Wednesday, September 30, 2009

Getting closer...

This morning's price action got me a bit excited when we initially sliced right through the support line with hardly a 2nd look (and on very high volume), but the bulls stepped in and grinded it higher nearly the rest of the day until the volume came back and pushed it lower.

I was able to eliminate my original bullish count as things were not 'acting' like a 3rd wave at all. Especially when you consider the regular bullishness that accompanies the end of month/quarter, and the bulls couldn't do it. So that leaves me with a new bullish scenario: the B wave triangle.

In this scenario the bulls have one more higher high to go before the current wave pattern is complete. Will it be primary wave 2 top or another 'x' wave, we won't know until we see how the move off of the new high goes. But one thing is for certain, triangles form at the end of a move and their reversals are nasty. Based on the size of the current triangle, the follow through to the upside should be no higher than 1095. The only EW requirement is a higher high. Look for a move above 1065 to get things going.

This bear chart shows that even with all the bullishness at the end of quarter and the key support line, all the bulls have been able to do is wind up the price action for a very nasty drop. Will it be the dreaded 3rd wave or just another C wave, we will see, but certainly a break of this trendline will cause a run on a number of stops that should trigger more selling. Look for a price below 1045 to get things going.

I'm looking forward to seeing where price opens tomorrow.

Tuesday, September 29, 2009

The choices narrow...

Today's price action acted exactly as expected with a completed 5 wave pattern. Support held in the area of the previous 4th wave (a good rule of thumb), but the move off the low lacked the conviction we would expect at the start of a 3rd wave. With that said, we should see a move to lower lows tomorrow morning (unless it all clears out in the Asia/Europe sessions).

Whenever I look at wave patterns, I'm a firm believer that the simpler pattern must get the bigger weight. Since we just completed a five impulsive pattern, I will lean bullish in the move lower until we solidly break Monday's low (1047 area in the cash market). Doing this should break the trendline and load up the sellers. With the USD getting stronger, it wouldn't surprise me to see this trendline really break. If not, then we can feel content, that the end is near as we finish the leg of this 'C' wave.

Monday, September 28, 2009

Pattern Update

Well, one of the great things about EW is that you start with a list of probabilities and as the market unfolds you narrow your choices. So with today's advance on low volume, where do we stand?

Testing the 1000 area now has certainly been limited with today's price action. However, there are still a couple of scenarios that need to be considered.

First, let's attack the bullish formation and its implication on the pattern. We have so far a very clear impulsive move forming off of last week's low. However, 4 of the 5 waves appear to already be formed, and we've only reached the 61.8% retracement from the rally high. This is what should be troublesome for the bulls because past reversals were able to show much more strength this far into the pattern. Using our move to a rally high as our 'A' wave, and last week's low as our 'B' wave, I have shown several A:C relationships that could be in the works. With the amount of sellng that occurred near today's high and the lack of volume on the move up, we may be setting up for a failed C wave high. If the bulls are going to push the potential here, either wave 5 needs to extend or this move up is just a small wave 1 and after a minor dip we would see a powerful move to new rally highs by the end of the week. A move below today's low would move the pattern into the bear camp being confirmed with a break of last week's low.

Now, for the bears what do I see? We should test today's high tomorrow morning or during the overnight session. Once the test is in, we should quickly move to new lows and test the 1000 area by Wed.

Sunday, September 27, 2009

More Weakness Next Week

With the end of the quarter just around the corner, where will the market go from here. We saw one of the sharpest selloffs since the March bottom, actually since 4/20 to be exact. Now while the 4/20 sell off was immediately bought once it was over, we are much further along in this bear market rally then we were at the end of April. With that said, I definitely expect some follow through to the downside, but the pattern is open to a few interpretations (see various charts above) at this point. No matter the scenario though, I expect the 1000 level to be tested next week or the 1st week in October.

