Wednesday's Addendum: I've posted my thoughts on where we're at in the market in yesterday's post below, but right now I just wanted to put up a quick update on today's action. Although the rally was fairly strong as far as price is concerned, internally it did not exceed the intensity of yesterday's decline. For example today's S&P advancers were 448 vs. yesterday's decliners at 479, today's up volume was 90% of total volume while yesterday's down volume was 93%, and most importantly in my view today's total volume was a weak 955 million NYSE shares vs. yesterday's 1.3 billion shares. So this rally has the internal makeup of a correction, suggesting the larger trend remains down and this week's lows will be broken soon. This corrective rally either finished at the high today, or might do so with one more leg up to a new a brief new high. But either way, 1292.66 should remain intact, giving the bears a clear risk level.
Tuesday's Post:
Usually I refrain from making bold statements like that in today's title since usually when I do it the market does the opposite of what I say, stamping the word "fool" on my forhead. But I want it to be crystal clear what my outlook is now for the market looking ahead. I will try to analyze the short term movements of the market in the coming weeks/months, which means anticipating relief rallies, but I want to drive home the "bottom line", which is the big picture. And the big picture tells me that as long as 1292.66 remains intact on the S&P cash index, stocks are extremely vulnerable to a major selling phase in the coming months which could result in over 50% of value lost. And although the greedy little monster in my head will whisper in my ear constatnly to leverage every penny I have in derivative-type trade shorting stocks, I also need to always keep in mind that no matter how sure I am of the market's direction, I could be wrong, and I need to always protect myself.
Now to the markets. So another failed attempt for a "man-made" stock market recovery from the government....this time in Europe. Last week the Dow popped 400 points on government intervention. Some common investors I know were giving me jazz because the day prior I suggested they protect their retirement accounts by putting them in all or mostly cash. But with a rally based on government intervention it was nothing more than a sell signal for me, and I told them that. This week now has me giving those same people jazz back, lol. It's all in good fun. Governments around the world will attempt to stop the implosion, and will cause short term pops only, and in the end they will all fail. Primary wave ((3)) will do what it wants to do and only stop when it is done destroying almost everything in its path. There's nothing any person or government can do to stop that. The crowd is in control, and the crowd always overpowers governments and individuals, i.e. Warren Buffet, et al.
The internals today were very bearish in that 84% of NYSE stocks traded lower, 479 S&P stocks traded lower, and 93% of total NYSE volume traded to the downside. Total volume was just under 1.3 billion NYSE shares, which is not jaw dropping, but volume should increase as Intermediate wave (3) progresses downward. So overall, a very bearish day in price action and internals. When combined with the wave count and other technical indicators, it looks like a major top is in.
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With that said, the hourly charts show that the S&P probably has to make one more new low to complete a nice 5 wave decline from 1292. This will probably occur tomorrow morning. It's possible a sharp recovery rally will then take place. But as long as it stays below 1292, I will be aggressively shorting that rally, IF IT EVEN OCCURS.
Bottom line: if the above count is correct, it means that over 50% of the value in the stock market should get erased in a very short period of time. Needless to say, I'm short. My stop is just above last week's high at 1293.
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The euro is getting destroyed. The European "save the day" news only lasted about a day. And now, as usual, the markets realize the financial system as we know it is still doomed. So the dollar is back on fire again, crushing the euro in a 5 wave move as you can see in the above chart. Here too I will be aggressively shorting rallies as long as last week's high remains intact.
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PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.
10 comments:
Not an ABC. 1292 was A. We are close to forming B and C will take us up into December. Sorry, but this is just like March 08 - May 2008. You're early. JMO.
I regularly reference your EW tracks when tagging my points and I thank you for it. I have a track similar to yours with a slight twist. I EW tag the DJI to confirm inversely EW tags on shorting ETFs I flip while waiting for the big buhanna wave 3 down to commence. Today's downward move is the beginning of a 2nd "X wave" in a triple combination manifestation of wave 2. The W wave was a zig zag and the Y wave was flat; therefore the Z wave will be either a flat or a triangle after the 2nd X wave is complete. My 2 wave starts where you have flagged the end of the 3 wave of your primary 1 wave.
I had to dig this interpretation out as I the 2nd wave of the shorting ETF and made a new low, invalidating the termination of the 2nd wave. This interpreatation allows the 2nd wave to be completed above the beginning of the 1 wave (knock on wood).
I think I see what you're talking about on the S&P, and it is certainly possible although in my opinion not likely, and I realize you already pointed this out on your update. But just to back track for discussion purposes, 2nd waves are usually sharp waves which usually are zig-zags. Flat corrections are just that, flat. Flat corrections such as flats and triangles usually occur in 4th waves. This is not a rule, just a guideline. Plus, if the current decline was X then we'd need another 3 wave move to a new high for Z. This would make a very long and wide corrective pattern relative to the previous decline which wouldn't adhere to the "guideline" of the right look.
Since these are only guidelines, the count you had would still be possible, it's just that at the moment it would not be as likely as other options. Well that's my take on it anyway.
Thanks for the post.
