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Thursday, September 30, 2010

Elliott Wave Update ~ 30 September [Update 10:18 PM]

[Update 10:15PM: Actually, looking at the DJIA and Transports, I guess you can say there is a divergence at the moment that may fulfill a DOW theory bear signal.  Its not much to go on, but its something for now.  The DJIA chart still technically looks like it wants to rollover. Indicators support that notion for now.
[Update 9:50PM: The dollar doesn't yet look finished.  If I place the 50% Fib marker at the blue box area, it points to a lower target and no telling about time.  So the market may yet have a few surprises left until the dollar is ready to turn.

Combined with an uncertain count on the NYAD we have to see how the new month/quarter plays out for the first few days. There is likely to be a massive rebalance for big funds and no telling how that will get things moving. The NYAD needs certain pivot breaks to be able to get a better handle on its count or a reversal. Even today - a red candle day - had more advancing stocks than declining.  Sucking in bears one more time?

The other thing that bothers me as a bear is that the DJIA has retraced well above 78.6% Fib ( 78.6 = 10906). That alone *usually* means that it will head toward a 100% retrace. Although if you use EWI's orthodox wave 1, this is not the case so that alleviates some of that concern. But if the DJIA goes just above 11258, likely we will see a slew of divergences between indexes and maybe a major DOW theory sell signal (which I have yet to really see) in that the Transports do not make a new high above April and the Industrials do. That very much is in my mind.

These are the major things I ponder.  1) NYAD  (market internals)   2) DJIA has retraced above 78.6% from absolute price low  3) Dollar pattern (a strong dollar rally is probably paramount to P[3])

Resolving the dollar pattern is a major step. Unfortunately as bearish as sentiment is on the dollar, I cannot say it has bottomed. We are close yes I suspect but there has yet to be 5 waves up indicating reversal.

The next 2 days (Friday/Monday) will go a long way toward resolving a lot of markets).

As nice as it is to see 5 squiggles down on most every index, its still only an intraday squiggle count  No major support pivots were broken yet on today's market move down.
The indexes show 5 waves down but the dollar does not show 5 up. Its only three which fits my primary dollar count of wave [iv] of C. I need not even label them as you can see 3 waves up from the low. That is corrective which means the dollar has likely not yet seen its wave (2) low.
Pop to 1157+ bearish reversal with a clear 5 waves down on every index.

You can see 5 waves down on each index here. Also as a bonus, a 3 wave counter-rally.
 DJIA shows more of a wedge action than a triangle pop
However the SPX shows a triangle pop and perhaps reversal. The reversal went deeper than the "e" so that is a good reversal so far.
And as I first showed this chart back on Sep 15th,  t there is a certain equality in the bounce since the July low. EWI caught on to it and basically had this same graphic presentation on their update last night.
DJIA longer term count. The retrace hit a blue box virgin wave area (which I never expected) yet doesn't surprise me I guess.
Many of the parabolic stocks showed signs of cracking today. Here is NFLX on a big red candle with volume. See last night's chart for overall count
The NYAD is looking wedgy.  It could be that the SPX price high shall occur on Minor wave 3 of (5) of the NYAD count much as so far the SPX P[2] high has obeyed the NYAD wave (3) high. 

So something to watch for is perhaps an NYAD move down to the lower channel line (from the March 2009 lows) and then a final spasm higher.  The SPX may diverge at that point and not make a new high. 

So that would translate perhaps into a move down under (maybe to 1100?) to cover the massive SPX gap at 1125-1131 and then a spasm higher for a bit back up deep which produces new highs in the NYAD (and counts as wave 5 of (5) of [5] on the NYAD) but the SPX does not make a new high above 1157. That is one scenario that would fulfill the NYAD count for now. Just some thoughts on this, we'll see how it plays. 
I'll have more charts later as I have a chance to look at things and the data rolls in.


E-minis do not have the same pattern as on the cash SPX. Good luck.

Wednesday, September 29, 2010

Elliott Wave Update ~ 29 September

The SPX waves over the past few days have formed an ascending triangle.  The only requirement if its not a false triangle is that a new high is coming above 1150.

Any high above 1150 would fulfill the "target".   If the market breaks upwards over 1150, 1158 is first target where [c] = [a] in the SPX from the 1010 July low.  It can be argued that the width of the triangle would put the target at 1175ish, or next major pivot resistance.
Just throwing another chart that pretty much shows the absolute weirdness the market has found itself.  NFLX, the HFT plaything.