Timing the Turns

There are some interesting timing dates that you should also be aware of. This chart shows how most of the key pivots from the October top have tracked to a 14-17 week timing window with one 12 week pivot and one 18 week pivot. We just finished week 15 at last week's high. Even if it does not turn out to be THE high, it does appear that an important high has been made taking into account the price action since that high was put in. Should it not be THE high, I would expect another 3-4 weeks before the low pivot is put in for our next turn higher.

Bear Rally or Bull Market?
Now, there are more than enough bulls out there calling this a new bear market, that I want to quickly demonstrate why this price action is not impulsive (where we have finished waves 1 and 2 and currently in wave 3) but instead corrective (where we have finished waves w and x and currently in y). This first chart (below) compares the price action between the 1st and 3rd waves. What I did was draw a straight line from the low to the high and copied it to the low pivot on the 3rd wave. If this were a true 3rd wave, then most of the price action would be above of the line (having a steeper slope) and price should reach a much higher high in a shorter period of time.

To demonstrate this, I will compare two different 1st and 3rd waves in this bear market (of different degrees). Notice that in both of these charts (below), the 3rd waves were able to go further in a shorter period of time than their 1st waves. We are not seeing that now, and it a strong piece of EW evidence that this is primary wave 2 and not a new bull market.

Thursday, September 24, 2009

And I'm Back!

Wow, take a forced week off from the Internet world and you'll be surprised at how much extra time you have on your hands to do projects around the house!! Well, I'm back on line and after looking over the charts I see some very interesting things lining up:

- the VIX is once again trying to breakout of a bullish wedge
- the USD is showing some strength
- yesterday's stock market reversal came in area that is ripe for the end of primary wave 2 with a completed zigzag.
- we are in a majorly overbought condition
- the bullish sentiment is at levels that is consistent with what one would expect of a primary wave 2 top

So, I've put up a couple of charts with key levels. I am waiting to see how far we drop before we cross back over the 34 hourly SMA (currently at 1065 and falling). The past drops have been short lived before this was tested. If we can put some distance in here, then we know we have something worthy of the beggining of primary wave 3.

Friday, September 18, 2009

I'm Offline...

Due to a very unfortunate mixup on switching my phone service, I have lost my DSL connection and won't get it back until next Thursday (so they tell me). I guess I get a forced vacation from the market, but I'm afraid I can't do any proper analysis without all my tools and my phone just doesn't have them. Continue to watch the USD and the key levels I posted for signs of a more serious correction.

Have a great weekend!

Thursday, September 17, 2009

Right in the middle...

Well, we got our correction that I was looking for albeit from higher prices. The problem is that the bull/bear arguments have things I like and I don't from each. Here are the charts:

Bull Scenario
We finished the Y wave top today and also another X wave correction. Here's what I like about this scenario:
- The size of this X wave is identical to the last one.
- We get a clean test of the break out from the wedge.
- C=A*1.382 a common relationship during this bear rally.

Here's what I don't like:
- The impulsive move off of the bottom failed to clear the last pivot. If you've read my analysis enough, you know I'm leary of any impulsive looking wave that fails to clear the previous pivot.
- The dollar showed some strength today and is in jeoprady of breaking out of its bullish wedge. If this happens, equities will be weak tomorrow.
- All of the oversold indicators are there providing little reward versus the downside risk.

Here's the confirmation:
- We should see price break above the 1069 pivot high either in a gap above it or within the first 15-30 min tomorrow a.m.

Bear Scenario
We completed a larger wave structure (do I dare even put a primary wave 2 top - no way!) and will begin a test of the 1040 area. A solid break of 1034 puts the bull move in jeoprady and a break of 992 should seal it.

Here's what I like:
- Falling back beneath the breakout of a bullish wedge is Hugely bearish and should initiate all kinds of selling. The move down today was further than I expected and it left a nasty looking candle on the daily charts.

Here's what I don't like:
- The pattern is still 'open' if we are to complete a bearish impulsive move.
- Options expiration has been regularly bullish.

