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.....

LT market thoughts - Update 1

Back in 2007, i wrote about my LT market thoughts on this blog. What more appropriate time to review it, given that we made all time highs on SPX today.

http://nav-ta.blogspot.com/2006/09/long-term-market-thoughts.html

I wrote then...

We should begin a persistant market advance from 2007 in a wave C upmove. Wave C should take us to about SPX 1620 (if wave A = wave C) or about SPX 1860 (if wave C = 1.618 * wave A), before this BULL market tops out, most likely by late 2008 to early 2009. By then, most of the bearish caucus will have worn out/capitulated leading the way for a primary degree wave C decline.


My projection for S&P was 1620 by 2009. The wall of worry at that time for the market to climb, was pretty high, based on the usual factors - perceived deteriorating fundamentals, P/E ratio, declining housing market, Derivative implosion, Credit implosion etc. My forecast at that time would have probably brought out a chuckle to many. Once we broke above SPX 1388 on the weekly charts, it was clear that the market had begun a major advance out of the wave B sideways flag from 2004-2006. SPX cash 1388 was the wave B channel top, at the time we broke out above it. That signalled that we were in a intermediate term wave C. I was right on the price, but wrong on the timeframe. I was expecting this wave C to conclude somewhere in 2009 reaching it's projection of SPX 1620. Why do i keep talking about 2009 ? It's based on the time requirements for the primary degree wave B. If primary degree wave C were to make proper divergences on the monthly charts in the future, wave B should consume at least more than twice the amount of time consumed by wave A.



Based on how fast this wave structure unfolded towards it target, it now appears that SPX will reach 1620 by Oct-Nov 2007. This is very bullish long term. This only means that the targets were acheived ahead of time, and hence higher targets are now projected for 2009-2010 timeframe. So the only conclusion as a wave analyst at this time would be, we are close to concluding the Phase I of the bull market from 2003 (intermediate degree A-B-C rally), which should ideally happen around Oct-Nov 2007.




What follows an A-B-C is an X-wave. X-waves are rogue waves. They come out of the blue without any appropriate technical warnings. They also happen to appear when the tecnicals look the most bullish. They don't surface up on any divergent/weakening technicals. If i were to speculate, event risk would start growing after Nov 2007, based on the wave structure. Another hedge fund debacle, subprime lending crises, yen carry trade - Heck who knows ?. Once this wave X ends somewhere in 2008, another large persistent advance into 2009-2010 should take the market to another bull market high. How high ? I don't have any projections at this point, as that would enter the realm of crystalballing or astrology. Until we know how deep the wave X will turn out to be, it's impossible to make any meaningful projections. Ideally wave X should bottom around the SPX 1320 area and in no case below the 2006 4-year cycle bottom at SPX 1219. If the wave X happens to be based on an event, i am positive that Mr Bernanke would open the floodgates of liquidity again. The man who proclaimed that deflation is impossible in a fiat regime, will most certainly not allow it to happen without fighting it tooth and nail !. That should create a hyperinflationary advance into 2009-2010 where both the commodities and the stock market should go nuts, setting the stage for a deflationary collapse into 2016 (a.k.a Primary degree wave C).

I wrote then...

Bull markets do not begin when the economy is in a state of utopia. It needs that constant wall of worry, to keep the majority from participating. I think the housing market decline over the next few years from the mania top of 2005 will provide fresh fodder for the bears to worry and the wall of worry for the bull market to climb. In my opinion, the housing and the deteriorating economic fundamentals going forward will be the hook which will keep the majority from participating in the bull market going forward.

Which is precisely what's been happening. What have we been hearing and reading over the last 9 months ? - Housing, subrpime, blow-up, recession......

I wrote then....

Now will the bears concede defeat if DOW makes ATH ? Bookmark this - DOW ATH will only make the bears more bearish. If DOW ATH were to occur, then the argument will shift to the massive inter-market divergences between the DOW, S&P and the Nasdaq. So the bears will start arguing that Nasdaq and S&P made their secular tops in 2000, but DOW is making it's secular top in 2006. In other words, the bearish sentiment will rise to all time highs, with the all time highs in DOW. Bottomline is as the market advances from here, the sentiment which is already extremely bearish will only start getting even worse. Bears have been arguing that Fed has painted itself into a corner. In reality, it's the bears who have painted themselves into a corner here, if the DOW were to make ATH. They can neither remain bearish nor can they turn bullish. The real capitulation would only come later with ATHs in SPX.


