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.

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 !

Da plan

The market action today clearly proved me wrong. Period !

Now the question is how do i exploit this opportunity. I don't trade when VIX is above 40, which is currently around 48. My trading account is fully in cash.

But this is a great time for investment or so i think. I bought a 25% position in my retirement account around SPX 1115. Will buy another 25% if we go down to SPX 1015, which is a big "IF". That would put my average position around 1165, with a stop around 950. A 10% stop. In the worst case, my investment losses would be around 5%, if i get stopped out.

That's da plan. I am in 25%. Let's see how this goes.

IT/LT bottom update

I posted last week that we made a LT/IT bottom and a multi-month rally lasting 6-8 months should begin. Many are still calling for Oct lows. I will have to respectfully disagree with them. What we saw was historical off-the-chart volume at the lows. It just blows my mind ! Then looking at the NYSE vol MCO, we had a kick off move on the MCO off the lows. That combined with the price action out of the bottom says in no uncertain terms, that we have put in a major bottom here. Now if we go up and take out SPX 1265, that would be the confirmation that a new uptrend has started. The kickoff move out of this bottom has been bigger, faster and violent than of 1/23, 3/17 or 7/08. That means we are starting a wave which is "higher in degree" than any of those waves that emerged out of 1/23, 3/17 or 7/08. Consequently the time and size of this wave should also be bigger than any of those ST moves. I posted the projections for this wave B in my previous post and i see no change to that.







Now as for the sentiment, this is by far the worse LT sentiment that i can recall in a while. The news of death of America is once again exaggerated. As i said last week, the asian regional newspaper journalists who think Freddie Mac is a hambuger, also have realized the impending death of America. When you get historical volume and a kickoff move on the NYSE Vol Osc out of this kind of extreme sentiment, it can only be a major IT/LT bottom. Time will tell...

LT Update - Voila !

On Aug 23, i wrote that we would head into a major 9 month cycle bottom and we did. On Sep 15, i posted that we should end the climactic phase in about 1-2 days. In my Sep 17 post i said that Sentiment was ripe for a major bottom and the pattern,price and time was ripe. Now one could blame the bottom on the Fed/Treas intervention etc. Yes, but that's not technical analysis. Hasn't the Fed treasury been intervening constantly over the last few weeks. Why did the market choose to bottom on a particular day ? Well, if one is a technical analyst, it would have been hard to miss this bottom. 2 days prior to the bottom we had nasty breadth plurality, with decliners exceeding 3000+ on the NYSE. During Thursday morning trade, the advancers were running around 2000, while the market started to plunge. Decliners never went above 2000 during the selloff. Not to mention the capitulation volume over the last few days. Tell tale signs of an approaching bottom. Of course, the advance out of the bottom got exaggerated with the annoucement of the short selling ban. But point is, if you are TA guy, you would have been prepared for this assault. That's what i had been preparing for, with my posts over the last few days on this blog. Many are calling this as a ST bottom. But i disagree and i am going out on a limb and calling this a major IT bottom. A multi-month rally lasting 6-8 months should begin from here.


My LT projection for SPX was 1170+/- 20 points and we acheived that this week. The market progressed pretty much in the way the pattern was projected. An a-b-c-x-a-b-c.

Prior LT projection


Given that this was the largest, fastest 1-week rally since the bear market begun in Oct 2007, the post market action out of the bottom loudly says that the first leg of the bear market is likely over !.



Now to the fun part on the projections. Assuming wave A is over, Wave B typically retrace 50-78.1% of the wave A rally. Given the fast nature of the rally out of the bottom, and relative to where the price now is w.r.t to the weekly Oscillator, there's ways to go before the weekly charts get overbought. So it's unlikely that the 50% retrace will mark the end of the wave B rally. Timewise it took almost 12 months for the wave A rally. So the wave B rally should last at least for 6-8 months. Given the time requirement and the room on the weekly momentum charts, i would say the target for this Wave B rally should be at least the 61.8% retrace, which comes around 1407. That's my prelimnary projection P1. If we exceed and hold above that, we could tag the P2 target (1470), which is quite remote, but nevertheless possible.

The necessary divergence on the NYSE MCO is in place. The necessary momentum divergences on the weekly charts are in place. I dont' see a case for a retest. I only pray that the bears don't get caught in another gap-up over the weekend. A lot of psychological damage has been made on the bears in the last 2 days. The outrage over the govt intervention and disbeleif in the rally, will ensure that the bus will never get loaded on this upleg. Keep an open mind and trade well ! Good luck.

Sentiment

Sentiment here is appropriate for a major bottom (no i am not talking about a ST bottom). What a contrast ? It was just 8 months ago when the chinese housewives were buying the Shanghai with both their hands and the Indian housewives went nuts, all plunging into the Reliance IPO when BSE was at 21000.

When S&P cracked 1380 back in January, i posted the LT sell on the S&P with a target of 1170+/-20. There were no talks about the implications of the U.S market breakdown. It was all about how the emerging markets were immune from the U.S developments. BSE was at 20,000+ and SSEC was somewhere around 5500 then. Now that the BSE is close to it's LT objective of 12300 and Shanghai now below 2000, stories about the death of U.S is appearing on the front pages of the asian newspapers, written by journalists who think AIG is an index and S&P a stock ! And mind you, the stories are appearing even on the asain regional newspaper frontpages !

Time to get bearish was 2 weeks back when the trend turned. At the tops and the middle of the trend, there are plenty of trendlines, forks, bollinger bands, fibonanci, pivots, etc to provide support and a slope to slip down on. When all supports are broken and there's nothing to hang on, then the raw fear takes over, like now. The crash topics take center stage. Newsletter writers warn their subscribers of the dangerous volatility and ask them to stay in cash (and you need to pay these newsletters folks to learn to stay in cash. Amazing !). Folks, it's nothing new here. I bet every major IT bottom has felt that way. Most typical of a 9 month cycle bottom.

Now this is neither an advise to bottom pick nor a passage about my knife-catching abilities. Just a sentiment read. I don't trade these bottoms. I am just not interested. I just scalp the volatility, beacuse unless one has the ability to take 50-100 SPX points drawdowns calmly, they have no business trying to establish positions here.

Time, Pattern and Price are ripe here for the completion of the first leg of the bear market. Now let the market speak....

9 month cycle update

Since my Aug 23 update, the market has been severely pressured by the 9 month cycle. Given that the cycle is on track, i would expect the lows to come sometime the end of September. Negative breadth climaxed on today's selloff and the volume rose as we broke SPX 1200. We are entering into the selling climax phase of this decline, which should last a couple of days, which means some nasty volatility and wide range bar days. I still expect the market to bottom in my LT bottom projection area of SPX 1170+/- 20 points. If the market puts in the internal bottom in the next couple of days, then we should see a bounce and retest towards the end of this month. That's just a guess at this point. Until the daily trend turns up, think shorting the bounces, not picking some elusive bottoms. Supports mean squat in strongly downtrending markets ! It's "Slipping down the slope of hope". It's gonna be one hectic week. Will post an update, end of this week.

Good luck !

9 month cycle bottom

I am not a cycles guy and i don't watch short-term cycles. But i do pay attention to the 40 week-cycle, i.e the 9 month cycle. One of the most powerful and reliable cycles IMO.



Ideally the cycle is due the end of Septempber. If it right translates, the way it did the last time, then it's due end of Oct to first week of Nov.

