Friday, August 8, 2008

August 5, 2008; Wave 2 Rally Still in Full Force

Obviously today's huge 300+ point rally negates any immediate bearish scenario calling for the wave 3 of (3) already being underway. There seem to be a lot of waves, both up and down, that can be counted as impulse waves which keeps giving misleading signals of the larger trend. This has been very costly for me. Moving EWP counting aside for now, let's focus on the above chart. It should a resistance shelf in place over the past couple weeks. The Dow shows a similar shelf around 11,700. The way I see it, if the Dow and S&P close above this shelf today, not only does it break a strong resistance level, but it will create a huge bullish engulfing candlestick totally negating yesterday's decline. This is extremely bullish and will open the door for the S&P to get to the 1320 area with ease, and perhaps in the 1350 area.

All-in-all, the next few days/weeks looks very painful for the bears.

August 8, 2008; Big Rally This Morning

Well this is definitely not wave 3 of (3) behavior with the market up 200 points right out of the gate. And for no reason of course........oh wait, oil is down, so the media can give us that excuse. With the big rally this morning it looks like a 3 wave drop occured yesterday, and the rally this morning looks very impulsive. This is a very bullish wave structure. As long as Wednesday's high remain intact (1292 S&P cash) then the triangle scenario in the post just below this one is still in place. If by some miracle, wave 3 of (3) is underway, then the market better go on a monstrous historical-type reversal in the next couple hours.

Thursday, August 7, 2008

August 7, 2008; Triangle Possibility

Well the market made a slight new high like I thought it would on the day, but then rolled over much lower eventually. The initial drop today looks like a 3 wave affair which is not consistent with EWP's impulsive moves with the larger trend. NYSE breadth ended very weak at 80% of all volume being to the downside, but it's still short of the 90%+ I was looking for. With this decline today, it brings the possible B wave triangle into play. See my chart above. I trace out the projected path of the market over the next few weeks. A break of 1234 in the S&P would eliminate the triangle scenario and increase the odds heavily that wave 3 of (3) down is underway. Until then, either this triangle scenario should trace out, or the combination correction (a-b-c-x-a-b-c) I posted earlier today will play out.

Tomorrow should prove an important day. Even though it's Friday, any follow through with the selloff today will hurt the odds of the triangle pattern being underway. A rally tomorrow will increase the odds of the triangle being underway.

August 6, 2008; Rally Coming

Above is the 3 minute chart of the S&P and it shows a 3 wave drop labeled a-b-c, which means the fall this morning was a correction. To support that, the rally after that was in 5 waves, see chart labeling i-ii-iii-iv-v. Following that is a choppy decline that is clearly a correction which I circled on the chart. So it appears a rally is coming. And with the 3 wave drop from yesterday's high, it most likely means that the rally will break through that high and make a new one.

August 7, 2008; S&P 15 Minute Chart Possible Count

This count I like better because it doesn't really conflict with any EWP rules. However, it basically has the same result anyway. Another scenario has a triangle forming in a B wave. I hope this is not the case because it would mean we have weeks before wave 2 up ends. If that appears to be unfolding, I'll post a chart with the wave count.

As for this morning, we're seeing the weakest breadth we've seen the past few trading days. NYSE down volume is about 65% of all volume. It's still early so we'll see if it picks up. I want to see it get to 90% volume to the downside before I even start to consider wave 3 of (3) down is underway.

August 7, 2008; S&P 15 Minute Chart Possible Count

Attached is a possible count for the S&P on the 15 minute chart which has an A-B-C correction complete now, or will be complete at around the 1320 level, before giving way to the big wave 3 of (3) down. The reason I'm not extremely confident in this count is because of the structure of the B wave. It looks like an impulse wave. Wave B's are can't be impulse waves. But this still should be looked at as a possibility.

August 7, 2008; Still Waiting...

I'm still waiting for clarification of the short term. There's heavy weakness today but that should be no suprise with the market gaining almost 3% in two days. Breadth this morning is very weak though, so one's really buying stock so far. I'd like to see the decline continue and breadth get horrific, with at least 90% of volume on the NYSE to the downside. Until then, the door is open to new highs. I have a gut feeling, and that's all it is, that the S&P will gravitate to the 1320 level.

There a few possible wave counts for what's transpiring right now. I'll post them shortly.