Wednesday, September 16, 2009

The bulls push higher

Today the wedge broke to the upside, but no sellers stepped in strong enough to start any reversal. With that being the case, I have now outlined a more bullish count that shows more upside coming. While we likely have some pullback tomorrow (either in the overnight session or in the morning), if this bull count is correct, then it should be bought again and pushed much much higher. There is still a mountain load of resistance between here and 1100. I'll let price lead the way.

If the bear count is correct, then tomorrow would be a sharp reversal day (not likely, but I leave it out there).

Tuesday, September 15, 2009

Was that the top?

Well, today's price action fulfilled all of my upside targets and patterns. The sell off at the end of the day also fit nicely in the puzzle. What we need now is price confirmation tomorrow.

So what I have today are the charts on lots of timeframes. We have divergences showing up across the board from weekly to minutes. We have sentiment indicators that haven't been this bullish since the October 2007 top. We have great news coming out almost every day; i.e. retail sales up, the recession is over, etc. and the market hasn't been able to get any momentum going. The bulls are sitting fat and content. The bears are nearly extinct. It seems like a perfect time to go 100% short. I will, however, won't be adding to my current short positions until I get price confirmation.

Here's the longterm chart with the primary wave 1 and (crossing fingers) 2 labels.

And the daily chart...

And the hourly chart. It is interesting to see a common relationship with these last waves of y=w*.382. The bear rally has seen a consistently strong first push (a & w waves) with considerably weak 2nd pushes (c & y waves).

And finally, the 5 min chart. So far a very clearly marked ending diaganol.

Monday, September 14, 2009

We got our **hopefully** last B wave

While the overnight session pushed the futures to the bottom range of my b wave target, the cash index landed neatly at the upper edge. While the market has now fulfilled all technical requirements of a final wave C (meaning a higher high), I'll be watching carefully to see how price reacts to the upper edges of the bearish wedge: 1050-1070. Any break below 1038 will be the first confirmation I'll be watching for. My 2nd confirmation will be a break of today's low at 1034. My 3rd confirmation will be a break of the wedge (currently at 1013 and rising), with my final confirmation being a break of our x wave at 990. Happy trading!

Sunday, September 13, 2009

Getting closer to a top...

Last week's breakout saw follow through up until Friday where a minor reversal appears to have occurred. I'm only excepting minor selling to continue on Monday morning before we begin our last move higher. While there was nothing in the charts to expect that a top was put in last week, any move below 1030 would likely mean that last week's top may be more significant. Until then I continue to watch to the 1050-1070 area and reactions off that area to give me confidence that primary wave 2 is in.

Thursday, September 10, 2009

Little weakness as the market pushes forward

While we never got out test of 1020, we did get a test of yesterday's low even though the market put in a new high during the AH sessions. That is a good reason why I don't put a lot of emphasis when counting 1 min waves as the bigger timeframes always trump them.

So, the question is now where are we in the bigger picture. It looks like we are making our way towards my previous 1050-1070 target. There is a lot resistance in the 1050-1055 zone, so it will be interesting to see what the market does when it gets there.

The chart looks like it completed another wave structure at today's high although which one is still up for grabs. I have a couple of my best counts depicted.

More Pullback tomorrow:
Today completed the first part of a zigzag and we should get a decent pullback but still should hold the 1020 zone, and then we march to new highs to my target of 1050-1070.

Little pullback before a new high:
In this scenario our pullback should be light (maybe in the 1030-1035 area) before we retest the highs in a wave 5 either completing the whole pattern or just the first leg in the zigzag. Any pullback from here should not break our rising wedge support line unless the move is over.

In the end, watch the USD. It looks like it may be making a finishing move in an ED, that its reversal will likely coincide with the market top. The VIX is also showing some major divergences, so that may likely be another leading indicator. Hang in there bears, the bulls time is near up.

Wednesday, September 9, 2009

We should see some more weakness tomorrow

After looking over the charts from several different perspectives, I can't help but come up with a completed 5 wave structure at today's high. The sell off that began at the top also sports a 5 wave structure (on the 1 min chart), so that means we should see some follow through tomorrow morning. If we don't see follow through to the down side, then the only other pattern I could come up with is an extending wave 5.