There are wide range of opinions concerning the LT scenario. Opinions range from a dark bear breaking the Oct 02 lows to a LT bull which has already resumed. Some remain in the middle camp which are calling for a cyclical bear. I continue to remain in the middle camp i.e a primary degree wave 2 from the Oct 07 top (Wave 1 being the primary 1 from oct 02 - oct 07).

The coming 9 cycle bottom would give more clues about the intermediate picture. Ideally we should break below SPX 1200 and put the necessary divergences on the weekly to end the primary degree wave A of 2 and start the primary degree wave B of 2.

On the other hand, if the 9 month cycle lows hold above SPX 1200, then it would mean that the primary degree wave A of 2 terminated at SPX 1200 and we are already in a primary degree wave B.

The coming 9 month bottom will provide strong clues about the IT scenario and put to rest all opinions, as the market will once again assert itself, leaving behind all opinions in the dust !

Weekly Trends - Aug 20, 08

Gold and Dollar - My call on July 27 was spot on. Gold plunged below $800 and Dollar tagged the 77-78 area. Now Gold and Dollar are at key LT pivot points. If the bull market in Gold is alive we should start a screaming rally and take out the March 08 highs. That would be the expectation of a trend follower. However, given the concerted co-ordinated efforts among the central banks across the world to combat inflation (many of the asian bloc countries already in a run-away inflation mode), it's possible that the inflation cycle has peaked and so has the commodity bull cycle. That's just my opinion. I will let the market speak for itself.

SPX

Nothing has changed since my July 21 update. We were at 1260 then and we are around the same levels today. SPX probably topped at 1313. If not, there are two key resitances overhead - 1327, which is the May 06 highs and the 200 SMA, currently around 1365. 1365 also happens to be a key horizontal res (March 07 and Aug 07) bottoms.







As far as the daily charts goes, it's a tough choppy market to trade here. It's the hourly charts where the action is. How do i play this? To me, it's simple. Currently the daily momentum is down. So keep shorting the bounces on the hourly charts. If the daily momentum turns up, keep buying the dips until either 1327 or 1365 is reached.

Good luck.

Weekly trends

SPX - I presented two counts in my LT update last week, one in pink and other in blue. Both the counts are equally probable at this stage. There's not enough information to rule out either scenarios at this stage. A retest of SPX 1200 with either a higher or lower lows with divergence (count in blue) would be intermediate term bullish. If the count in pink materializes, then we should rally to about SPX 1335-40, before the next downleg starts.

Dollar, Gold - The weekly trend on the Gold remains up and the Dollar down. I got a countertrend sell on Gold and coutertrend buy on Dollar on the weekly charts, end of this week. Dollar index should rally to about 77-78 before it peters out. In the meantime Gold should drop to about $800, before the next weekly uptrend starts.

LT Update

Back in January, i made a case for a bear market

http://nav-ta.blogspot.com/2008/01/big-picture-lt-sell.html

So far the progression of the bear seems in line with the big picture. My LT indicator remains in a deep bear territory, which will take a while before it recovers above zero. As i belong to the confirmation based school of TA, i will wait for that indicator to cross back above zero and a potentially completed wave pattern to call the beginning of the new bull, whenever that happens.

In the LT update i had a projection of SPX 1170+/- 20 points for a bottom. We hit SPX 1200 last week, 10 points above the high end of the projection.



From here the market can take two paths from a wave and internals perspective. If we rally straight up from here to about SPX 1300-1320, without doing a retest, then we are setting up for another failure and i would go with the count in pink. If we were to do a retest of the SPX 1200 area with positive divergences, then we would be making one heck of a bottom and should be good for a multi-month rally (the count in blue).

Blue or Pink Jose ? It's futile to guess. I will let the market speak. Bottomline the bear is far from over, but we are setting up for a major bear market rally here.

ST buy signal at the close

It was wild volatile action in the markets today, typical of a bottoming market. The market apparently did not go into a selling climax, which many have been anticipating for weeks now. Maybe too many are looking for the climax. Maybe the system is clogged with shorts. Who knows ? What really matters is price, breadth and volume. Today we had a divergent bottom on both NYSE breadth and Vol MCOs. My price momentum system on the hourly also issued a buy signal. These signals are good for anywhere between 20-60 SPX points.

Is this an IT bottom ?. Too premature to even think in that direction. But if we start seeing big volume and breadth spikes, then maybe we are on to something big. One baby step at a time...

P.S - Remember, the mother of all interventions by the Fed in March 2008. That was an engineered bottom and today's retest of that bottom is sort of vindication for those who beleive that in the long run, the markets are on their own and too big to be manipulated by the central banks or any other financial powerhouses.

Weekly trends - 6/27/08

SPX

As i noted last week, with the break of 1324, the IT trend turned down and i had weekly support target at 1280-90. We tagged that support this week, but there is neither a divergent setup on daily or even the hourly charts for that matter. I told one of the posters on traders-talk, that it's unlikely we get a complex bottom, cuz if we do, we can forget the bear market for a while. The market's on a mission here, a mission to make new bear market lows. That's the reason it's been so persistenty declining and not making any divergent bottoms. Everyday it's the same story. Some silly bounce, the breadth looks good in the morning and gradually deteriorates into 2000+ decliners by mid-to-late day. That's strong instituitional liquidation going on.

The break of 1324 was a disaster for the bulls. Once the market enters a IT downtrend, the reversal ain't gonna happen easily. We need to see complex bottoming action. We need see some 90:10 volume days with a big breadth spike. The only thing that would bring that kind of a buying interest would be either another huge Fed intervention or a market crash of about 100-150 points from here, which would undoubtedly bring an army of bargain hunters. Otherwise, 20-30 point bounces on SPX aside, the IT downtrend should continue.

As for the support, 1380 weekly support has held so far. I am not expecting any big bounces here other than the 20-30 point variety which is again a short in my book. If i get any ST buy signals on the daily charts, i will post an update on this blog.

The Asian markets got slaughtered week, particularly the BSE. BSE dipped below the 14000 mark, closing at 13800. The montetary authorities have started tightening the screws hard, with India in a runaway inflation mode. My LT forecast for BSE, which i posted on this blog a few months back, has it's first support around 12300. I doubt that support will hold either in the LT.

Gold, Silver and Euro

Gold, Silver and Euro continues to remain in a weekly uptrend. Both Gold and Euro issued a continuation buy this week. But it was not confirmed by Silver. Until both Gold and Silver confirms, i am staying out of these markets.

Weekly Trends - 6/20/08

SPX

Boy, was i wrong !

I made a call just a day before the May top and projected a target of SPX 1350-60. My targets were met, but got undershot. But the IT trend was up in my book as long as SPX 1324 held. Given that we held SPX 1324 last week and got a divergent buy setup (a 70% odds signal), i thought we had begun the next upleg towards SPX 1500 +/- 20 points. The market action this week clearly proved me wrong. Now that cancels my SPX 1500 +/- 20 points projection.

Now the next support of importance on the weekly charts comes around the 1280-90 area. The 1404 double top has a measured move to SPX 1300 on the daily charts. So it's safe to say we should bottom somewhere in the 1280-1300 region. A bottom here could happen by a basing action, with multiple retests in the 1300 area or a climactic drop into the 1280 area. Which one ? I have no clue. Whenever the next buy signal on my daily charts show up on my trading system, i will post here (right or wrong !).

