Friday, October 10, 2008

LT - Higher degree trend change !

Last week i warned of a higher degree change, if SPX 1040 was cracked. The first warning shots of a higher degree trend change were fired when SPX cracked 1170, the wave 4 support of the impulse from 2002-2007. If 2002-2207 was a cycle degree advance, we should not have seen the SPX 1170 broken on a weekly closing basis and a strong rally should have emerged from that point. The last technical projection was 1040 as i posted last week and it's a virtual air pocket from there with no support until Oct 2002 lows. So the market action is loudly saying that this is longer a primary degree decline but a higher CYCLE degree decline and Oct 02 lows will be taken out by the time this bear market ends. So a CYCLE degree wave 4 is in progress at this point unless proven otherwise.

Click on the chart to enlarge it

A little bit of history and perspective. This is all again of no trading value and is of only academic and intellectual interest. If you are not interested in that, please skip the following section.

There were calls that 2000 ended a secular bull market. Nothing could be further from truth. The only sector which made a secular top in 2000 was the tech. Most other major and minor indices took out the 2000 top after the bull started from 2003, some marginally and some by a large extent. Fortunes were made in virtually every sector of the market globally, while the permabears were crying bear market rally for 5 years. While the term secular can be subjectively intrepreted, e-wave does not allow that luxury. It's hard to categorize a top as secular when more than 80% of the sectors make their lifetime highs.

The advance out of 2002 mean't two things

1) A major cycle degree advance has begun from 2003, which is what i beleived.

2) The primary degree wave 5 of CYCLE III was in progress.

In hindsight, it is now apparent that 2) was correct and we were concluding the large secular advance from 1975. The 2002 lows never broke the CYCLE degree channel from 1975, leaving the CYCLE degree advance intact. We have now broken that CYCLE degree channel, which means 2007 marks the CYCLE wave III top and a CYCLE wave IV is now in progress. The LT support for CYCLE wave IV should come near the lower degree wave 4 (primary degree wave 4 of CYCLE III) which is the Oct 02 lows. We will probably undershoot the Oct 02 slighly before the bear is over.

This is a chart i posted on my blog a few years back. Given that this bear has progressed to a higher degree, i will have to make a structural adjustment by moving the CYCLE III top from 2000 to 2007.

Very LT count

Click on the chart to enlarge it

Since this is a CYCLE degree bear market as opposed to the Super Cycle degree bear of 1929, the economic conditions during this decline will be no where as worse as 1929. We are dealing with a wave of degree less than 1929. Nevertheless it's going to be tough times for the next few years. Cash will be king. A major value buying opportunity will arise in the months and years ahead, but irony of every major bear lows is that folks will be scrambling to find money for their next meal and buying stocks will be the least of their worries/priority, when it presents itself. Stay defensive !

Once again, wild projections like DOW 4000 and DOW 400 are getting thrown around. It doesn't cost money to make such wild projections. Can it get there ? Who knows ? But do we have technical projections for that ?. Nope !. To come with LT downside projections, we need a intermediate term multi-month rally here, which fails on an intermediate term basis. Right now we are in a free fall with no bottom in sight. The bottom could come anyday, between here and SPX 700, after which a intermediate degree bear market rally should begin. VXO hit 100+ and the volatiltity is insane. Trade Safe ! Good luck.

Sunday, October 05, 2008

IT/LT update - 10/5/2009

I was completely wrong in assuming that a major wave A had ended and wave B had begun. That cancels all my upside projections for now. 9/18 bottom was as good as it gets. Horrible sentiment. A violent price move out of that. A kickoff move on the NYSE Vol osc. And the price finding support a LT wave 4 support and a technical measured move. But none of this was sufficient for this vicious bear. I was expecting a 50% retrace of the 9/18-9/19 move and a rally after that. I was cleary proved wrong.

It's very concerning that the market failed to hold at the previous wave 4. It's very concerning that the market did not hold the double top measured move projection to 1170. It's also very concerning that weekly candle hammer was reversed with even more violence.

Now given that the double top projection to 1170 did not hold, the next measured move projection comes from the (2/1, 5/19) double top, although not a perfect double top. Depending on whether you use 2/1 or 5/19 for the projection, we get two targets - 1040 and 1070. If 1040 does not hold, then there are no further technical projections at this point in my work. That to me would mean a larger degree trend change may be in works. Too early for me to jump the gun on that and make bold sorry projections. Just to give a clue on how overextended the market is here, look at the weekly bollinger bands. Price close way below the weekly BBs and failed to mount a reversal out of it. In the last 10 years we have seen two instances where this kind of configuration presented itself - the week after 9/11 and July 2002.

Bottomline, i will be watching SPX 1040 with interest for clues on possible larger degree trend change. For now my wave count remains the same, except that the intermediate wave that i thought bottomed on 9/19, continues to extend.

P.S - BTW, i closed my SPY positions that i opened last week for 60 points gain, which i posted on traders-talk, since i think we are at the crossroads of a possible trend change of higher degree.

Good luck !