What does the sentiment look like right now ? We made all time highs on the SPX, but hardly any excitement out there. The bear caucus haven't changed a bit. They still keep talking about the sectoral fundamentals such as housing, sub-prime,etc and DOW:GOLD ratio charts or SPX:EURO ratio charts. The most comical and ethically disturbing way of fooling their subscriber base by some permabear gurus, by showing the DOW:GOLD ratio charts continues. Now did these permabear gurus project a DOW:GOLD long term top in 2000 or the price top ? During the 2002 bottom, they were unequivocally talking about DOW 4000 and DOW 400. Yes, they were talking absolute price then. Now the the absolute price projections don't mean anything. It's the ratio stupid ! Wish my grocery bills were ratio adjusted, my home mortage ratio adjusted, my vacation bills ratio adjusted. Talk about vindication.....Oh well ! Well, hate me for saying it like it is. Anyway, i said the real capitualtion would come only after the ATH in SPX. Boy, was i wrong. The LT sentiment only keeps getting worse, while the ST sentiment keeps vacillating.


Now just imagine what would happen to the sentiment, if we see a 200 point decline in SPX ! - That's it...that's the fuel we would need for the next leg of the bull market !

Use your Oscillators....

Use your Oscillators in a sideways market and the moving averages in a trending market. Anything else, you become the victim of whipsaws. How do you know you are in a sideways market ? I showed this chart to my 6-year old and he says it looks sideways On a serious note though, we aren't trending up until we see bottoms above bottoms on this chart. Right now all we have seen is bottoms below bottoms a.k.a SIDEWAYS-TO-DOWN market.




The last warning on complex bottom was here.

http://nav-ta.blogspot.com/2007/06/going-into-fed-meeting.html

The 120-min buy signal from that day is still intact. But as you see on the charts, we are overbought and rolling over. Once that happens, we need a momentum break to go short. That's what i will be looking for next week.


Consider this a topping area, unless not leaving the last .25 percent is your forte Just kidding. I will start my shorting campaign next week.

A break above 6/20 swing high will start sowing the seeds of doubt in my heart

Bearish shooting star

You gotta love markets. Everyday is different and brings new information and new challenges and excitement. What looked like a bullish certainity going into the Fed meeting, changed completely after 2 hours.

Firstly, the 120-min on NQ and ES is still on a buy, but is in a position to get rejected at the zero line, if we selloff tommorow.




The bearish shooting star pattern appeared on the NQ at two different timeframes (120-min and the daily charts), which is pretty ominous. For this bearish pattern to confirm, we need to open Friday around the Thursday's closing levels (or even better gap-down) and selloff the rest of the day ending in a red candle. That would confirm that it the rally from ES 1492 was a 2 day wonder and the next downleg has begun. Anyway, i preferred to jump the gun and took a stab at a short here around NQ 1958, since the risk/reward is so good. Not to mention that i closed all my longs at the close. A hourly close above NQ 1968 will stop me out and also keep the bullish structure intact. Call me a bear for today !

We'll see what Friday brings.....

Going into the Fed meeting....

The crescent shaped selloff did mark a bottom of some sort after all. Now the question is "Is the rally sustainable ? ". Before the Fed meeting the technicals have decided what they want to do going into the Fed meeting. Now the real question is "Are those positioned based on these technicals right or wrong ?"

Two charts which are self explanatory.

We are coming out of a very complex bottom on the ES (the complexity which i had not seen in a while). The level of complexity suggests a near vertical rally without any meaningful pullback IMO.




120-min buy signal

That crescent shaped selloff

That crescent shaped selloff on the NDX is a classic climactic selloff signature. In percentage terms that was no climax, but nevertheless the signature has the characteristics of a climax.

As i noted yesterday, my ES target of 1492 was hit today morning. What is more significant here is that, while ES took out the 6/8 lows, NQ is still holding above it. If i were a bear here and if i see a doji on the hourly candle, without NQ taking out 6/8 lows, then i would be scared - very scared !.

If NQ takes out the 6/8 lows and ES breaks below the 1490-92 support, then a much deeper selloff should be expected. Otherwise, we should make an important low today !