Gold, Silver and Dollar

As i said last week, there are no easy trades in these markets, as the weekly charts are pretty much neutral i.e sideways action, with the weekly 34 EMA flattening. A trending move is about begin in these markets pretty soon, looking at the basing action in the Gold/Silver on the weekly charts and the rejection of the 34 ema on the Dollar index weekly charts. Essentially the inflation theme continues in these markets.

Inflation is running out of control in the asian bloc. Many countries now have official inflation numbers in double digits. Some of the countries like vietnam have inflaton running above 25%. India's official inflation numbers which were barely 6% a few months back now stand at 11%. Wow, nearly 100% increase in a few months. Gotta beleive these govt numbers. Now how does this play out. Will this enter a runaway inflation mode, furthering the commodity rally or will the central banks tighten real hard and cause a commodity collapse ? Who knows ? That's why i hate fundamentals. Sorry for digressing, but the inflation situation looks alarming !

No positions in any market, but looking to enter soon, based on confirmation.


Good trading !

Weekly trends - 6/13/08

Last week i showed a chart of the NYSE Vol MCO with a potential divergent setup. Now the divergences were blown away and we proceeded towards my longstanding target of 1350 for this correction. We'll the price undershot even more into SPX 1331.

What we had last week was a potential divergent setup. But what we have end of this week is a confirmed diveregent setup on both the NYSE Vol and NYSE breadth MCOs. So i will go out on the limb and call the 6/12 bottom as an important bottom for many months to come. We should begin a multimonth advance here which should take us into the SPX 1500 +/- 20 points area.

Again divergent bottoms can be simple or complex. What we saw in March 17 was a complex bottom. Those kind of bottoms are violent, emotional and glaring. While anyone can spot them, it's difficult to trade them as they tend to occur at major IT bottoms which tend to be hypervolatile affairs. We see retests on the Osc itself in the complex bottoming situations.

Simple bottoms are simple. Hell, how can i describe them ?. 1/23, 4/15 and 6/12 were all simple bottoms, which i have marked on my chart. They don't display the complex retests on the Osc. They tend to occur in the middle of IT trends, usually secondary bottoms. They are more subtle and tend to fool the most. A good example was 4/15 when most were bearish and got fooled. Same siutation here again.

Again, there are tons of fundamental reasons to be bearish here. But the technicals are saying a bottom here. And i will go with the technicals.


Gold, Silver and Euro - They all remain in weekly uptrends, but in a corrective configuration, which is very diffuclt to trade here. So nothing compelling there for me.

Weekly trends - 6/6/08

SPX
Sideways to down it was, as i posted last week. I was expecting 1425 max on the upside, which got undershot. The downside today was pretty dramatic. We are now near my downside target of SPX 1350-60 area. I still beleive that this area will provide the support and we launch a multi-month rally from here. The key here is the NYSE Vol MCO which is putting in a divergent bottom relative to price.
















The key is not the divergence itself, but the price reponding to this divergent setup. So we need to see the divergence hold and price confirming by giving a daily buy signal. If that happens then we are on track for a multi-month rally here. Now if the NYSE Vol Osc breaks that blue line in my chart, that's a warning sign that something big on downside is coming. Pricewise, if 1324 cracks then the IT uptrend is over and the next leg of the bear market has begun. That's not what i am expecting here, but something to be open minded about.

I have not seen the indices as broken as it is now, in a long time. NDX and RUT are not even in daily downtrends and yet to break the 5/30 weekly chart lows. But SPX chart looks completely broken from a daily chart perspective and holding on to dear life from a weekly perspective. Who's real...who's faking ? We should know soon.


Gold, Silver
As i noted last week Gold and Silver are in some sort of sideways congestion before we start a trending move up. Many are expecting a big downslide in Gold, which i am not. I will likely take a position in Gold sometime next week. I need to see some more strength before commiting, to avoid whipsaws.


Dollar
Yawn...The weekly downtrend continues.


OIL
The weekly uptrend continues. A very dangerous market here, which appears to be in a blow-off phase.

Weekly Trends

SPX
The weekly on SPX remains in an uptrend with an eventual objective of SPX 1500 +/- 20 points. Only a break of SPX 1324 would invalidate the weekly uptrend, and would mean a multi-month decline has started.

The daily on the SPX is currently down and the market should remain rangebound for the next couple of weeks between SPX 1425 and 1350. My hourly model on SPX remains on a buy with a max upside target of 1425 this week, after which i expect a test of the SPX 1350-60 area.

GOLD and Silver
Gold and GDX remains in a weekly uptrend despite all the downside volatility this week. Silver which went to weekly buy last week entered a sell this week. The non-confirmation between the Silver and Gold continues. To me this appears to be a sideways congestion pattern, before the uptrend resumes on the weekly charts. However this is not a easy market to trade with confidence here. Closed my GLD position at breakeven this week and SLV for a 2% loss. Will reasess Gold based on this weeks action. Staying out for now.

Dollar
Dollar index remains in a weekly downtrend. So boring...

OIL
Oil remains in a weekly uptrend. Yawn...

Weekly trends

Gold
Remains on a weekly continuation buy. Target still remains at 970-980. Still long GLD from 89. Took partial profits this week and bought some silver.

Silver
Issued a fresh weekly continuation buy this week and confirmed Gold's last weeks advance. Bought some Silver using SLV at 80. Will add more if we get to 75.

Dollar
Dollar index went to weekly continuation sell this week. Initial target is about 69-70. No positions here.

Stocks
I was expecting a ST top on Friday last week. But it came a day late on Monday. We are approaching the ST target on SPX around 1360-70 area, where a multi-week rally should begin which should not take out the 5/19 highs. SPX appears to be in a mulit-week sideways to down correction.

Financials
My call on SKF last week was spot on. I had a target of 109-110. But i took profits prematurely at 106. XLF has a downside target of about 24 based on the weekly charts and we are almost there. No positions here.

Not a bear market a la 2000-2002

Back on Jan 19, i posted a LT chart of SPX showing the completion of a 5 wave impulse with a wave 5 extension. That completed the wave 1 of the impulse. That also said a wave 2 bear market was underway with a LT target of SPX 1160.

LT sell

The unfolding structure and the market dynamics at that time called for a quick drop to 1160. But the massive Fed intervention created a temporary bottom around 1250 and we rallied.

I said in that post

So we in a primary degree wave 2 bear trend at this stage, until proven otherwise. The implication is that the Oct 02 bottom was a cycle degree wave 4bottom, which should not be violated for decades to come.

Many bears are expecting a repeat of the 2000-2002 bear market and some expecting the Oct 2002 lows to be taken out. I have to respectfully disagree here on both the counts. 2000-2002 was a cycle degree collapse. Right now we are in a primary degree wave 2 bear trend. Big difference.

The last two of weeks of action has pretty much ruled out a 2000-2002 style collapse. Remember in bull markets the tops are complex and the bottoms are simple. It's the opposite in the bear market, when tops tend to be simple and bottoms are complex. Take a look at the weekly CCI during the entire 2000-2002 bear. As soon as the weekly CCI used to get overbought i.e move above 100, it used to result in a immediate collpase in prices. The weekly CCI never stayed above 100 for more than a week or two. That's a simple top and a classic weekly downtrend in progress from a momentum perspective. Right now we are dealing with a situation where the weekly CCI has been above 100 for the last 6 weeks. That's not a simple top, but a complex top on the CCI. In other words we have started uptrending from a momentum perspective. Although we have the 8 EMA still below the 34 EMA, momentum which leads price is saying we are uptrending on the weekly timeframe. That is not exactly what you would see in a full fledged bear market.

