Tuesday, January 4, 2011

2011 Begins, and the Bulls are as Bold as Ever

I hope everyone had a good holiday season and is ready to make 2011 the best trading year for wavers since 2008.  I’m finally back up and running with full internet access so postings should be back on regular schedule now.
The markets did pretty much what I suspected they would do during the holiday lull in that they just floated higher on light volume.  The first day of the year resulted in an exuberant rally as it seems investors feel the market’s outlook for 2011 couldn’t be peachier.  I had a conversation with some folks last week who are not too financial market savvy and they told me I better buy stocks now because 2011 is shaping up to be a great year for stocks and the economy.  I told them I’d think about it.  But the only thing I was thinking about was how fast I could get back to the internet to place a short trade after hearing that.  I didn’t short anything, but the point is that I feel the optimism seeping threw every aspect of my life all the way to some of my friends who barely know anything about the financial markets, yet feel so bold in their outlook that they offer financial advice to anyone who will listen.  This optimism is ripe to be picked and squashed by the bears.

Internals today were slightly bearish on moderate volume, nothing stands out at me here.

I’m expecting around a 100 point S&P decline to come quite early in the new year.  This will take us to the bottom of Minute wave ((iv)), a typical retracement level for corrections.  But if Primary wave ((2)) is complete, then it will be more than a retracement, and the market will soar right through that level without any problem.  The wave count and momentum divergence supports this view. 
There is a quite clear 5 wave rally off the Minor wave B low at the 1000 level in the S&P.  Whether this is part of a larger uptrend, or the end of one, is irrelevant in the short term in my opinion.  The bottom line is that either way, a pullback is coming.  Although I wouldn’t be pounding the short side just yet since I see no solid evidence of a top and reversal, I also would not be in a position to get caught long in an illiquid, or unprotected, position either.  Plus, it seems very possible that we may push higher for a week or so to the 1300 level as all the “Average Joe’s” buy into the media hype about how great 2011 will be, which should be the perfect time to pull the rug out from under them and drop this market off a cliff.  So I think patience is warranted here for the short term players. 
Once I see something definitive, like a solid 5 wave drop on heavy volume to new swing lows on the intraday charts, then I’ll post it here.  Until then, I’m sitting this out.

Keep Ahead of the Herd in 2011
Learn to Survive and Thrive with Knowledge of Socionomics and the Elliott Wave Principle

The euro’s short term wave structure has not been clear lately.  Oftentimes when this happens it means the messy movement is just part of a correction.  So I’m cautiously bearish here.  So far, we only have 3 waves down from Minor wave C high around 1.4250, which doesn’t allow us to confirm the larger downtrend has resumed.  However, the euro has had a lot of trouble mounting any type of rally the past few weeks, and today marks a nice bearish reversal pattern.  So staying short still seems wise to me.  As long as today’s high remains intact, I think aggressive bears have the best play here. 

December 30, 2010
Prechter on CNBC - "Not a bear among them"

Robert Prechter of Elliott Wave International and Don Luskin of Trend Macro share their opposing market views with CNBC host Larry Kudlow. (Note: Prechter's interview starts about four minutes into the interview).

Get Up to Speed on Robert Prechter's Latest Perspective — Download this Special FREE Report Now.

1 comment:

Rob said...

Hey Todd, welcome back and happy new year! I recall that you previously posted about your non-financially savvy friends trumpeting the stock market rally. I searched your blog archive to find the date: 14 April 2010. Let's see if history repeats.