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Saturday, May 8, 2010

Weekend Charts and Stuff [Update Sun 8:15PM]

[Update 8:15PM: Obviously with the futures being so bullish and the NYMO so oversold, we have to be thinking wave [c] of 2 here and probably not (e) of [iv].  The blue box is the minimal target zone for wave 2.]
And the Wilshire squiggles shows the steep downward trend line that will be leapfrogged over. These squiggles look "small" but in reality they are huge moves. For instance just a surge open up to (d) is over 200 points and some 20 points on the SPX. This is why we count the squiggles because 2% market moves up and down every hour or 3 is worth plotting.

Should the SPX move to 1150 tomorrow would be a 3.4% rally. And 1160 is a "normal" 61.8% marker. That is a full 4.3% rally yet would be under major resistance even after all that...]

[Update Sun 6:15PM: 20 point gap up on Sunday night. Going to be a weird week to say the least. For the triangle to remain valid, 1129 is as high as an [e] wave can go

[Update Sun 11:40PM: The NYMO is at its second most oversold reading in history. The other of course was the Oct 2008 plunge in a 3 of (3) low.  For this reason alone, the historic odds favor that we bounce hard to shake this indicator out some and head back up in a violent wave 2. Wave 3 of (1) will then only occur when it is ready.

But the caveat is that perhaps the NYMO is headed for even deeper oversold before a bounce. Some extreme events have already happened this past week so using one indicator alone is chancy. However when viewing the wave structure, it appears a wave [iv] will break down into a [v] of 1 and then the wave 2 occurs.

So that is the best wave interpretation for now. Wave [v] of 1 finishes out and then a violent wave 2 to shake out oversold conditions. Wave 1 may end "truncated" because the plunge of May 6th certainly qualifies as "too far, too fast".

[Update 3:50PM:  Update to the update: Just to be clear, I don't think the post-Lehman path will be followed here in that the market will struggle for a few more days and then drop very hard. I am saying its possible but I rather favor a wave 2 Head and Shoulder pattern as outlined earlier in this post.

I am still amazed at the similarity in the Wilshire of where it has reached and the way it broke down so far.  Superimposing candles next to the 2008 Crash is interesting at this point. The bounce on Thursday was a full 42% retrace which is starting to wander into potential wave 2 territory. Much like it bounced in 2008 after the initial down candle of 29 September.
Personally I think the NYMO needs to correct back toward zero a bit first but there is no "rule" for any TA. P3 will create its own TA rules. At any rate, this is why Prechter recommended go short and hold. These bear moves happen so fast, that it is hard to mentally position yourself for this even if you think you can.

How many would truly profit from a crash like this? Not many. Bull nor bear.

At any rate, the similarity of price levels and failure points doesn't seem like an accident.

I still believe Intermediate wave (1) will lop off most of P2's rally and leave most everyone in shock. How it actually unfolds will be interesting to say the least. But the opening shot was rather rude to the bulls yes?
[Update Sat 2:30PM: In the 1990's the "Asian Contagion" was the "cause" of some scary market drops. In 2008-2009, it was largely U.S.-focused.  It appears to be Europe's turn to lead the cause.

The French market is in bad shape and has almost officially entered bear market territory (20% loss) and has lost some 18% of its total worth with its Friday low. President Sarkozy is running scared and making threats. This always happens nearer the end of a market wave move lower.
The CAC has retraced a full 45% of its 2009 rally.

The CAC is oversold but yet you don't see any wave four action yet.  Resistance has likely set in overhead too at multiple levels.  Do you think Sarkozy can "jawbone" the market higher? I doubt it and if he can it will be temporary at best. It will turn up when its ready.  He could of course ban all shorts which will undoubtedly cause a massive wave 2 retrace spike but even that will in the longer run give way to a hugely dangerous situation of no liquidity in the markets and cause even a BIGGER down wave to compensate.

The Politicians are determined to never let the markets collapse again. That is pretty much official policy.  Obama's himself is foolishly fanning rumors of why a market may have dropped 1000 points They are fools!

The greatest lesson they have learned about Thursday's drop is that they cannot unplug the machines! They will find that stopping trading on one exchange or "slowing it down" and turning off the HFT's will cause disruptions to liquidity. This may be fine if the market is in a bull mode and their are bids to be had, but the market found itself bidless because the relentless rally is exhausted! Shorts were lacking to provide liquidity because the shorts have been run out of the market!