Now whether you call it a bull market correction or a bear market depends on one's definition. To me, it's not a bull market, until we have the weekly MACD above zero and bottoms above bottoms configuration on the weekly charts. So i continue to label it as a bear market.

Now the bull-bear dividing IT pivot comes around 1324. As long as SPX 1324 holds, the path of least resistance on the weekly chart will continue to be upward. For IT traders, long is the right trade. I was expecting a ST top on Friday, but it came on Monday. Now this ST decline will tell the story for the next 6-8 months. If we get a choppy sideways to down decline into SPX 1360-70 area and if daily gets oversold and turns back up around that area, then it's very bullish IT and we could move up to test the SPX 1500-20 area. For the bears to regain control, we need to break the IT pivot at 1324 - Period !. Now i keep asking myself, is there energy in the bear to do that ? Without putting my own bias in the front, i will let this ST decline give me clues.

Now does that mean the bear market ends if we hold the SPX 1360-70 area. A five year bull market is not going to end with a mere 6 month correction. Structurally, it does not make any sense from a e-wave perspective. That means SPX will not make new all time highs, but will do a deep retest of the 2007 highs. Bottomline, if 1360-70 area holds over the next few weeks, there's another 150+ points of potential SPX run to the upside. Bull or bear, i would not want to miss that.

Good luck.

Trade update

Closed my SKF position between 106 and 106.30 for about 5% profits. Still holding GLD long.

Weekly trends

I will try to post some weekly trends from my position trading system here going forward, once a week. These are multi-week position trades which require 5-8% stop aiming for 10-15% or higher profits.

Gold

Gold never entered a bear trend on the weekly charts, despite the big correction off of the March 08 highs. The weekly 8 EMA continues to reside above the 34 EMA. Now i have a fresh buy on GOLD as of this week's close. So essentially it's a trend continuation buy. The target for Gold is about 970-980 or higher. I took a position in GLD at 89.

Silver
Silver dissapointed from entering a weekly buy. Missed by a narrow margin. Not sure if that's a red flag for Gold or if it's just lagging behind gold. No positions here.


Euro

The Euro is on a counterend sell i.e a correction on the weekly charts. The 8 EMA continues to resides above the 34 EMA and the weekly trend reamins up. But we marginally failed to get a continuation buy on Euro, thus putting it still in the correction camp. Again whether this non-confirmation remains a red flag for Gold remains to be seen. Interestingly the ETF FXE issued a buy. Maybe the ETF folks are over enthusiastic here. We shall see..

No positions here.

Financials

XLF remains on a weekly continuation sell from last week. XLF needs to take out 28 to invalidate this signal. I remain long SKF from 101 last week.

S&P
The weekly trend continues to remain down on the S&P. 8 EMA below 34 EMA. We are in a large correction in a downtrend. But a couple of more weeks of upside action could turn the weekly trend up. ST continues to confound me. Everyday looks like a top, only to be taken out by a surreptitious slow rally. Typical of a trending market. My system says Friday was a ST top, but again the late day OPEX shenanigan put a damper on that signal. Next weeks things should get clearer.

No positions here. Only daytrading.

OIL

WOW. The strong uptrend on weekly charts continues. DUG seems to be the darling of the masses, just like QID was in 2006, making fresh lows day after day. But the enthusiasm of the OIL bears remains unfazed. It remains to be seen, if finally the OIL bears get the much needed correction or just get blown out by the charging bull. No easy trades in this market at all.

No positions here.

IT and ST update

In my IT update on April 12, i was looking for an SPX target in the 1400-1420 range. On April 22, i thought we made a top at 1395. But i was wrong. The market inched higher into 1422 area. Now based on Friday's action, we have cracked the ST uptrend from the 4/15 lows. My ST system (daily) is now on a sell, which means i will be shorting rallies here.

Intermediate term has two scenarios here.

Scenario 1: Now the key IT pivot here is SPX 1324. If 1324 is taken out even on a intraday basis, the IT uptrend is over and we should head down and crack the 3/17/08 lows.

Scenario 2: If the daily charts gets oversold and turns back up without breaking 1324, then we should head higher in another upleg to about 1450-60 area.

LT we remain in a bear market, all this huge rallies not withstanding.

LT - Down
IT - Up
ST - Down

IT update

The ST uptrend from March 08 lows likely ended today. Both the NYSE breadth and Vol MCOs have hooked down. The Nasdaq breadth MCO has crossed below the zero line and turned the summation down. The daily momentum on SPX has also turned down. The wave pattern looks complete.

The last rally from 4/15 lows has the signature of a sucker rally. Look at the 10 day SMA of the adv-decl on NYSE. It severely diverged as we made new highs.



Will we go for another high with triple divergence ? Always possible, but i am not betting my money on it. Triple divergences on daily charts happen when the markets are in a strong primary uptrend like last summer. Now we are in a bear market. Be prepared for out of the blue declines.

Good luck

IT update

In my last update on April 12, i called for an upside target of SPX 1400-1420. I was expecting that target to be tagged in about 2 weeks. But it all happened bloody fast, if you were a bear !. Too far...too fast. Again, feels good to be a technical analyst.

So far there are no technical indications of a top yet. I did get a VST sell at the close on Friday. So expect some weakness come Monday. I don't have any projections for the selloff yet. All big selloffs start with a VST sell. But all VST sells do not necessarily lead to big selloffs.

To call 4/18 as a top, a couple of things need to happen. Firstly the rising NYSE MCOs should hook down and price needs to break below SPX 1357. That selloff should be of a high velocity type. That would be an early indication of the top. Barring that i would still expect the higher end of my projected range which is 1420 to get tagged in the coming days.

Bottomline, hourly is on a sell. Play for what it's worth. Daily uptrend remains intact for now. No need to overanalyze here.

IT update

In my last IT update on March 24, i noted that the turn in the Weekly CCI above -100 would take us to SPX 1390, the mid-line of the weekly bollinger bands. We tagged the weekly BB which came in around SPX 1386 and got rejected. Feels good as a technical analyst. But the fly in the ointment is that the NYSE MCO spike has not yet displayed negative divergences to call that SPX 1386 as a good top. Also the daily trend as evidenced by the series of higher lows on the daily charts is up. So i would expect another rally here into the SPX 1400-1420 area to finally create the necessary divergences on the MCO and set the stage for the next big decline into the SPX 1160 area.



SPX remains in a very complex corrective wave B correction. This pattern can take myriad of ways to its completion. The wave pattern by itself is totally useless to determine its conclusion. One need to look at the daily price momentum and the internals like the MCOs to determine it's conclusion.


In the end, "Price is king". If we break the 3/31/08 lows, then you can kiss the uptrend a goodbye and start looking to short rallies. For now, the ST remains up and i will be looking to buy dips on oversold conditions. ES could fill the gap at 1321.50, before we begin the next upleg. Or we could also gap-up on Monday and never look back until SPX 1400-20. Either way, i am expecting another upleg.

Good luck all !

IT update - The mother of all interventions !