I propose when all these parabolic stocks come back to earth, the market will go with it.  Its in a 3rd stage and doing the moonshot.  


Still have not reached the Sunday night peak
5 small down on the dollar I have as near the end of [iii].

Tuesday, September 28, 2010

Elliott Wave Update ~ 28 September [Update 7:47PM]

[Update 7:47PM: I should have realized that the great rally from March 2009 was going to produce its share of parabolic stocks.  The 2000 top had its share of course. The 2007 also had a big share.   So not to be outdone, we again have a slew of stocks that have gone stratospheric.   Bidu is perhaps the golden boy. And a "China play" to boot.

According to K. Denninger, stocks run up in parabolic rises in a 3 stage advance with each angle of attack getting steeper.  (I wish I had understood this 3 stage profile last year) And BIDU fits that profile.   The downside can be swift at times and brutal. Think OIL in 2008 which was merciless in its retrace downward.

BIDU shows the old adage " a kid with a ruler" (can make a million dollars). The HFT machines are like a bunch of kids with rulers at the moment.  But all things end.  When you run out of greater fools....

By the way BIDU is expected to "earn" .42 cents next quarter.  And pre-split, BIDU hit the nice price of $1070 today. Yes you got that right!  106 P/E and counting.  By the way even at $50 its P/E may still be north of 50.

Can it churn to $200?  The chart and theory of a 3 stage parabola suggests no.   The 3rd stage is now in play. Exhaustion will eventually set in. Reality always returns some day. That some day is likely growing closer.

Today's candle is perhaps the beginning of the crack. Apple also showed signs of cracking today.

When all the current parabolic stocks crack for good and reverse, its a sign things are ready to get bearish, perhaps P[3] bearish. Same happened in 2000, same in 2007, why would 2010 be any different?
[Update 7PM: The wave structure of the dollar doesn't quite look finished. I think we're within 8-10 days of a major bottom. Certainly sentiment is very low.
The blue shaded area would be roughly the midpoint of the wave structure down. That projects to a 78.22 target or C = .618 x A. Where will equities be by then? Hard to say. But the big moves down on the dollar should be waning. Yet we likely still have wave [v] to go.

The "control" for this count would probably be the peak of black iv.
New intraday highs on the SPX and DJIA and Wilshire but not the NASDAQ.  Weaker and weaker up volume ratio suggests the market may be ready to roll over soon.  Thats the probability.

A look at the DJIA looks like zigzag(s) pushing up which means its lost its impulsing characteristics for now which could happen at a major rally top. We'll keep throwing out squiggles until something sticks.

On the SPX, we have [c] or [y] = [a] or [w] at 1158.
The Wilshire has formed a solid upper channel trendline that it has obeyed. For now at least, there is some similarities between the April market peaks and what is occurring now.   Once there are no more buyers, well what do you have but HFT's and Primary dealers churning to each other?  Creating a no-bid situation again is my estimation.

Note the waning up volume ratio bars over the past 4 weeks.

The higher this sucker goes, the harder the fall.  When GDP prints near zero or negative and shows no signs of moving out, there could be a mad rush out the door. Remember the psychology of the first push toward 1200 is that the economy was in a "V" recovery and warranted the sharp rally.

Now the psychology is squarely "The Fed won't let this fail" which is quite a different mentality than a "V" recovery. Its what I call the beginnings of the recognition of the Ponzi.

I have a theory on why the market will crash despite perhaps a bearish tilt of most who participate. Its called Ponzi psychology.  When a Ponzi scheme is recognized to be such (when it receives its "moment of recognition"), sentiment toward the scheme goes 100% negative. Yet that overwhelming negative sentiment does not result in a "surprise upside".  In Ponzi psychology, money is pulled despite overwhelming negative sentiment.  

So in a way, having a "last resort" mentality that the FED will monetize all and not let the house of cards fail is the beginning steps toward this Ponzi psychology moment.   Everyone and I mean everyone now knows and says openly that the debts will never be cleared or repaid.  Thats right. The FED will never be able to safely clear their debts. Whatever happened to the "exit strategy" that was all the rage earlier in the year?  Now they are doubling down despite a "healthy" market! And of course it goes without saying that the US Treasury is terminal.  