Heading into a climax

As i said yesterday, based on the Nasdaq fishhook, we were probably headed into some sort of a selling climax. Seems like they sucked in a lot of bulls yesterday. As i mentioned yesterday, ES 1490-92 was my VST target. We should hit that target tommorow morning. Now how deep the climax is going to be is the multi-million dollar question. If 1490-92 gets taken out, then a deeper selloff somewhere into the ES 1470 area is the next expectation.

Trade safe.

I am torn...

I am torn between the bullish and bearish view here. I was of the expectation that we are headed to new highs in the ST term. I can no longer envision such a scenario with confidence, given what the internals are saying at this point.

The NSYE summation index is now making a trip towards the zero line. The Nasdaq summation index has formed a fishhook and was rejected from the zero line, which means we are probably headed for some sort of climactic selling. I don't have any downside targets yet. The break of ES 1510 pivot means we retest the ES 1490-92 area in the VST term. Also the 5% and 10% components of the NYSE and Nasdaq MCOs are now below the zero line, confirming the IT downtrend.

The lack of selling pressure in the Nasdaq is quite disturbing here. Given that it's internals are worse than NYSE, it still holding better than the SPX. I don't know whether to intrepret this is bullish or bearish. Internals are clearly bearish, but the price action is bullish.

As i said i am torn between the bull and bear camp. I will try a short trade on NQ today (went short NQ at 1945). Even if we trade above 1958.25 for a tick, i will be out and will switch back to the bull camp. I have been a good fade the last one week. Trade at your own risk.

Volatile session

We got the bounce yesterday and a pretty strong one at that. Now the big question is "Are we headed to new highs ?". The Nasdaq MCO had a small change day yesterday and the NYSE MCO was close to a small change (not strictly speaking) day. Whatever direction the indexes breaks today, needs to be respected. Today will more likely be a volatile whipsaw session and the range expansion will most likely occur on Monday.

I am betting on new highs for all the major indices. The ES futures dropped to 1527.25 overnight and are bouncing back now. Critical intraday pivots are NQ 1950.50 and ES 1523.25. If we break below that today, bears will have won the battle. Above those pivots, the BULL rules.

I don't quite trust this decline !

Last time i commented, i expected a deeper correction and a trip to zero line on the NYSE MCO. Although i expected this decline, the decline on SPX in particular went faster and deeper than i expected. My 120-min did went into a sell this morning and is in a oversold condition right now.

Take a look at the NDX and SPX charts above.

The daily range on the SPX today was nearly 25 points and the daily range on NDX was a mere 26 points. In percentage terms, SPX had nearly twice the range as NDX. What the heck is going on ?

Look at the MACD on SPX and NDX - SPX had a backkiss, while the NDX still remains on a buy. Again what the heck is going on ?

Also remember the CCI on SPX never reached a overbought condition before turning down and is now right near the zero line support. I don't trust at this point that this is the beginning of the next leg down. This should end up as a short term pullback. The next expectation should be new recovery highs on the SPX.

Corrective action

There's not enough clues at this point to determine whether today's action was distributive or not. But as the correction takes longer time here, there's the risk of 120-min rolling over. So far the 120-min is still on a buy signal and i will post an update if that changes. We had very narrow range movements on the NYSE and Nasdaq MCO, but not close enough to call it small change days. Nevertheless that narrow range and the fact that the MCOs have hooked down means a trip to zero line on the MCO is likely. So my guess is that the correction has a little bit deeper to go before the assault to new highs is made.

That pesky "W" bottom

I was of the impression the last couple of weeks that SPX was headed to 1450-60, which was a logical IT price target based on the fact that the IT pivot was broken and the NYSE MCO made a new flag. I even posted on traders-talk, the exact day the countertrend rally begun and was expecting a rough target of Sep ES 1536-38 . Once it broke above that level, i was questioning myself.

Now in hindsight, it's clear that SPX put in a "W" bottom. The "W" bottom was tricky to spot, because of the fact that the price did not make lower lows, but ended up as higher lows. We have seen many such lows in this bull market from 2003, which has shown this phenomenon of higher lows. This typically is a product of "Extreme bearishness" at bottom and the system getting clogged so severly with shorts that any countertrend rally ends up in a epic squueze which creates a new leg up. I was one of the first to publish a IT target of 1450-60 when the declione begun. When every newsletter and blogs on the web were abuzz with that number, that was a kiss of death for that target. As i said, i was expecting a restest of the recent lows on SPX till yesterday. But i abandon that view at this point.

