Friday, March 30, 2012

Nasdaq Erases 2007 Crisis Losses; Head Shoulders Not Just for Dandruff

The Nasdaq has made a significant new high as it has erased all the losses from the 2007 financial crisis, but more importantly it erased what was labeled as a nice 5 wave impulsive decline.  This ws important for wavers to use in order to support the claim that a much larger downtrend was in place.  This is gone now.  And this is not good for the EWP community that was following Prechter's count.  The Nasdaq's new high may signal that it is leading the blue chip S&P and Dow higher.  Usually the higher risk stocks lead the overall market so I have to be prepared for this to be the case here.  The flipside here is that the Dow and S&P have not made new highs with the Nasdaq so there is a divergence in place.  If stocks turn down hard while this divergence is in place, then it's very bearish for the overall market.  But this is less likely to occur.  I believe that it's highly possible that the Nasdaq is simply leading the S&P and Dow higher, and they too will take back all their losses from the financial crisis and erase their 5 wave declines as well.

Remember, markets are all about probabilities.  The probabilities at this point favor the bullish side.  That doesn't mean the bears are dead, it simply means that the odds favor the bulls.  I have no position in stocks right now.

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Focusing on the short term I see a possible head and shoulders top forming.  This means that the current rally is the right shoulder that should top around the 1414 area.  A move above the head at 1419 will negate this pattern and keep the rally well intact.  I am not shorting here though since trying to call a top has been foolish the past several weeks as many of you know.  I'll wait for an opportunity to arise and announce it here.  Until then, I'm focusing more on currencies as I've found more success their recently.

The euro appears to be forming a head and shoulders top on the daily chart.  The pattern here is much more mature and suggests a decline is coming very soon, perhaps Sunday night or Monday.  I have a small short position in place but plan to add to it if there's a strong impulsive shot lower.

What All Major Depressions Have in Common

Momentum for the euro rally on the intraday charts is not good for the bulls.  The RSI is lagging badly and has not confirmed the euro's new prices highs in a long time.  This is not a good timing indicator so this doesn't mean the euro will decline right now.  But with a head and shoulders formation in place on the daily chart, I'm shorting the first sign of weakness.  Euro bears be alert Sunday night and Monday for an opportunity.



td12 said...

keep in mind that both the comp and NDX have retraced to the 50% mark from their
initial 5 wave decline of 2000. The moves are larger time frames look like 3
wave moves back to that retrace level. This would imply at least another 5 wave
move lower - Also the $util look to have traced out 5 down with a 3 wave move implying the same.  While we can argue the degree of count I think the weight is still on the bearish side for EW counters esp given the light vol that has declined each leg higher.

Shivakkumar Vadiveyl said...

Nasdaq seems to be on a different time frame as it reached its all time high in 2000 whereas the rest of the indices topped in 2007. Also as td12 has pointed out, it has only retraced 50% of what it lost since 2000. The recent move on the nasdaq does raise some questions though as you have rightly done so. The question is how do we label the count from Oct 2007 to Mar 2009. I looked at this sometime back when the nasdaq went above its peak made in Oct 2007 and the only way to explain it is that it is an (X) wave (Inter X - maroon) in the form of Minor W-X-Y (in amber) correction rather than an impulsive 5 wave down.

This brings us to the next question of whether is it possible for the S&P 500 to follow Nasdaq's way and go beyond the top of 2007. That is also a possible scenario. It can happen if the down wave from 2000 and the following up wave to 2007 are both counted as three wave corrections. The down wave from the top of 2007 is clearly a five wave pattern. This gives us 3-3-5 which is a flat. The move up from 2009 can then be labelled as an X wave, which means that it can go above the peak of 2007. This would be followed by the final correction down to deep levels. Whichever way I look at it, a deep correction is anticipated from an Elliott Wave Perspective and is also supported by the economic situation (debt, jobless rate, over leverage and credit).

PrincipleAnalysis_Blogspot_Com said...

True, but the momentum evidence you put forth (volume, RSI) does not mean a major top and reversal will occur.  It only means a downside correction is coming.  The size of that correction will have to be determined later.  EWP suggested it could be P3 down, but with the Nasdaq erasing its impulsive decline, I'm not sure I can throw in with the P3 count at the moment.  It's all about probabilities and I think the probabilities now slightly favor a sustained bullish move over the long term, but in the short term a downside correction is due.  P3 is not gone, it's just weakened.  Just my opinion.

PrincipleAnalysis_Blogspot_Com said...

Yes, I agree, no matter how you count the long term the short term suggests a sizeable correction is on the horizon.  So I'm staying focused on the short term and waiting for the pull back to get short.  But not anticipating P3, but simply to get short and see where it takes me.....either long or short term - I'm just going to ride the wave.

Shivakkumar Vadiveyl said...

If you don't mind, what are the vehicles you use to go short?

PrincipleAnalysis_Blogspot_Com said...

I use ETFs like SDS, SH, and QID. Sometimes I'll buy put options if I have good timing and low volatility. For currencies I trade the spot market, not futures.