No one will dispute that (but oddly its still pushed to the back of our minds). That was step one of the Ponzi Awareness.  Step Two is that the FED, Congress, and US Treasury will actually try and openly perpetuate the madness to infinity. That step is slowly coming into being as we speak.

Step three is when we realize that the Ponzi will fail despite(or because of) the Fed's efforts.

Afterall, cold hard cash is still likely to be the exchange medium of choice. A piece of paper saying you own 100 shares of Netflix won't buy you any ammo in a back alley.  A piece of paper saying you own someone's debt probably will not be any good either. And a piece of paper thats says you own Gold ETF will be viewed with as much skepticism. (Of course physical is a different story).

After all its now becoming a matter of faith. And oddly as much as they try and destroy the US dollar, the opposite effect may happen.  The only faith left will be what we can hold in our hands. And a wad of Ben Franklins still conjures up greed, desire and a feeling of safety and power.

So I propose a break in faith by the endless Ponzi nightmare will result in risk assets being dumped first for cash.  People will not suddenly look at a Ben Franklin $100 notes and make the determination its not worth anything. Rather they will view other illiquid assets as a burden.

So a break in faith should result in mankind resorting to a basic unit of cash that is still ingrained in us. At least at first during any panic.  Maybe down the road in years time that will change.

But for now, cash will be king. Thinking the market is a "win-win" due to FED perpetual backstop is just retarded.  For us little guys, we can pull our measly shares quickly. But those who have billions and billions is like trying to move a dinosaur. Someone is going to get hurt.


Monday, September 27, 2010

Elliott Wave Update ~ 27 September

With the new high today, there are enough squiggles to call Minor 2 complete.  Whether the market wishes to extend further is up to the market of course.  DJIA retraced 76.6% just shy of the 78.6% Fib marker which is 10906.

The SPX shows an ending expanding diagonal triangle count much like what occurred at the April market peaks.  This is the most difficult count that the market could possibly come up with to disguise its intentions. I happen to believe its intentions are a dramatic reversal erasing all gains above 1100 SPX.   A rapid price move back below 1100 in a few days (wiping out 15-17 days of advance) seems to be the way things are done in today's casino market.  Why would this be any different?

Note the alternate shows yet another spasm higher (just like the April highs kept spasming as many times as it needed).
Long term DJIA count. Its a bit different then my other indexes.
Look, if things change, we'll adapt.  But at the moment you can see a pretty decent 5 wave leading diagonal and a deep 3-wave retrace per EWP theory.  If its looks like a duck, I'll call it a duck for now until it no longer quacks. Its still quacking at the moment at least...


Euro chart finally reached 50% retrace.  Looks like a big ABC.

Saturday, September 25, 2010

Weekend Charts and Stuff [Update Sat 1:30PM]

[Update 1:20PM: A mere smattering of stocks that can be argued are in the parabolic stage of a 3 stage rise. And yet despite this, the market has not yet revisited April market peaks.  What happens when all these "pop"? The main idea is that when the mania on each of these comes to an end, they will go bust much like all the rest that have done so over the years.  On a spilt-adjusted basis, BIDU is trading near $1000/share.  P/E 102.  EPS: A whopping 96 cents/share.  Nothing changes folks. ]
Sentiment in the dollar is low. But it could be missing the final subwaves.
Challenging the top of the flash crash candle but its flanked by a resistance ridge. Note the subdued OBV.
The Nasdaq may be the last index running in the end. 
Pushed out Intermediate (1) to May 2011.  13 months. New Congress coming.  Positive for stocks? I don't see how.  If anything we will get a high level of gridlock and every administrative and Fed move will be more scrutinized.  Social mood demands it.
VIX weekly at long term RSI support.
Courtesy of Sentiment Trader showing the AAII 4-week moving average. The way the week ended, there is a good chance AAII will have even more bullish numbers out next week.
Here is another interesting chart from Sentiment Trader for those who have a very long term perspective. This is something Prechter would argue in that bear markets don't end on a high amount of "Hold" ratings.  Bear markets end on a high amount of Sell ratings.  At the 2009 low, the amount of Sell ratings did not even match the 2002 mark. Even the amount of Buy ratings may be high considering it could go well below 10.

So what would I expect to see with this over the years to a true bear market ending? For the BUY ratings to go even lower, sell ratings to go much higher. The Hold ratings are likely peaking and will begin to turn down and start to feed the sell ratings, etc.
Another look at NYAD. This chart has kept me sane lately in that I realize it must finish "playing out".  Finally a crack on Friday's move up.  We'll keep an eye on this thing.

