Friday, August 10, 2007

The bottom is in !

Odss are about 80% that a major bottom is in as of 8/10/07 close. The fear mongering by the media has reached epic proportions. Massive fear levels as measured by the VIX. The most important divergence showed up on Friday, for keen observers of the market, when the VIX made new highs, but the SPX failed to take out the 8/6/07 lows. Now my call for a bottom here is not based on sentiment (although it's highly supportive), but based on pure technical analysis.

I have two charts here.

Let's look at the first chart of SPX between 1991 and 2000, which was a major bull market. I am using 1991 as a starting point because that was the beginning of the bull market based on my weekly momentum work. From a price perspective 1987 was the bottom, but from a weekly momentum perspective, 1991 was the bottom. The momentum confirmation for the bull run came only during 1991. There were three instances, during this period, when the weekly CCI on SPX went below -200. Once the CCI hooked back above -200, a bottom was confirmed and the market never took out those lows again, except 1998. A hook back above -200 is a prelimnary confirmation and is reserved for aggressive bottom pickers. A more solid confirmation comes when the weekly CCI hooks above -100. 3 out of 4 times, the -200 hook marked the bottom. That's 75% odds, between 1991 and 2000 !

Now let's look at the second chart. 2000-2003 was a major bear market. There were two instances during this period when the weekly CCI went below -200 and hooked up. In both the cases, after the CCI hooked-up above -200, the hook-up was a fakeout and there were serious price retests. So during the bear phase, the hookups failed with 100% odds.

Now during the 2003-2007 bull market, there have been two instances when the CCI went below -200 and hooked up. 2005 and now in 2007. 2005 hook-up, the market never looked back.

So the bottomline is, during the bullmarkets, looking at about 16 years of price history, this signal has suceeded 4 of 5 times. That's 80% odds of marking a bottom. During the bear phase, it has 100% odds of failure. Given that the weekly 8 EMA is still above the 34 EMA on the weekly charts and we have classic bottoms above bottoms on the weekly charts, it's undeniable that we are in a major bull market. So i am sticking my neck out and calling 8/10/07 as a major bottom. I could be wrong, but that's what my work says. Since it's only 80% odds (and not 100%), have stops in place, just in case....

As for the VST, i have a weak countertrend buy from friday, which i posted on It better be a weak buy, coming out of a major panic low.

Monday, August 06, 2007

LT and IT thoughts

Last time i updated my LT thoughts, i said, we were close to completing the Phase I of the bull market, around SPX 1620 level and by Oct-Nov 2007.

I was wrong on both the counts, in that, the SPX topped at 1555.90 and 3 months ahead of my time projection. The final wave 5 of C, which i thought at time would reach 1620, happened to be a muted one. I posted at that time that the dreaded X-wave would follow after the wave C of Primary degree wave B ends. Given that we have seen the largest monthly bar after the rally begun in 2003, i have no doubts that we are already in that wave X.

It's hard to pinpoint a target with accuracy at this point as to where the wave X would end. My preliminary guess would be around SPX 1360-1410, based on how the wave is unfolding. We still need to see a reaction on the weekly charts that fails, to come up with a proper price projection low for this wave X.

From a LT perspective this bull market is far from over. In fact, if anything the bear market of 2007 is coming close to an end. Yes we may have another month or so pain and another 50-100 SPX points downside. But a major bull market (phase II and final phase of the bull market from 2003) should begin after that.

Looking at the weekly charts, we have seen the most intense downside momentum since 1994. We know what happened after that. That's right. A reading of -248.78 on SPX weekly on the CCI(14). Now here's what is more important. Even this kind of a nosebleed momentum has not turned the 8 ema below the 34 ema on the weekly charts, keeping the weekly uptrend intact. What does this say ? Two things - PANIC and Absence of any topping process ! Looking at the internal measures, relative to the price damage it's PANIC. The lack of topping process is also evident on the charts itself. A slow topping process would have rolled the 8 ema over and brought it closer to the 34 ema before the big selloff happened. In this case it was panic from day one and so far has shown no signs of any bottoming. That's the characteristic of X-waves. They show no topping action and they come out of the blue.

We have seen the worst of the internals. The internal and the momentum low for the market is in. Looking at the daily charts, we are approaching a ST low. We should rally here for a couple weeks and then dive off the cliff to a climactic price low. That should end the quick and dirty bear market of 2007. I expect phase II of the bull market into 2009-2010 thereafter. We'll see...