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Saturday, February 22, 2014

Saturday, 2/22/14 update

Market looks pretty toppy here.

The ES rallied into the Major W5 target area of 1842.75 this last week and established a high print of 1844.50 on Wednesday.   At 1842.75 Major W5 = .50 x Major W1. 

In addition, 5 waves can be counted as complete from the Feb 5 low of 1732.00 into Friday's 1844.00 top.  One other Fibonacci relationship to note is at 1844.25 where Intermediate W5 = .50 x Intermediate W1.

So there's a chance the very significant top of Primary Wave III is in place as of this last week.  If not, then the alternate at this point is the late week rally is Minor W1 of Intermediate W5 of Major W5 -- which puts the ES in the very last stages of Primary Wave III with that significant top very close in time.

One other thing of note, if Friday's high does indeed mark a long term top then the ES will have put in a double top on the hourly chart as well as the daily chart - a fractal.

Sunday, February 16, 2014

Sunday, 2/16/14 update

The continued ramp up this last week in equities has all but eliminated Alternate #2 from last weekend's post (that will be definitely eliminated with a print above the all time highs of late December @ 1846.50 in the ES).  Which leaves the following as the preferred count:

This count has Major Waves 1 thru 4 complete in the bull market dating from the Oct, 2011 lows at ES 1068.00.  An impressive run at this point,  70%+ gain in just over 2 years.  But this count now has the ES/SPX in Major W5, which puts it in the last stages before a significant long term top.  Major Wave 1 in Oct 2011 only lasted 17 trading days, so to maintain symmetry one would expect a duration of roughly the same for Major W5.  From the Feb 5 low for Major W4 we've had 8 trading sessions, so by this standard a Major W5 top could occur before the end of the month.

From a shorter term perspective 4 waves up can be counted as complete from the Major W4 low on Feb 5.  However, this move could very well extend, in which case this count would have to be revised with portions of it labeled at degrees a notch lower.  It ain't over until it's over, as Yogi Berra said.

 Assuming the above count is correct, two target area possibilities are apparent.  The first is at 1842.75 - 1843.00:  Major W5 = .50 x Major W1 @ 1842.75 and Intermediate W5 = .50 x Intermediate W1 @ 1843.00.  This would represent a 5th wave failure as Major W3 topped at 1846.50, so it has to be regarded as lower in probability than the 2nd target area, especially given the strength of the rally so far.  The second target area is at 1868.75 - 1870.00:  Major W5 = .618 x Major W1 @ 1868.75 and Intermediate W5 = Intermediate W1 @ 1870.00.


I have to confess that I got a bit of a case of bear fever a couple of weeks ago.  As a result I noted and then discounted the buy signal off my very own market indicator.  Al's Daily Indicator isn't very good at identifying tops, but is extremely good at pinpointing bottoms, especially at readings below .500.  The Indicator dropped to a low of .384 on Feb 3, and then moved straight north from there - as did prices two days later.  I missed a beautiful long entry on Feb 5 when the ES made a double bottom.  Drat.  I guess I need another injection of ice water in my veins.

The page on this blog that contains "Al's Daily" also has another study based on volume.  It's a pretty simple formula.  It represents the sum of the volumes on up days divided by the sum of all volume over a thirty day period.  It can be used as a read on overbought/oversold status on the intermediate term.  It also can be useful in other ways.  Below is a chart of "Al's Daily" and the 30 day volume indicator against the daily NYSE out of TOS.  (An aside: I have this data in an excel spreadsheet dating back almost 20 years, that data is manually transcribed from the Wall Street Journal and is the NYSE Composite data, the formula in TOS uses the base NYSE statistics, so they are close to the same but not exact duplicates.)