One chart says it all. The NYSE MCO made a higher low and price did a retest although that retest ended up as a higher low, which is what threw a curve ball !. The summation has turned up. More important the 5% and 10% components of the MCO are now above the zero line, which keeps the IT uptrend intact again.




As for the VST term, 120-min trend has turned up. Once it turns up, it's very difficult to turn it back down immediately. I say this from my experience and also from examining a large historical data series. So the path of least resistance is now up and will continue so for the next 1-2 weeks at least. The only way the 120-min can be turned down at this point is to have a high velocity selloff of about 25 points on Monday, which i think is very low odds. The market does everyting for a reason. The breakout above Sep ES 1536-38 resistance made it clear that the market was headed much higher. The next logical target is all time highs on the SPX or a double top just below it i.e SPX 1550-55.

Now here's the fun part, which i am sure the Perma bulls will ignore yet again and call for a wave 3 of 3 again. The weekly momentum has turned down, while the daily is up now. Once the daily gets fully overbought here and turns down, it would produce a "Combo Weekly and Daily sell signal". The decline from that signal will be far more powerful and larger than what we witnessed last week.

Bottomline VST, ST, IT bullish. I will post on this blog when the 120-min approaches the sell signal again.

VST, ST and IT pivots - all broken in 3 days.

Daily chart







The same signal which gave a daily buy back in March is now on a triple divergence sell. Some rough IT targets for this decline at this point is around SPX 1450-1460. Will refine it, as we move forward. The NYSE MCO has created a new flag, which means the internal low is probably in and the price low in the form of a lower low is pending. If that lower low on price creates a positive divergence with the MCO, then we should expect another leg-up towards new recovery highs. But it's too early to speculate on that. As for a "V" bottom here, i am not a beleiver. In any case, "V" bottoms have 20% odds as opposed to 80% odds for a retest. So i am positioning myself for a retest.


VST chart








The Full Stochastic on the 60-min chart is fully overbought and is turning down. The EMAs are on the verge of a backkiss. The 60-min CCI diverged and has turned down. So the odds that the bounce from Friday is over, looks very high.

Inflection point...

If we get a gap-down tommorow again, it could be a VST buy, but it would clearly break that controlling channel on the 120-min charts. So those betting on a irregular flat correction will have to give up. The controlling trendline from the 3/16 lows is already taken out. If you are a blind bull, then that downthrust in the NYSE and Nasdaq MCO may not mean anything.

Let me tell you something. If the uptrend is alive, the market will start going up from the get-go tommorow without breaking below that cahnnel, as though no technical damage has happened and will never look back. A close on 120-min basis below that channel tommorow will be a high odds signal that we are looking at more than a VST correction with much more downside to come. The summation on both the NYSE and Nasdaq has turned down. The breakdown in the MCOs do not look like a hesitation pattern, but looks something decisive.

To me any daily close on the ES below 1512.50 would mean that the back of the bull is broken and a multi-week correction is underway. What shape the correction would take is anybody's guess at this point. Clearly we are at a inflection point.

Analysis only provides the framework for my trades. Those who are interested in my trades , i post them on traders-talk.com.

Before i leave for the vacation....

I am going on vacation and will be back on June 1. Before i leave, i thought i would post a chart of the daily charts rolling over. The picture says it all !

Daily momentum sell at the close

My system generated a momentum sell on the daily charts today.

Last time i commented, i had a VST bias into SPX cash 1493, which got tagged today. If the uptrend on the hourly charts were intact, then we would have seen a powerful rally out of that pivot. The fact that the pivot did not hold and the daily momentum kicked into a "Sell", means, this is more than a VST correction. So i would not be a buyer here. Not yet !

Now the million dollar question is whether this is a ST correction or an IT correction. The ST pivot on the SPX cash comes around 1474-1478 area, which should be the focal point for the daily trend traders to go long. Again, we'll evaluate if and when we get there. If the 1474-78 area cracks on a daily closing basis, then it would blossom into a full blown IT sell, which would target the SPX 1420-30 area. Again, i don't pretend to have a crystal ball that far. So taking one baby step at a time.....

Also of interest is that the Nasdaq MCO broke below the late April lows. Both the 5% and the 10% trends on the Nasdaq MCO are now below zero, which is also suggesting that this is more than a VST drop. The NYSE MCO is barely holding above the late april lows and if it follows the Nasdaq, the next day or two should see the NYSE MCO taking out those lows.