If we do see weakness tomorrow, then I expect the 1019 area to hold. If it doesn't, then we are likely looking at a failed wave C and the beginning of primary wave 3. If it does, then the market is looking at solid shot of the 1050-1070 zone.

I do want to mention that the amount of bullishness out there seems perfect for a top. Certainly with the gov't telling us the recession is over couldn't be a better time for a primary wave 2 top. But until price action confirms it, we still march up. Watching the USD is likely the key to the turn around. The low it put in today could very well be near its low too, which would spark a selloff in the equities. Watch it closely.

Mid day update

With the breakout on the SPX, it looks like we will be moving to new highs. It is important to note that participation in this last rally has been only by a few and not the masses as xlf and xlv are showing considerable relative weakness. This is common in the final move, so be aware of it. Buying should be strong up to a new high anywhere between 1040-1060. Should sellers come in and take this below 1020 before, then we are likely looking at a failed wave C.

Tuesday, September 8, 2009

Another no volume day...

Sorry another late post, but I just couldn't find the time to get to this sooner. The day brought in almost nothing of value as volume was even lighter than both Thursday and Friday. My only conclusion on the day is that we will break today's high since there were no sellers coming in an overbought market, so the big boys must be waiting for a higher technical level to sell.

Hopefully tomorrow will bring something of interest...

Sunday, September 6, 2009

Next stop...970

Tuesday is an important day as it marks the first day of the high volume trading. With summer behind us and the long holiday week, the big boys will be back and will put their stamp on the future direction of the market. September 1st was the highest volume day on the ES September contract I have on record. Thursday and Friday were both up days on pitiful volume. The last time volume was that low was 8/10. 7 days later the ES was 30 points lower.

But with the market very nearly off a technical cliff (see top charts), 30 points lower from here could bring an avalanche of selling, so we'll watch the developments closely.

The market was able to mess up my primary wave count (although when does this not happen?), so I have before you my next best counts:

This scenario shows the start of an a-b-c correction last week with expected downside action to end in the 950-970 area before the market moves to a new high. This would essentially make the corrective move into a triple zigzag and a projected top somewhere in the 1050-1070 area.

Either of these counts is bearish and essentially is setting the market up to move to new lows. The ending wave action will be impacted as the market will make a couple of 4/5 waves to make the pattern complete. In this scenario we should see persistent selling next week with an eventual break of both 970 and 950 for our early confirmation and a break of 870 for our final confirmation.

Fast your seat belts and keep your arms in the vehicle at all times. It should be a wild week!

Thursday, September 3, 2009

We're looking at our first w4 as a flat

When we burst lower today I thought for sure we had resumed our downtrend only see prices hit a brick wall near the overnight lows and the previous lows. From there everything is tracing out to be a nice flat correction. I see upside very limited past 1005.

Wednesday, September 2, 2009

Nothing to see here folks...move along

Today was nothing more than some consolidation. However, the price action did give us some possibilities:

(a) We are still subdividing our larger wave 3 and we'll see much lower prices tomorrow from the get go.

(b) We're still working on a wave 4 and should see some early strength tomorrow looking for a top in the 1002 - 1005 area.

Tuesday, September 1, 2009

We got our we watch

Price confirmed my preliminary count of a 1-2, 1-2 this morning. After price rallied to the .786 retracement of our 2nd wave down, the sellers came in and the bulls got slammed...hard. The trendline is now broken. All we can do now is watch for confirmation signs that should come if this is really the start of Primary Wave 3.

My general rule is that an impulsive wave should always take out the previous pivot. So, if we are in an impulsive wave, I would expect us to break the last pivot at 978 before any significant close above the hourly 8 SMA. I'm also looking for a move to 950 before any significant close above the hourly 34 SMA. That would absolutely put the required fear into the bulls and be our confirmation that the bear is back in force.

I'll start lightening up on my sept put positions from 980 to 950.

Should we move back above the hourly 34 SMA before reaching at least 978, then I will be looking for higher highs.