Wednesday, October 13, 2010

Hang on to Your Butts, it's About to Get Ugly....

The market is going higher, up up up up.  Nothing can stop it.  I want to dump all my short positions and go long here because it's obvious you can't fight the Fed and their artificial inflation inducements are sending this market to the moon.  Right?  I mean, the market can only go up.  It's only gone up for weeks now and I'm defeated.  The only trade here is being long.  Buy buy buy!............WRONG WRONG WRONG.  I think the market is forming a major top right now and it looks like this market is about to head down hard and fast real soon.

The S&P has reached the far end of my 1173-1181 resistance level I've been citing here for weeks.  The evidence strongly supports a major top forming at any minute.  I wouldn't be caught long here for the life of me.  But patience is a virtue here.

Above is the Nasdaq ending diagonal formation I mentioned yesterday.  The Nasdaq appears to be finishing up an ending diagonal for Subminuette wave v.  Today's gap up and "throwover" is typical of the last final move in an ending diagonal and if correct, it assures us that a sharp and deep move lower is coming very soon.  A move back underneath the upper trendline of the ending diagonal would confirm that the diagonal is over and the market is moving sharply lower.

Boy, talk about extreme.  The VIX still can't get above that lower bollinger band, and after the monster rally and surging sentiment through the roof, the VIX has now fallen off a cliff and has issued the second setup for a stock market sell signal within a two month period.  The complacency and overoptimism that it's "risk on", "the Fed won't let us lose money on stocks," and "I can only win if I buy stocks, there's no losing here so buy buy buy" is showing up across the board here.  The market feels like a big bubble waiting to get popped (those of you who loved the movie "Scarface" will appreciate the parallel of that comment to a famous line in the movie).

The market is VERY near a top.  The euro has so far failed to make a new high against the dollar and the british pound has been flat, still far from a new high.  Even though this may change soon with new highs, it doesn't negate the evidence at hand.  The feeling that the market can only go up up up is exactly the time when I want to be positioned for it to go down down down. 



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PrincipleAnalysis_Blogspot_Com said...

I see what you mean and if I wasn't an elliott waver I'd be long with a itchy trigger finger and tight stop to ride the wave higher. It may melt up for a long time. But with the evidence and indicators I use, I cannot go long. I either short or wait on the sidelines. I don't break my own trading rules. If I bent them when I felt strongly in doing so, I may have had some big wins over the past few years, but the losses would have bankrupt me.

I disagree with you on this one. Unless you're in a highly liquid 24 hour market, I wouldn't be long at all. The reversal on this market will be ugly. My opinion. We'll see.

convictscott said...

Yes! Paradoxial that the key to waver's sucess can also sow the seeds of destruction.

The reasons for getting long at this point are all about the capitulation of bears feeding a positive feedback loop which results in an irrational hit the bid mania driving prices to the point where a crash is a certainty after the last bull has bought.

You are right, a parabolic move at this point is certain to end badly. But could go on for over a month before it ends badly. The bearish wave count at this point is *highly* suspect. Stinks of dodge as a matter of fact.

This is my point, and IMO the failure to consider this very real possibility (an irrational mania) is a hold in your analysis.