moment. Previous wave 4 (1536 SPX) is a wave [iii] target for starters. One can see the support and pivot at the spot. 
Squiggle count. Big gap down. Breakaway gap that doesn't fill? We'll see what quad witching brings tomorrow.  Could get an oversold bounce but as EWI has been pointing out lately, NYSE TRIN closed below 1 today (.93) which could indicate that buying power was expended in trying to stop the decline.  Yet the DJIA was down 350+ anyway.  Overall thats not a great sign of a near or medium term bottom. 
Intraday it may bounce in a wave (ii) of [iii] due to extreme rate of change in volatility but again, things are getting interesting.
Treasuries are selling also. This was predicted that both stocks and bonds would sell in cycle wave c (and the dollar being the sole benefactor). Its early in the decline of proposed cycle wave c yet  heavy selling in bonds and stocks has occurred already.
Tonight's AAII bullish ratio via Sentiment Trader:

Hardly a washout in bearish sentiment although today's numbers were not factored.
And the "smart money" index hasn't yet broken its downtrend which usually occurs before prices turn up.
Stock/Bond ratio as of today:

E-minis


Wednesday, June 19, 2013

Elliott Wave Update ~ 19 June 2013

http://www.zerohedge.com/news/2013-06-19/bernanke-soaring-interest-rates-we-were-little-puzzled

Bernanke is an idiot. The more I listen to the guy the more I realize he truly doesn't have a clue. They actually believe that supply and demand is the driving factor for treasury prices and thus interest rates.  I say even if the Federal Reserve buys 80% - 90% of the supply, the remaining 20- 10% on the free market will doom the Fed nonetheless.

And can the Fed possibly buy 100% of the bonds issued by the Treasury? Of course not!

Simply put, the Fed is trying to "corner" the credit market. When you think about that, its insane.

At any rate, here are the squiggle counts. Short term a leading diagonal followed by a choppy (a)(b)(c) with wave (c) as a possible ending diagonal.
Rates hitting resistance? No matter. Rising rates is not a good thing. The amount of debt would be simply unserviceable at higher rates. There is no escape.
As and example of collapsing real-time social mood I present Real Clear Politics' Presidential Job Approval
I don't need to label the chart as one can see an impulse pattern to the upside in the disapproval ratings.

E-minis


Tuesday, June 18, 2013

Elliott Wave Update ~ 18 June 2013

Rebound takes the form of a "three" so far on the daily.

E-minis


Monday, June 17, 2013

Elliott Wave Update ~ 17 June 2013

I will assume the market intends to get higher than 1648 in a Minute [ii] wave.

E-minis


Thursday, June 13, 2013

Elliott Wave Update ~ 13 June 2013

Well, one thing we can say is that trendline - the bottom channel line - seems to be important having very exacting touchpoints.