But you cannot keep it there if it doesn't want to be there.

It gets back to the paradoxes, speed and surprise I have talked about before. This market has boxed itself in. The more they flail and "blame" whoever or whatever, the more they will look like bumbling fools. 

Was the CAC drop manipulated? No!  The market wants price discovery! The debt problems reeks of Ponzi schemes. Proof? Spain lending money to Greece. US lending money to IMF to lend to Greece.  Both are hopelessly in debt. Bank balance sheets are horrible. Proof? Bank failures every week like some macabre clockwork reveal 30-50% asset impairments.  68 bank failures so far this year.  They dribble 'em out every week hoping that over time all will be well. Well, the market doesn't work like that.

Why wouldn't we assume the big 5 banks aren't the same? We all know they must be or they wouldn't have invented "off balance sheet" rubbish games.  The market will move to effect price discovery on those big banks.

The ironic thing is we have the biggest "price discovery" staring us in the face day in and day out and its accelerating the the upside It is beyond control anymore. The Fed is running a Ponzi. Weekly rollover of debt may become a problem

Ultimately the market will move to correct that imbalance. Indeed it has likely begun. We are likely witnessing the bursting of the Great Credit Bubble yet we don't want to believe it. This is what P3 is destined to do. There will be no bear market bottom until the debt clock is unwound and all excesses have been corrected.

Its all a mass psychosis madness yet people like me presenting Nature's laws as simplistic and unyielding will be vilified as the crazy one.

In 25 years time we will of course say "What were we thinking?" Of course it was a world was gripped with a madness and of course it was unsustainable. They continue to lie to us and we don't like it one bit.

Every politician or market watcher seems to believe that there is a human "confidence" factor at play. Yet the governments and banking powers, through their moral actions hazards and corruption has broken a lot of that confidence.  Of course I believe in Elliott Wave theory which explains that nature has natural mechanisms for dealing with social excesses. And the top of a Grand Supercycle Wave III definitely has all the signs of extreme social excess, fraud, corruption, speculation and a casino mentality. Nature will of course correct that situation through a bear market that will expose the fraud and shine a light on the corruption.

The people in power do not like that. They will do everything they can to prevent that, but the market, or indeed social mood, cannot be corralled.  The market always wins in the end. The market is always correct.

[Update Sat 10:30 AM:  Pushing aside EW theory and viewing the historic market drop of May 6th, one has to come to the simple conclusion that the path of least resistance is ultimately down.

The 1000 point day produced a very long candle and has virtually reached a neckline of a potential massive head and shoulder pattern. Normally that neckline is defended at least once.  If it was defended twice it would be a wave 2 flat. If it had a [b] "false breakdown" it might be an expanded wave 2 flat.

Below would be an "ideal" EW pattern of a Minor wave 2 forming a massive right shoulder.  This is neither a time nor price prediction, just what an ideal wave might look like.

The reason I say this is this huge down candle has a decent chance of being defended heavily by the bulls.  You can also see that we have reentered the trading range area of October to early March. So by June, the bulls will be again confident that it truly was a "fat finger" and that the market wants to go up.

But the candle has produced massive technical damage. The extremely bearish market internals and down volume is not easily re-taken.  Many compare previous drops to times in the past but you have to compare internals also. And these internals were near historic to the downside.

Well one can say "the down candle in early February was retaken and it had bearish internals" Yes that is true it did but that candle was not as long nor nearly as much total volume and indeed the market had already dropped well before that. It was arguably an "ABC" pattern and that bearish candle produced positive divergences.  At any rate, it still  took 5 days of tough consolidation for the market to deplete the selling and start another uptrend.

Even the lower 3/5's of this candle's trading range is large 1065-1135 is 70 points so its going to be a tough slog if it plays out as I have presented.  The market(s) are reaching way oversold (look at the French CAC).

Now here is the disclaimer: 
This is, in theory P3 and it is a historic wave and will produce historic moves.  So the market will move in its own way and own time and even though we are oversold, as some like to point out, an even (greater) crash can happen from oversold. So again, I don't know what will transpire but I do know that reconquering this 1000 point down candle is a tall order for the bulls considering the market has already rallied 13+ months and at a record pace.

Exhaustion happens and this is solid evidence the market's P2 rally is truly exhausted.
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