Wednesday, August 6, 2008

August 5, 2008; Some Degree of Top Approaching

The indices are all in the green and price movement up seems strong. However on today's 3 and 1 minute charts you can see what looks like a wave 4 consolidation at the Dow's break even level on the day. Also, even though the indices are up righ now, (Dow up 40+), the NYSE breadth is flat and the Dow's breadth is actually negative. So the desire to buy stocks right now is waning. Also, as you can see from the 30 minute S&P chart I posted above, the stochatics continue to drag downward even though the price continues to climb (red lines). When you add all this together, a top is forming. Whether it's just a short term top, or THE top, we'll have to wait and see.

With the bearish divergence on momentum indicators, and no real fundamentally or technically solid reason to explain this rally, I think this is a trading rally and average Joe investor rally. But the smart money is steadily establishing short positions as the market moves higher. Eventually the sellers will overcome the buyers in huge force; giving way to wave 3 of (3) down. Right now it seems that the 1320-1330 level is a going to be a good area to look for a top in the S&P if it keeps rallying. But I'll get more specific stuff once today and tomorrow's sesssions end.

August 6, 2008; Waiting....

Unfortunately my short Dow emini futures position was stopped out last night at 11,605. So I have no futures position in right now. I do still have my core ETF positions shorting the 3 major indices. WIth a break of the Dow's key level, and the rally being much deeper than I thought it would go yesterday, I'm on the sidelines waiting for the market to play out a bit here. There's some weakness this morning as the Dow is down almost 100, but after a full day of nothing but rallying, that's expected. I still expect for more rallying by the end of the day, and probably the rest of the week. If not, it might be very bearish. The lack of follow through may be a sign of a topping process. But I still want to see what happens today and tomorrow.

I was also stopped out of my USD/CHF short position this morning.

Tuesday, August 5, 2008

August 5, 2008; Rally Too Deep

The rally today was far stronger and deeper than I expected, obviously. The Dow broke its key level and the S&P should do so early tomorrow. The rally is weak as far as momentum goes, but breadth was solid. Again, this is just a news rally on the Fed announcement which is typcial. There's virtually no new fundamental or technical reason that called for this rally. It's just temporary. But how temporary? That's the big question now. And right now, I don't know. Tomorrow should tell us a lot, and we should see the possibilities of how far this rally might take us. My guess now is that it will go quite far. I think the S&P has at least another 35 points to go before it reverses. The Dow could test the 12,100 area. But this is all just a guess right now. The fact that this rally was all fluff and hoopla over the useless Fed makes me very skeptical about throwing out any wave count at all. My short positions in ETFs remain intact, and my futures position is intact with a stop just above 11,600 but I fully expect that to get stopped out in the middle of the night tonight, or tomorrow morning. I will simply wait for a signal of a top again, and re-enter short in the futures as soon as I can. But my ETFs that short all three major indices will remain in place, and ready to take a lot of pain the rest of the week.

But keep in mind, the larger trend is down, and we're in a very large wave (3), so any big suprises to my analysis will be to the downside. Tomorrow can just as easily be a 500 point down day. I'm holding short.

August 5, 2008; Market Setting up for Big Selloff pt. III

Today's rally is ending. Notice on the updated 5min S&P chart that I can count 5 waves up to complete wave C. You can see the straight line up rally from this morning and then at the top you see the rally getting a bit squiggly and sideways which I marked with the black trendlines. THis might be an "ending diagonal" which is typical for 5th waves and it signals a severely weakening trend and usually results in a snap back sell off in the opposite direction. Also notice the stochastics at the bottom are trailing downward, as marked with the thick red line, yet during that time the price of the S&P has climbed higher. This all points to a reversal coming soon. As I said, the Fed meeting should trigger the market to sell off today or tomorrow. Today's rally is severely waning.

August 5, 2008; Market Setting up for Big Selloff pt. II

Now here's a daily chart of the S&P to keep the bigger perspective. Here I have a wave count that shows a series of 1's and 2's. I don't like to do this because this is usually not likely. But until the markets break the levels I mentioned in the prior post, this count remains valid.

One good fundamental piece that really supports this wave count is the Fed meeting today. The market is rallying big this morning, for whatever reason, like it usually does before a Fed meeting. Then either right after the meeting, or just a couple days after the meeting, a big selloff occurs. Well, if you see my wave count on the chart above, it would show that we're setting up for a wave iii of (iii) of 3. If this is the case, this would mean a massive selloff in a straight line down is about to occur. That fits nicely into the Fed decision this morning.