I am not a fundamental analyst, nor do i beleive fundamental analysis has any value in market timing. But some interesting fundamental events have transpired over the last couple of months - 75 bps emergency but, 50 bps regular meeting cut, 200 billion TSLF facility, another 75 bps regular meeting cut, Bear stern bailout....

And the grand effect - we are still below the Short term DTL (downtrend line). That's some potent intervention, eh ? How many cuts did we require to launch the 1998rally ? Something to ponder.

Ok, now back to TA. The most important technical event as of last weeks close was the Weekly CCI moved back above -100. Usually that's a good indicator of a multi-week rally to occur. The last time it occurred was on 11/30/07, which resulted in a 1.5 weeks of rally before failure. Let's see how long this one lasts.

From a daily chart perspective, we still remain under the ST DTL, which means the daily trend is still down. If we get back above SPX 1345, this week we would end the ST downtrend and the weekly momentum displayed by the CCI should assert itself, meaning a move to about SPX 1390 area (midline of the weekly bollinger bands) should begin. If we fail to take out the SPX 1345 area and encounter a failure, then the downtrend will continue.

If one is stubbornly bearish, the weekly CCI is flashing a big warning to remain flexible.

BSE Sensex (India) LT sell signal

BSE went into a LT sell on March 14, 2008 based on the weekly close, both from a momentum and e-wave perspective. The weekly MACD dipped below zero and now we have a pattern of lower lows on the weekly and a potentially completed e-wave pattern.

The day U.S markets went into a LT sell on my system was 1/16/2008 ( with the break of 1370, which i published on this blog), BSE was trading at 19,868 then. Today it's under 15000. The LT sell on the U.S markets was a great cue for those long the BSE to exit. March 14 weekly close broke the LT uptrend on BSE. I was out of town over the weekend and could not post the LT sell over the weekend.

This sell signal promises an IT objective of about 12500 (wave A decline) and then a bear market bounce in wave B and then a final flush in wave C below 10000. Once the wave B rally completes, i should be able arrive at more refined projections for wave C.

Now that we are in a bear market as opposed to a IT bear trend, this should lead to softening economic conditions going forward. Also, as long as the LT buy was alive, one could sit on drawdowns and hope for the LT trend to bail them out of the drawdown situations. One could also average down on IT term declines. Now that the LT is on a sell, drawdowns can lead to further drawdowns and averaging down can be a potentially losing strategy. Also now all signals will have to be intrepreted in the context of a bear market.

LT and IT update

My LT indicators remain in a bear zone and i eventually expect SPX to tag SPX 1170 +/- 20 points. No change there.

The IT picture here is very interesting to say the least. I have two counts here.

The first count says we have topped in wave X and about to commence the next big leg down. If this were true, then we should take out the MCO lows of 1/22/08, which is not very far below. My only concern with this count is that the upside wave X did not even tag the mid-line of the bollinger bands on the weekly charts. That's very unusual even for a bear market and is characteristic of an extremely weak market.



My second count says we are close to concluding wave b of X and then another run-up to SPX 1420-30 area (wave c of X) to tag the mid-line of the Bollinger bands on the weekly charts, before the big leg commences. Note that both the NYSE breadth and Vol MCOs took out the 2/22 lows. So it's very likely even with this count that we see further weakness down into SPX 1310-1316area, before the wave c of X begins.




Which count Jose ? I have no idea at this point unless we get more information. E-waves are roadmaps and not trading signals. Watch your hourly indicators for bottoming action before jumping long, even if you beleive in the bullish count. Hourly is decisively down at this point and no buy signals there. If you truly beleive that we are headed to SPX 1430 area, then why the hurry to catch a falling knife ? Wait for a hourly buy which could come 15-20 points above. Missing the bottom 15 points ain't shabby if you are looking for a 100 point trade. Good luck !

The big picture ! - LT sell

Prior e-wave projection

Back in Sep 2006, on this blog, i had posted the e-wave projection for the final bull market top as SPX 1620. But given the 3-legged structure from Aug 07 bottom, i was still giving the benefit of doubt for another run-up to SPX 1620 in 2008, to complete the pattern. I was wrong. My LT system issued a sell on Jan 16, which now precludes any run-up to new highs anytime soon. The e-wave failure or truncation resulted in a bull market top at 1576. I missed my projection by about 40 points, which is insignificant for a LT type of projection. It's not about being right or wrong here. Even if i were dead right on my target, i would still have got a LT sell only about 10-15% down from the top. You don't get LT bearish confirmation at the tops.

LT sell





As i posted here on Jan 16 08, my system went to a long term sell after breaking the Aug 07 lows. Some recent history on this LT system.

Nov 2000 - SPX 1365 - LT sell. SPX declined to 768 subsequently.
June 2003 - SPX 988 - LT buy. SPX ran up to 1576 after this LT buy. About 60% run-up.
Jan 16, 08 - SPX 1370 - LT sell.

Now since the last LT buy back in 2003, SPX has had one heck of a bull run of about 60%. Now the LT sell has been generated at about 12% from the top. So giving up 12% of the profits from a 60% run-up is not a bad deal, if one views it from a LT perspective. The LT sell during 2000 was also generated from about 11% from the top.

If one were a ST trader, my ST sell would have gotten one out of the market right near the top on Oct 11 - ST sell posted by me on TT.

http://www.traders-talk.com/mb2/index.php?showtopic=77295&hl=

If one were a IT term trader, my IT sell would have gotten one out of the market at 1480 on Nov 11 - IT sell posted on traders-talk

http://www.traders-talk.com/mb2/index.php?showtopic=78887&hl=

So bottomline, it depends on the timeframe one is trading and how much drawdown one is willing to take. LT signals is of no use to traders. It's mostly for LT investor types.

This LT signal is based on three factors. All three conditions need to be satisfied.

1) My bull-bear indicator moving above zero for LT buy or moving below zero for LT sell.
2) Lower lows on weekly for a LT sell and higher highs on weekly for a LT buy.
3) A potentially completed e-wave pattern.

Amazingly, all the three factors came into play right about at the same time. That's what makes TA fascinating !


E-wave details






I was working with an assumption that we were in a Primary degree wave B from March 03 bottom. Given that i now have a LT sell and a potentially completed wave pattern, i have to now radically alter my wavecount, in the light of newly presented information. Waves are dynamic structures, which evolve over time. Now there is no way, i can call this structure a A-B-C pattern from the Oct 02 lows, without violating all the channel rules and e-wave time rules and compromising on the structural integrity of the wave pattern. I am not going to do that to justify my bias or to stubbornly prove my original thesis. Instead, i am changing my wavecount, that the wave from oct 02 was a Primary degree wave 1 impulse, with a wave 5 extension. So we in a primary degree wave 2 bear trend at this stage, until proven otherwise. The implication is that the Oct 02 bottom was a cycle degree wave 4bottom, which should not be violated for decades to come.

The first thrust (Wave 1) from the Oct 02 bottom generated a MACD reading of -14.3. The subsequent thrust (wave 3) generated a MACD reading of 39.58, which has never been exceed throughout the course of the bull market, even after the huge impulse from mid-2006. That pretty much confirms that 2004 peak was indeed the wave 3. Wave 5 generated a peak MACD reading of 37.27, which diverged negatively with the wave 3 peak, characteristic of wave 5. Now we have a situation where wave 1 < wave 3 < wave 5 which says wave 5 extended.