-Todd
I like opposing views because it keeps my analysis honest, and my trades tight on risk. In the back of my head I"m thinking, "this was too easy to catch this top". So I'm waiting for the Minor 5 low to get taken out to feel better about the top. I'm already short now, but will probably add once that low is broken. The only kink in the armor right now is that volume was a bit light for my liking on the last two declines. If that doesn't increase on future declines, it will strengthen my worry on the short side.
Really love your blog, Todd. I'm about halfway through Prechter's book so very new to the wave scene. Finding it very illuminating so far but the many faces of corrective patterns are making me see spots. I was inclined to knock the C off the 10/27 high and demote it to A myself. Only reason I didn't was that Prechter put the A and the B exactly where you did in his most recent newsletter and I really hesitate to second-guess the guy who wrote the book.
I might mention that some of this recent craziness seems to make a little more sense when you look at the futures markets overnight and on weekends. The eMini S&P for the current contract month seems to track the actual index precisely during US trading hours, but overnight it sometimes turns the hard truncations we've seen from the end of one trading day to the beginning of the next into well-behaved wave structures. The last week has still got me scratching my head nevertheless, but it's possible that someone with a more practiced eye might make more of it than I can. Barchart.com has live data and decent charting tools for the eMini. Might be worth a look. I'd be really interested to hear your take on it.
Thanks again for all your thoughtful commentary. I'm finding it really helpful.
Really love your blog, Todd. I'm about halfway through Prechter's book so very new to the wave scene. Finding it very illuminating so far but the many faces of corrective patterns are making me see spots. I was inclined to knock the C off the 10/27 high and demote it to A myself. Only reason I didn't was that Prechter put the A and the B exactly where you did in his most recent newsletter and I really hesitate to second-guess the guy who wrote the book.
I might mention that some of this recent craziness seems to make a little more sense when you look at the futures markets overnight and on weekends. The eMini S&P for the current contract month seems to track the actual index precisely during US trading hours, but overnight it sometimes turns the hard truncations we've seen from the end of one trading day to the beginning of the next into well-behaved wave structures. The last week has still got me scratching my head nevertheless, but it's possible that someone with a more practiced eye might make more of it than I can. Barchart.com has live data and decent charting tools for the eMini. Might be worth a look. I'd be really interested to hear your take on it.
Thanks again for all your thoughtful commentary. I'm finding it really helpful.
PS: Here's a link to the E-Mini S&P 500 chart for December 2011 (ESZ11). There are no tools there for annotating charts but the charts are rendered as PNG graphics, so you can copy them into Photoshop/Powerpoint/Impress/whatever to draw on them.
Thanks for the note. The many faces of corrective patterns have me seeing spots too, and I've been wrong soooooo many times trying to count corrections as they mutate into other corrective patterns that I really don't try to count them much anymore. I mostly use fibonacci and momentum indicators to measure corrective patterns on intraday charts, and just ensure that there are 3 wave moves occuring to confirm that it is in fact a correction. But that's just my approach.
In my opinion, EWP works best when the largest crowd is involved. So micro-cap stocks and dead zone overnight trading blocks in futures markets are NOT good for developing reliable EWP patterns. I like to look at the futures to see if they make a new high or low and then see if the cash indices confirm it. If not, a reversal may be at hand. Other than that, I rely mostly on the cash markets since they're pretty heavily traded on a consistent basis relative to the futures markets. But this is my opinion.
But that's not to say you shouldn't count or follow the futures markets yourself. Find what's best for you. Have EWP work for you within your trading plan, not the other way around.
Regards,
Todd
It's not so much that I have any interest in the futures markets, I started looking at the overnight futures trying to make sense of the daytime cash S&P, particularly in terms of how to count those sheer cliff faces between the end of one trading day and the beginning of the next that have been so common lately. I subscribed to the EWT newsletter and their financial forecast even with a cheat sheet I was having trouble understanding some of their labeling. It seemed contrived and force-fit in some cases.
I have a sort of a motto that just because you don't understand something that seems to make sense to an expert, it doesn't always mean that last part is true; some things don't make sense because you just don't have sufficient a priori knowledge to understand them to given the information in front of you, sure. Other things seem not to make sense because they actually don't and experts are just as prone to the full gamut of human failings as the rest of us. But I digress.
Getting back to the cash vs futures markets, I started looking at the overnight S&P futures and found that the nearest contract month always seems to line up near perfectly with the cash S&P during NY trading hours, but during the night it would turn some of those sheer cliff faces in the cash S&P into satisfyingly sensible Elliott wave patterns. Other times however it would turn already incomprehensible correction patterns into horrifying zig-zaggy nightmares that made decidedly less sense than what I started with. I've tentatively concluded that while the cash and futures S&P may be the same market during US trading hours, they're a different market after 4:00. Certainly the aforementioned cliff faces in the cash S&P are directly related to what the futures did overnight and in an increasingly globalized trading environment they're a potentially rich source of information even if you're only in the cash markets as I am. But they're still two different things you're right.
Anyway I'm still unconvinced that Valunvstr wasn't right about the 10/27 high being A, which would kind of make yesterday's 1275 C, right? And if you read the EWF guys carefully, they've kind of been hedging their bets a little too. The good news is it doesn't actually matter much in terms of tactics and we'll know the answer soon enough.
I other news, today I made back all the money that I've lost in my first few baby steps attempting to trading SP500-referenced EFT's using EWP. Yay waves!
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