 What I want to point out is the contrast between the recent bottom pinpointed by Al's Daily as opposed to the bottom of June, 2012 or even that of late 2011.  In both those earlier cases the volume study also achieved oversold levels, and the result was a powerful and long running bull market.  In other words they marked the kickoff of a significant bull run.  However, the recent Al's Daily low was not matched by an oversold reading on the volume study.  Message: this is not the kickoff to a major new leg in the bull market - i.e. it marks the onset of a 5th wave rather than a 1st wave.

One final word on this subject: if anyone's interested I can forward the TOS routines for both these studies, just let me know.


I ran across this table recently when researching something:

These are very striking numbers for a couple of reasons.  First, the U.S. absolutely dominates the world economy despite all the negative economic press of recent years.  That's good.  But on the frightening side of the ledger, the U.S. has accrued Social Security, Medicare and other pension liabilities in the order of $80 to $100 trillion depending on your source.  That's greater than current Gross World Product in total.  But that does not encapsulate the entire problem.  Europe and Japan have the same picture, but to a larger degree because their populations have an ever increasing proportion of senior citizens than the U.S.  So answer me a question: how is this situation going to be resolved without eventual major economic distress?

Sunday, February 9, 2014

Sunday, 2/9/14 update

 Alternate #1


 Alternate #2

Feels like deja vu all over again.  How many times in the last year or two has a correction abruptly ended when it felt like it was just getting going?

The rally off of last week's lows has been strong and impulsive looking.  So it has the feel of the end of the correction off the late-Dec/early-Jan highs.  If so then Alternate #1 is the correct analysis.  However, that count has a couple of very awkward spots from an EW point of view, especially in the pattern from last Monday's low at 1832.25 through the Wednesday low at 1832.00, which looks a lot more like the "a" and "b" legs of a developing flat than as Minute Waves 3, 4, and 5 of Minor W5 as labeled.  Which leads to Alternate #2, which counts the most recent activity as just that - a flat type corrective bounce in an ongoing downtrend.  If #2 is accurate, then the .618 retrace level at 1802.50 and the .786 retrace level at 1821.50 are possible targets for the rally terminus.

Sunday, February 2, 2014

Sunday, 2/2/14 update

The best short term count on the ES right now has 5 waves complete off the mid-January highs into Wednesday's low at 1764.00.  Since then there have been two 3 wave moves in both directions into a low of 1761.25 on Friday, which is currently being counted as waves A & B of a flat with a wave C rally now in progress.

If this count is correct, than a possible target for wave C is the .618 retrace of the impulse off the mid-January high.  That level is at ES 1814.50, which also happens to be right in the area of the "volume hole" discussed last week (more on that later).

The alternate on the short term is an ending diagonal 5th wave in progress since Tuesday's late PM high as per Stamphos  This could well be what's in play, but mitigating against it is the form of the drop from Tuesday PM into Wednesday's low, which appears to be 5 waves rather than 3 - an ED needs 3 wave moves in both directions.  The rest of the potential ED structure conforms to expectations.  Also, very short term momentum indicators were pointing down as of Friday's close, which would favor the ED count.

The larger message here remains, and that is that the odds are that the trend is down for the time being - 5 waves down portends at least one more leg down after a bounce.  So instead of "buy the dips" the mentality is "sell the rips". 

Quite a change from the rally mode of last year.  What happened?  As usual, there are a myriad of cross-currents buffeting the market, but I think a key is the change in the Fed Reserves liquidity machinations.  True, they are still pumping an enormous amount of cash into our economy, but they are throttling back.  This should arguably not make a really significant difference at this time, but the effect on SENTIMENT  is what's of import, and it seems pretty clear that the thought of the Fed taking away the punch bowl is a negative for sentiment.  And in the end it is sentiment that drives the market.  

In last week's discussion on volume holes there was a minor volume hole on the chart at 1770 - 1771 that wasn't highlighted because it wasn't as dramatic as the two that were discussed.  But if you examine the volume profile chart you can see that it does have significance, especially as related to last week's action:

Sustained trade below this level would strongly suggest a trip to the next volume hole at 1734 - 1729.