Friday, September 24, 2010

Elliott Wave Update ~ 24 September [Update 5:30PM]

Update 5:30PM: It seems as if there is a bit of "performance" chasing going on. Seems thats why the NDX100 is getting a lot of action as it "beats" the SP500.  This is shaping up to be one of the greatest quarters so if your a fund manager, you had better be with it and have caught it.  Jobs aren't expanding in that department.

But what a brilliant way to herd the entire market into a corner than to see all performance-chasing for the last week(s) of September. If only they can make it to the finish line in one piece.  With an all-time mutual fund cash low of 3.4% (probably lower now), it seems we are about getting to the "ALL IN" point.

If the squiggle count is correct in an ending diagonal triangle, prices could collapse, as a start, back under 1100 SPX (under the starting point) rather quickly. I'd laugh my ass off if next week through Thursday (after a Monday pop) was a barnstorming 3 down days. I'm talking at least a 50-60 point correction.

Well, the market is herded into that spot for sure. And wouldn't GS like to just screw over everyone chasing performance for an entire quarter only to see the last few days blow up spectacularly?

Well its a thought anyways....

Update 5PM: For once the NYAD is not leading prices. Albeit it is only one day thing for now but still...]
Lots of stocks going parabolic.  Nasdaq 100 seems intent on making a new high above the April 2059 peak. We'll see. Closed at 2023.  In 2007 the Nasdaq as a whole peaked in November versus October for the S&P500 and DJIA. Although I don't expect the NASDAQ to make higher highs above April, the NDX seems doable certainly.   Afterall, the NDX100 diverged from the NASDAQ at the March 2009 lows by a squeaker and may do so here too.

DJIA  has resistance coming at 10900 and the 78.6% FIB is at 10906.

The SPX may be playing out in an expanding ending triangle such as the one that occurred at the April market peaks. 1158-1160 would hit the uptrend channel line and where [c] or [x] = [a] or [c] for Minor 2.

Squiggle count supports a burst above 1150 and then I could suppose a massive drop off. I'll go into Monday with that attitude anyways.
Has room to the parallel upper channel line. 
NDX doesn't have any good impulse count down from peak or even what can be called a leading diagonal (as I am calling the major indexes).  If it continues to power to a high above 2059, its going to be very extended to say the least.
Squiggle count. I'm using the expanding triangle shape. Thats the same playbook I used to navigate to the April peak. It worked fairly well then so we'll go with it for now again and see what happens.

E-minis [Update 3:15PM

[Update 3:15PM: We'll just keep throwing counts up here until something sticks. Read Karl's post today to reflect just whats happening.   Things are getting squirrelly.]

Gaining ground overnight and holding key support.

Thursday, September 23, 2010

Elliott Wave Update ~ 23 September

1148 is looking pretty good as the top of Minor 2. Certainly we have more than enough squiggles to make it so whether you count the move from 1039 low as an (a)(b)(c) or a 5 wave structure.
I like the ABC down 3-3-3-3-3  feel (leading diagonal off a major top) of the move from 1048. It smacks of a transition phase which is like a siren song and before you know it, the market is down pretty decently even though it didn't feel so. Minor 3 down doesn't have to announce its beginnings in a loud way. Preferably it hums along luring in enough suckers to make believe all is right with the world. Gaps get covered, etc.
Keeping it simple we have a 3 wave, near-perfect ABC structure from the 1010 low.  Prior to that we can either count a 5 wave leading diagonal (DJIA and NASDAQ) or using EWI's count as a double three has just finished playing out for a complex Minor 2 corrective.

Will we have a last-ditch surprise move up? I won't rule it out, but it would probably come off as an act of desperation.  But, I mean c'mon they were complaining that S&P500 was priced for 4-5% growth at SPX1200. What the heck are they saying now? Oh? They are silent? Why is that?  Is there a massive disconnect between $300 Apple and the reality of the average household balance sheet?
Loss of 1130 support is not inspiring.

Ok what is BB's exit strategy again? He might want to have one.
DJIA has retraced some 74% which is quite deep.  Need we expect any more upside for a Minor 2 interpretation?  Obeyed the bear line from the 2007 peak. The downturn of the last few days has converted this bear line into a 3-touch trendline.


Total decline from the top doesn't stack as impulsive unless viewed as a series of complex 1's and 2's. 
Selling came from the trendline break.