Price Projections Now typically, impulses once completed, retrace back to wave 4 of a lesser degree, which in this case comes around SPX 1170. The measured move objective for a potential double top at Oct 07 also generates an objective of 1170. So the preliminary price objective for the Primary degree wave 2 should be around SPX 1170 +/- 20 points. Whether further downside projections will be generated, will be determined if and when we get there.

Time Projections

Since there is no clear defined time relationship between wave 1 and wave 2, it's hard to come up with a time projection for wave 2. If it's a violent decline, we could see all this over in about 6-8 months. If it's a slow bleed with deep retracements, it could run all the way into 2010. I am not going to hazard a guess on that.


Signal Status

At this point all my systems from VST to LT remain on a sell. Remember in the context of this LT sell, we will have some large and vicious bear market rallies. But rallies should not make any new bull market highs, but a series of lower tops.

Implications of a LT sell

Now that we are in a bear market as opposed to a IT bear trend, this should lead to softening economic conditions going forward, and possibly a recession. Also, as long as the LT buy was alive, one could sit on drawdowns and hope for the LT trend to bail them out of the drawdown situations. One could also average down on IT term declines. Now that the LT is on a sell, drawdowns can lead to further drawdowns and averaging down can be a potentially losing strategy. Also now all signals will have to be intrepreted in the context of a bear market.

And again the "End of America" and the collapse of the Roman empire arguments will start to take centrestage as the bear market unfolds. The argument about emergence of China and India as the next economic superpowers will start to gain strength. The deflationary collapse and "Great depression" arguments will be accepted and dreaded. Those who hung out on the longwaves.net during the 2002 bottom know pretty well how convincing they look and how wrong they turn out to be. If anything this wave 2 will generate fear levels worse than the bottom of Oct 02. Those fear levels should present an opportunity of lifetime for the wholesalers to pick up the bargains once again, as has always happened in the history. But for the retailers with not that deep pockets, it's prudent to remain patient and let the bear play out and wait for the next LT buy confirmation.

Good luck.

LT sell

I will post a detailed update during the weekend. For now, it's suffice to say the break of the Aug lows and my bull-bear market indicator crossing below zero has signalled a LT sell.

Oh my... !

The decline from July 07 top concluded as 3 waves. The next upleg from Aug 07 to Oct 07 was another 3 wave structure. The subsequent decline from Oct 07 is also a 3 wave structure so far. So no impusive action so far from July 07, from either a bullish or bearish perspective. That's why i give the benefit of doubt to a high level consolidation here.

The most striking feature is the irregular top on Oct 11. Irregular tops are bullish e-wave structures and they resolve upwards after the correction is over. The only way a 3-legged wave can be called the ultimate bull market top is if one subscribes to the truncation theory. If one theorizes that Oct 11 ended in a failure, then we could say that it was a major bull market top. But the truncation theory ends up wrong more than 9 out of 10 times. So it's hard to go with the truncation theory. A failure or truncation means the bearish forces were so overwhelming that the market could not reach it's logical conclusion i.e could not complete it's wave pattern. Now if it were true, then the subsequent decline from Oct 07 top should have been more violent than the rally from Aug 07 bottom. This is not the case as seen from the angle of decline or the time taken to retrace the the rally from Aug bottom. So the truncation theory is pretty hollow!

Now here's the "Oh my...." part.




My momentum indicator which demarcates the bull-bear market stopped right near the zero line as of this week's close. Oh my...

That also coincided with a climactic reversal in the form of penentration of the weekly bollinger bands and a reversal out of it. The BB penetration and reversal have market all the IT bottoms since the bull market begun in 2003. Oh my...

The decline from July 07 top to Aug 07 bottom took 5 weeks. The rally from Aug 07 bottom to Oct 07 top took 9 weeks. That's a total of 14 weeks for A+B. The decline from Oct 07 to date has taken 14 weeks. A+B = C. Oh my....

Can you call the bull dead ? You be the judge ! I am just presenting the TA case for a incomplete bull market.

My ST to IT indicators remain on a sell signal. If we get a strong rally accompanied with strong volume and breadth, then we could generate an IT buy signal next week. If we crap out here yet again, then the bear market case will start strengthening again. The market is currently wearing out both the bulls and bears. The violent snapbacks have killed the stubborn bears. The spectacular rally failures have killed the stubborn bulls. If one thing everyone is sure of in this environment is failures - both rallies and declines. Strong trending moves come out of this kind of environment. Be prepared !

IT sell signal

What a difference a day makes!. The inability of the market to recover after filling the ES 1436 gap and a lack of strong reversal EOD, caused some massive technical failure on weekly charts. Now we have serious momentum failure on the weekly charts. If we break the Nov 26 lows, we would also have to deal with a pattern failure (triangle pattern). The ball is now clearly in the bears court and i am bearish here. No reason whatsoever to be bullish.

So, now are we in a bear market ? Not yet. Not according to my indicators. Not until this indicator crosses below zero.



Don't get me wrong. I am bearish here, but an IT downtrend does not make it a bear market. Aug 04, April 05, Oct 05, June 06 have all had the same kind of momentum breakdown/configuration on the weekly charts. But they all resolved to the upside. The arguments then, were same as now. Internals breaking down, fundamentals (like credit mess, impending derivative implosion, consumer tapped out etc...). The fundmental arguments have no credibility left in so far as calling the bear market, cuz the market has rallied for 4 years in the face the same fundamentals or the fundamental expectations. Now during all those IT bottoms, it was the same sentiment on the message boards and among the market advisors. That any recovery back to the bull side was improbable and the bear market was inevitable. Clearly it was a wrong assumption in all the 4 instances. My indicator and my methodology has kept me on the right side so far and it also takes away any emotional reponse to market action and popular herding behaviour out of the equation.

What will create a bear market here ? IMO, three things need to happen here. The massive larger degree consolidation pattern or the topping pattern, as the case maybe, is yet to be resolved. A break of Aug 07 lows will resolve it to the bear side. A break of Aug lows would mean that we finally have bottoms below bottoms on the weekly chart. That's an unequivocal bear trend. That would also put to rest any bullish e-wave pattern arguments. That would also pull my LT indicator into the bear territory. Right now the jury is still out, but time to be very cautious on long side as the market has a serious chance of a collapse....

Case for an IT bottom

On 11/7 after breaking below my SPX 1480 IT pivot, we had entered a IT downtrend. Now the SPX 1480 has been captured on a weekly closing basis. Coincident with the price close, all my daily and weekly indicators have turned up and based on my weekly indicators i have a IT buy signal at today's close. The daily and weekly are both turning up at the same time, which makes it a combo buy signal, which tend to be powerful signals. Since i cannot fully disclose my system and its rules, here are a few charts to make a case for an IT buy signal.

On the daily charts, this slow MACD has issued a buy signal at the close today.




On the Daily charts, we are coming out of an oversold area, based on this oversold/overbought indicator.





On the weekly charts, the CCI crossed over above -100. We had a nice outside reversal day on the weekly charts. XLF, the beaten down financial sector also had a outside reversal day on the weekly charts.





The NYSE MCO had a nice breadth thrust and the summation is now pointing up. Also note the positive MCO divergences with Aug 07 lows.




Lastly, the 10 day SMA of adv-decl made a nice divergent bottom relative to Aug 07 lows and has now moved above zero.