The key to remember is that the larger trend is down and we will get to much lower levels. I know where I'm wrong, I noted the key levels in the prior post. So if I'm proven wrong, I'll simply look for other possibilities that might be occuring. But all of my alternate counts point to the markets rolling over big eventually. So I know it's going to happen, it's the "when?" that I'm working on. Right now, I think it will be after the Fed meeting either this afternoon or tomorrow.

August 5, 2008; Market Setting up for Big Selloff

Here's a closeup of the 5min S&P chart that shows a classic "flat correction" according EWP. The "A" wave is 3 waves, and the "B" wave breaks below the beginning of wave "A". We now see an impulsive rally this morning which represents wave "C". If this count is correct, the market's rally will be capped at 1285 (S&P cash) and 11,585 (Dow cash). If both indices rally through those levels, it will negate the bearish wave count I've been holding for the past week that wave 3 of (3) is already underway. This doesn't mean it won't happen, it just means the market will rally more before it happens.


Dow must stay below 11,585
S&P must stay below 1,285

August 5, 2008; USD/CHF Big Bearish Divergence

The dollar soared last night but not hit my stop loss at 1.0560 and the bearish divergence has really gotten enormous. View the 30 minute chart above and notice that price rallied big yet the MACD and stochastics were making new lows at the times (yellow trendlines on chart). I'm holding short the dollar, I feel the Fed news this morning will result in a dollar selloff.

Monday, August 4, 2008

I am not able to post photos due to a technical error with the website right now. So the chart showing the 3 wave rise for the previous post won't attach.

August 8, 2008; 3 Wave Rise at End of Trading Day

Well the market bottomed and rallied most of the day just I like called for in my previous post. It completed a 3 wave rise which confirms that the rally is/was a correction. I'm not convinced it's over though. It's correcting a 5 wave decline that took about a week to form. So in order for EWP's guidelines for proportion and the "right look" to be satisfied, I think another sharp wave C rally is due. The Fed meeting tomorrow gives that a good setup. But remember, this is all short term speculation I'm talking about here. The bigger picture is quite clear in that we're about to undergo, or are in the beginning stages, of a huge 2000+ point selloff in wave 3 of (3) down.

The above 15 min chart of the S&P 500 emini futures shows a 3 wave rise which I circled and labeled a-b-c. Over the past week or so, numerous smaller time frames show 5 wave drops, and 3 wave or choppy rallies. According to EWP, this tells us that the larger trend is down. Well I'm looking for a massive wave 3 of (3) down that will destroy the market and shed at least 2000-4000 points off the Dow in just a few weeks. If wave 3 of (3) is underway, it's doing it in undercover. Breadth and volume in the market continues to be flat or mildly weak. Not at all consistent with a wave 3, let alone a wave 3 within a larger wave (3). So I'm not sold yet that the big daddy decline I've been waiting for is underway. It just seems that the market needs one more big rally to get everyone "hoping" again for a bottom being in and a new bull market. That rally will relieve some of the bullish divergences I'm seeing forming and wake up the bears again to get in and enter the market heavy. But as long as I see 5 wave declines, and 3 wave or choppy rallies, I know the larger trend is down and I'm aligning myself with that trend and I'm maintaining my short positions until the market proves to me it wants rally big. So I'm heavily short now, waiting for the big daddy wave 3 of (3) decline which should bring the Dow into the 8,000 area and bring the bears a mighty feast of profits! The Fed meeting is Tomorrow (Tuesday), and over the past year, the market has rallied for a few days after the Fed meetings, only to roll over with heavy selling. We'll see if history repeats itself this week.

August 4, 2008; 5 Waves Down Now!

Well I was waiting for a new low to complete a 5 wave down sequence which will help us determine if the downtrend has resumed, and possibly if wave 3 of (3) is underway. I see on the 5 minute charts that a possible ending diagonal is forming and the RSI, stochastics, and MACD are all trailing up while the price of the indices are going down. This bullish divergence shows a snap back rally soon. But with 5 waves down completed, we know that the trend should now be down. The place to put my stop losses will be just above the beginning of that 5 wave rally, which is 11,561 in the Dow, and 1285 in the S&P.

After a rally here to correct the 5 wave drop, we should see more heavy selling to new lows as long as the two area I just mentioned above are not exceeded.

August 4, 2008; Swissy Falling

Attached above is the 4hr chart of the USD/CHF. You can see the bearish divergences on the stochastics and MACD with the yellow lines. The price makes new highs while the stochastics and MACD does makes lower highs. Also, notice the big bearish engulfing candlstick forming (circled on the chart). This pair is headed lower, at least to the 1.0355 where my initial target is.