Monday, October 5, 2009

Many Bullish Indicators Occurred Today; October 5, 2009

Many things occurred today causing me to cover a small amout of my shorts and put in a very very small short term call option (Nov 2009) position on in preparation for a rally to new highs. The short term bullish case is as follows:

1) NYSE breadth was very strong today with gainers oupacing advancers by almost 5 to 1. This is the highest reading in several months. The last time this happened was last month after another selloff it hit about 4.5 to 1. A rally to new yearly highs occurred soon after.

2)The rally in the S&P hit 1041 which is a small overlap of the 1040 bottom which could be a wave 1. This overlap also creates a 3 wave looking drop on the daily chart (see daily S&P chart above).

3) Financials led the way today being up over 3% today, and financials have led the market the past couple years.

4) NYSE volume was very bullish today with almost 90% of stocks on the exchange trading higher.

5) Silver and gold rallied hard, and both have been following the stock market.

6) The EUR/USD continued its rally and is not showing any weakness and it apparently has led the stock market lately. I presume primarily because a weakening dollar boosts equity and commodity prices therefore pushing this overextended rally higher.

All in all, it was a very bullish day on no news. However, it was done on light volume which is the only problem in the strong bullish case. The key level for the S&P futures now is at 1071, a break of that level will confirm that the drop was in 3 waves and open the door to a new high.

If a new high occurs, I will consider reworking the long term wave count and will probably lean more towards us being in an A-B-C correction instead of big wave 2. The choppiness and subdivisions of the rally from the March lows will have become too complex and the pressure downward appears to be waning.

One more key concern is that I've been seeing a lot of people in forums regarding EWP talking about the big crash and I just heard Art Cashin on CNBC on Friday mention that the "Elliott Wave People" are predicting a big crash. This "mainstreaming" of Elliott Wave and the big crash predicted by Robert Prechter concerns me. When a view becomes mainstream, it probably won't happen. Right now I'm very cautiously bearish in the short term and if the S&P confirms the 3 wave drop then I will rework the longer term structure to see what I can come up with.


Michael Eckert,aka-Columbia1 said...

Things are either going to be Very Bullish or Very Bearish here real soon. I just wish the market would make up its mind. Every time we get a 1-2,1-2 down count going it turns into a corrective, and then explodes to the upside!!
Nice write-up :)

Gustavo said...

Goldman Sachs Group Inc. recommended large banks and a report showed service industries returned to growth after 11 months of contraction.

“Third-quarter earnings season is going to be pretty strong,” said Noman Ali, part of a group that manages $20 billion in Toronto for MFC Global Investment Management. “Analysts are way too conservative coming out of recessions. Estimates will have to move higher because actual earnings will come in better than expected.”

‘No Time to Sell’

“Tactical indicators at current levels would normally lead us to downgrade equities, but their signals are less meaningful at this stage in the cycle,” wrote a team of Credit Suisse Group AG strategists led by Andrew Garthwaite in a report today titled “Equities: No Time to Sell.” “A further near-term correction is possible, but we believe that the S&P 500 will be 1,100 by year-end.”

Ok; no more of 50% retracement please.

“Growth is still going to surprise people on the upside in the near-to-intermediate term,” said Walter Todd, who manages $750 million as co-chief investment officer at Greenwood Capital Associates LLC in Greenwood, South Carolina. “The fourth quarter last year was so bad from an economic and earnings perspective that simply lapping that is going to be a fairly positive event.”

And blah, blah, blah, blah, blah...

You are covering your shorts?
I don't think what in this levels of market is a good idea, but with a little luck to me can be this idea get the mainstram vision, and we can go down healthy finally.

Todd S said...

Michael, I agree with you and I know that when markets top, they do everything they can to shake out the "weaker hands". It's never easy. And even I'm psychologically doubting the bearish crash. This is all contrarian and makes me feel stronger about a big top and crash, the hard part is the "WHEN?"

Todd S said...

Gustavo, good catch on the news wires and thank you for posting your info here. Please read the short blog post I put tonight to clarify my current position.