Now the perversity of the markets should show up it's face next week. I am sure a lot of newsletter writers will be issuing buy signals to their subscribers today. How do you unload all the newly minted bulls ? - Good old stlye shakeout. After a day or two of move to the upside next week, we should see a good sized shakeout after which the IT uptrend should continue. I would expect SPX 1460 to hold on any shakeout/pullback.

Bear market - Nah !

The message boards are raging with talk of bear market, recession, Super cycle top et al. Nothing new there. It's what that's been going on over the full length of this bull market.

Emotions aside, i am posting a chart here with an indicator that i use to objectively define a bull and a bear market. Until this indicator turns below zero, there's no bear market, the way i define it. Again, remember this is a long term indicator and should not be used for ST to IT term timing purposes, unless one is ready to take a 15-20% drawdown. Right now we are in a intermediate term correction and it should be respected, if one is trading that timeframe.





Based on this indicator, in the last two decades, there have been three minor bear trends 1987, 1990 and 2000. 1987 and 1990 conincided with minor bear trends and economic softness. 2000 was a major bear market in stocks which coincided with a full blown recession. This indicator signaled a bear market in Nov 2000 and turned back in June 2003, which signalled the end of bear market. It's always better to be late in calling a bear market than earlier. Public memory is short. Those who claim to have called the 2000 top were the same folks who have been calling it since 1995 and some from late 80s. There are a few exceptions who called it in 98 and 99 and were vindicated in 2000. My point is "Don't be eager in calling a bear market" as the bull market topping is multi-year process. It's better to be 6 months late rather a few years earlier as the opportunity cost of not riding the bull market is too much and the associated psychological stress of being early and wrong in calling a top is just not worth it.

Looking at my indicator, during the great bull market of 90s, the first set of divergences started appearing in Oct 1997. We got a decent correction and the Osc moved to new highs. The next set of divergences apeared in July of 1998. We got a big correction and moved to new highs on the Osc in 1999. From July 1999, there were a series of lower low on the Osc with higher highs on indices. The increase in volatility, accompanied by a series of divergences was indicative of a maturing bull cycle. My LT indicators are in a configuration similar to where we were in July-Aug 1999.

Looking at my long term indicators and some divergences on the long term charts, i have to say the BULL market is maturing and in it's final stages. Nothing has changed as far as my LT e-wave count is concerned and i still expect SPX 1800 by 2009, before it's all said and done. My indicators remain in a bull market zone and i have a incomplete wave count to contend with. So the implication is the bull market will continue. Currently we are in a intermediate correction which started on Oct 11. I expect new ATH on SPX once the IT correction is over.

As for the recession talk, it's something that's been going on for the last 4 years. 2004, we were supposed to enter a recession. Then it got moved to 2005. 2006 was supposed to be a no brainer recession. 2007, there was no escape. And here we are in 2007 and the U.S GDP is growing at 3.9%. The emerging markets continue to grow at 9-10%. I am no economic expert. So i will listen to the stock market to signal a recession, instead of listening to the economic professors who have predicted the last few recessions that never occurred!

As for the Super cycle top and Grand Super cycle top and "End of America" arguments, it may not happen in many of our lifetimes.

LT market thoughts - Update 2

Last i updated my LT thoughts here

http://nav-ta.blogspot.com/2007_07_15_archive.html


While the overall outlook and direction of the long term hasn't changed a bit, i will have to change the labelling a bit. LT remains very bullish at least until late 2008-2009 as i have been saying for the last couple of years.

Intially my guess was the large correction from the July 2007 top was a X-wave. If it was a X-wave, SPX should not have made new ATH after the Aug 07 bottom, rather should have made a lower high vis-a-vis the July 07 highs and made a trip down to about SPX 1320. That would have made it structurally look like a wave-X and also would have satisfied the price and time requirements. Now the entire correction from July 07 to Aug 07 looks so small in terms of both price and time (relative to the entire rally from March 2003 to July 2007), one can conclude that rally from June 2006 is extending. That means the intermedite wave C of Primary degree wave C is still extending. So to put it simply Aug 07 was a wave 2 bottom of the intermediate term wave C from June 2006. As simple as that. If it's not clear, take a look at the chart.

Now that brings us to the projections. If wave C = 1.618 * wave A, then we should achieve SPX 1830 by late 2008 to early 2009. SPX 1850 also happens to be the 1.38 times Fib extension target for the entire decline from 2000-2002. So we should top the bull market from 2003, somewhere in the vicinity of SPX 1830-1850. Now that's the minimum projection. It could be higher if the waves extend. I will update as time goes by. By 2009, most of the bearish caucus would have been worn out both psychologically and financially, paving the way for a huge bear market in Primary degree wave C.

Again, since we are now dealing with wave iii of an intermediate wave 3, it ain't gonna be a pony ride. It's gonna be a bucking bronco, with scary volatility. The ST volatility cannot be predicted with just e-waves alone, but by supplementing it with various ST technical tools. But overall the LT direction remains up and is very bullish at this point, based on the wave structure.


My last LT update can be found here.

E-wave count

On Sep 1, wrote...

Bullish argument is different and bullish cheerleading and talking positions that happen on message boards are different. Once a weekly buy gets generated, we don't go to the sky directly, like many to-da-moon theorists opine. There are many hiccups on the way and some very scary. Markets are perverse. The first buy on any timeframe generally resolves in the opposite direction. It's for a simple reason, cuz every amateur joe is aware of that and every guru and newsletter writers keep pounding on those facts. That's what causes the amateur traders to come and regurgitate some popular guru opinion on message boards. Now guess what the pros do. They fade that common perception, instill fear by scary selloff, get everyone lean on the wrong side, make them disbeleive their gurus, and then take off.

What's the trade for a ST swing trader (houry swing trader) here ? - IMO it's a unwavering short


Before i proceed, i just want to say that i will not be posting any of my VST stuff on this blog. It's hard for me to continually update this blog during the trading day. Those interested in my VST stuff or trades, i will be posting them on traders-talk.com. My orginal intention was to only post IT and LT thoughts on this blog, and i will stick with that.




So the selloff came like a clockwork. What's next ? I see two possible wave counts at this juncture. Those who make fun of alternate counts firstly don't understand the basic principle of TA, which is probabilistic prediction of future prices. The primary wavecount is that wave c of an irregular flat ended on friday and we take off on Monday without looking back. The only fly in the ointment is that we broke that channel on an hourly closing basis on Friday, which makes me wonder if the market wants to probe lower levels ( SPX 1420), which is my alternate count. Which one ? At this point, i have no idea. We'll know the answers on Monday.

If the primary count is true, we are headed to SPX 1560 for the wave C up. If the alternate count is true, the price projection for wave C would be around 1530. Timewise, i am looking for mid-october for this price projection.

Goog luck trading everyone !

Morning thoughts - 9/5/07

The large gap-down on ES, which is currently trading at 1479 will most certainly push my 120-min indicators to a sell at the open. So the trade is "Swing short". Since i would need a large stop of about 20 points to take this trade, i will wait for some sort of bounce to develop and incrementally start building a swing short position.


1:00 Est update

Something doesn't seem right here to short this market. The market was overbought yesterday on the hourly. It was all reset with just one gap-down. Now the hourly momentum is turning back up from oversold levels and the 60-min uptrend is still intact. That's generally a bear-trap. I went long some ETFs and options around SPX 1473 levels. If we break below intraday lows, then i am wrong and will flip short.

