Saturday, January 07, 2006

Why is everyone so beared up ?

We are having breakouts on most indices with solid internals and yet there's so much disbelief. I think this whole disbelief in the rally stems out from the fact that the majority are now looking for the 4-year cycle bottom in 2006, which is a very widely publicized event. The wide acceptance and positioning for this event makes it a slim probability occurence now. Look what happened to the much publicized 80-week cycle bottom that was furiously discussed last week.
Instead of asking why the market is rallying in face of the current fundamentals or why it shoudn't be rallying as theorized by the market letter writers, one has to look at what the internals are suggesting.

Take a look at the above chart of NYSE. Price has clearly broken out of the wedge that so many have been discussing. This whole wedge theory has been clearly invalidated at least on the NYSE. I noted a month back on this blog why the wedge theory is bogus, given the interrelationship between the the different wave components in the wedge, which doesn't confirm to the Ending diagonal requirements.

The 5% and the 10% components of the MCO have already taken out the Nov 2005 highs. The NYSE MCO is close to taking out the Nov 2005 highs. If this happens then the bears looking for an intermediate or a long term top will be dissapointed here. The summation index has formed a ledge and is now moving higher, which is again a very bullish sign. I don't see any reasons to get bearish in the face of such solid internals. In fact such bearishness here can only lead to one heck of a rally. The system is awash with unprecedented liquidity and don't fight it.

The Hourly/Daily/Weekly/Monthly trends are all up. In the VST we are very overextended. So, we may get a small pullback starting Monday, but every pullback is a buying opportunity at this stage until the current technicals/trend change.

Thursday, January 05, 2006

Bearish setup on GOLD

Two charts says it all !

As far as SPX is concerned it's a tough call. One has to play by the ear. It appears like a rectangular consolidation on the hourly charts and ready to breakout. But the hourly is ovebought and some retracement is due, before the next leg up. Also a 80-week cycle low is due around Jan 13.

Wednesday, January 04, 2006

Bear market rally theme continues

Before i left for vacation, i said that there was some more downside work left and it appears that the downside work is over.

The rally theme of the last 3 years continues. Every reaction off of the top is taken as the next mega bear decline signal. The system gets clogged with shorts and the programs kick-in and squeeze the juice out of the bears. It was surprising as to how much bearishness was seen on the message boards over the last couple of weeks for a mere 30 point decline on the SPX. Bears arguments are getting more and more fundamental rather than technical, justifying for a big decline to come. Two arguments at this stage are the expected 4-year cyle bottom in late 2006 or early 2007 and the latest being the Yield curve inversion, a precursor to a recession.

However, the technicals tell a different story. The daily MACD is comfortably above the zero line impyling that the bullish uptrend is still intact for now. We may have seen a zero line reject on the MACD yesterday which means that the next leg up might have begun. It's a tad early to say that, but based on the size of the move and the technicals, i think the odds are that the next leg up is underway.

From a e-wave perspective, i think yesterday we finished the wave B of an expanding triangle and wave C is now underway. Until more confirmation comes, i will have to give some weight to the alternate count as well. My alternate count is that yesterday was a news induced rally (a wave X) with another A-B-C downleg yet to come. If my alternate count is true, we should find support around the SPX 1230 levels. At this stage, i will wait for a retracement and see how it plays out, before commiting to either count.

For now, the hourly trend and momentum is up and will look for day trades in that direction. The hourly is getting overbought here, so some sort of retracement/consolidation of yesterday's move is to be expected here.