9/4/07 - Closing thoughts

As i posted in my morning thoughts, an hourly close above SPX 1484 would cause the market to challenge the next zone of resitance, which currently lies between SPX 1505 and 1512. The ideal target would be SPX 1512. But my experience has been, when the message boards are all abuzz with the same targets, it generally gets undershot or vastly overshot.

It was a good daytrading day on the long side. As for the short swing setup that i was expecting, it just did not materialize.

This market is very strong. The NYSE breadth MCO made another new highs today. This is telling us in no uncertain terms that any pullback that comes along should be bought. Remember for a swing long, we need a selloff, just like a swing short requires a rally. The selloff could be a shallow one in terms of price, but needs to be deep in terms of oscillators. Until that occurs, going swing long at these levels is a sure recipe for a whipsaw. Based on my indicators, we are somewhere around 80-90% done for this hourly swing. Tommorow 10:30 Est could generate some short setup. We'll see...

With all the hoopla out there, the daily trend on SPX still remains down. The hourly and 120-min trends are up, which is what is driving this swing. Blindly shorting a market whose 120-min trend is up, just because the daily trend is down, is plain dangerous. Patience is required here for shorts.

For now, i will daytrade the long side and will be on a lookout to short for a swing trade, when the setup arrives. I will post it real-time here, when that happens.

Good luck.

Morning thoughts...

We did not get a 120-min sell at 10:30 Est CIT. So i will have to wait, until a proper setup arrives to short this market. Will continue to remain flat until such setup arrives. An hourly close above SPX 1484, then the next resistance would be SPX 1500-1505.

A swing trader's case

I am expecting a selloff next week and it should start from the get-go on Tuesday. My expectation is for a test or a slight break of the 8/28 lows. 30-min, 60-min, 120-min momentum were all flashing warning signs on Friday, with 30-min already on a sell. Had it not been for the long weekend, i would shorted the close for a swing trade.

The bullish argument certainly has merit here. We have seen that massive breadth spike on the NYSE MCO. Now the NYSE 5% and 10% components are above zero. The weekly CCI is above -100. As of the close of this week, we got "All clear" signal for IT longs for the first time since 8/16 lows.

Bullish argument is different and bullish cheerleading and talking positions that happen on message boards are different. Once a weekly buy gets generated, we don't go to the sky directly, like many to-da-moon theorists opine. There are many hiccups on the way and some very scary. Markets are perverse. The first buy on any timeframe generally resolves in the opposite direction. It's for a simple reason, cuz every amateur joe is aware of that and every guru and newsletter writers keep pounding on those facts. That's what causes the amateur traders to come and regurgitate some popular guru opinion on message boards. Now guess what the pros do. They fade that common perception, instill fear by scary selloff, get everyone lean on the wrong side, make them disbeleive their gurus, and then take off.

Any professional swing trader worth his salt would not base his ST trades on IT indicators. One has to trade the timeframe of one's chosing. What's the trade for a ST swing trader (houry swing trader) here ? - IMO it's a unwavering short, unless there is a monster gap-up on Tuesday. So barring a big gap-up on Tuesday, i will be shorting this market for a swing trade.

Will try to update my blog on a regular basis going forward.

Good luck everyone.

Retest time ?

I will keep it simple. As i commented in my last post, we found support in the SPX 1360-90 area and bounced. Is the bounce for real ? Maybe !. But so far there's no evidence that the bottom is in. I need to see the weekly CCI move back above -100 and the NYSE MCO 5% and 10% components move above zero to assert a traedable bottom has been seen. We should know the answer to that in about a week.Right now it's retest time and i would expect at least a test of 1410-20 area sometime this week. The "Fed bottom" (8/16) should not be violated in any case here, which would be very bearish. Even if we violate the 8/16 bottom by a tick, the next target would be SPX 1320-30. So essentially we remain in a volatile environment, where one could be a genius one day and the monkey the next day. Will continue to play both sides, with a bearish slant this week.

E-wave count with 9 month cycles

I am no cycle expert and the only cycle that i follow is the 9 month cycle. The last wave B bottom in June 2006 was a 9 month cycle bottom off of which this wave C impulse began, based on my phasing. Given that we have seen the largest monthly candle since the rally begun in 2003, it is safe to conclude that Phase I of the bull (A-B-C) is now complete. What follows the wave C is the wave X, in a complex correction. March 2007 was the second 9 month cycle bottom since June 2006, when we concluded the mini-panic. The next 9 month cycle is ideally due around Dec 2007.




If my count is right, we should find a good traedable bottom soemtime this week or early next week in the SPX 1360-1390 area, which should conclude wave A of X and begin a wave B of X bounce. Wave B of X bounce should consume roughly 10 weeks into late Oct 2007 and then a wave C of X decline into Dec 2007, which should conclude in the SPX 1320-1330 area (near the wave b channel top). Once the wave X concludes, we should begin another multi-year advance into 2009 (phase II of bull market).


In case we go straight up from here and take out the July highs on SPX, then it means that wave X already bottomed and phase II of bull has already begun. That would also mean my 9 month cycle phasing is wrong. It will be interesting next few months....

Bottom spotter fails

I posted the bottom spotter signal here a few days back. It's only appropriate for me to update it, since it failed. The signal failed when it took out the Aug 6 lows. Now we have a open ended risk again here with that broad area of support into focus again - SPX 1360-1410.

I see two possibilites here. A washout move i.e a drop of 30-50 SPX points today and a reversal, which would create a nice IT bottom. Instead if we begin a sharp rally from the get go, then a ST low will be confirmed setting the stage for a couple of weeks of rally and then another retest probably in late Sep or Oct. Which one ? It's too early to say. I would prefer a washout here, in which case i would load up on LEAP calls heavily. But then, everyone wants it. Markets are perverse.

All said and done, we continue to remain in a LT bull market. Nothing has changed in that regard. The only sectors currently in a bear market are HGX and REITs. I woudn't touch these sectors even with a 10 foot pole, at this stage of the game.

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 traders-talk.com. It better be a weak buy, coming out of a major panic low.

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.

http://nav-ta.blogspot.com/2007/07/lt-market-thoughts-update-1.html

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...

Approaching a major bottom.....

Let's establish the context first. On the weekly chart of the E-mini S&P 500, the bear market started in the fall of 2000 when the weekly MACD crossed below the zero line. The bear market ended in the summer of 2003, when the weekly MACD crossed over to the upside.That establishes the bull-bear context. Right now we are in the middle of a major bull market, notwithstanding expert opinions that it may have ended. The weekly MACD is still high up in the air, to call it done. For it to crossover below zero and enter a bear market, it takes many more months of bearish price action.

Before we extrapolate the trend and say the bear market has begun, let's ask, where exactly are we in the trend. The weekly momentum as measured by the CCI is now below 200. In all the instances, during the bull context, when the weekly CCI entered the -200 zone, the market bottomed within 1-2 weeks and the eventual price low was 10-20 SPX below the price low established during the week the CCI entered below 200. Even during the bear market (except one instance in 2001), the -200 CCI has marked major market bottoms. So again, we might be within 10-20 SPX points away from a major price bottom. Expect retests of this weekly low, a couple of times, over the next 1-2 weeks. Or maybe this time is different.....