Saturday, February 28, 2015
Saturday, 2/28/15 update
Very quiet ES this week with an 18 point trading range. An old adage is never short a quiet market, which adage should apply here as the EW count (if correct) suggests a 5th wave pop to new ATH's should occur in the near future. Bears will only need a little patience here, because the current long term count show that potential 5th wave top to be the culmination of the bull run that started in October, 2011.
Saturday, February 21, 2015
Saturday, 2/21/15 update
Could be a significant top nearby. Then again, this wave could extend and grind it out for a while yet. (Qualifier added due to habituation that has occurred to this analyst in the last 5 years)
Sunday, February 15, 2015
Sunday, 2/15/15 update
The move to new ATH's in the ES/SPX this week confirmed the triangle alternate that was outlined in recent updates.
EDIT: It's been pointed out that the SPX does not show a triangle. However, the count on the SPX does show Major W4 ending at the Feb 2 low. SPX chart has been inserted at the end of the post. Also, and not unimportantly, the NYA does show a triangle.
The good news for the bears with this development is that a triangle is always the final corrective structure in a move. Thus the conclusion of the wave following the triangle will also mark the conclusion of the entire structure that includes the triangle and that following wave. In this case the triangle is being counted as the 4th wave of the bull market that commenced in Oct 2011, so the completion of the 5th wave that is currently in progress will mark a significant long term top and should usher in a serious bear trend. Some targets for the current Major W5 can be drawn from the typical fibonnacci relationship that 5th waves bear to 1st waves. Major W5 will be .618 x Major W1 at 2110.50, Major W5 = .786 x Major W1 at 2147.75 and Major W5 = Major W1 at 2195.00.
Current short term count looks like this:
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I have to confess to making an error in judgement in recent weeks that I've made before. It became fairly obvious around the end of January that the ES was in the later stages of a triangle that it had been forming for a couple of months. However, a market analyst for whom I have enormous respect was quite bearish and didn't agree with the triangle theory. As a result I let that viewpoint influence my outlook as well as my trading. I didn't lose money as a result, but I also jumped out of longs established on Feb 2 a few days later and thus missed last week's run up. The error here is not relying on my own trading system which was telling me to continue holding long. I believe a trader needs to develop and test a trading system before engaging in a market, and if that system shows a profitable edge than it needs to be followed regardless of factors extraneous to that system. And outside opinions are extraneous to my system. This is not meant as a criticism of my friend, who is a gentleman and also a very astute and impressive analyst. But if a trading system is right more often than wrong, then allowing an outside factor to influence the resulting trades will introduce a variable that will likely push the approach into a losing situation.
What made me think that a triangle was in play and new ATH's were in the offing? I have a momentum indicator called "Al's Daily" that was developed years ago. There's nothing particularly unique to the indicator, it combines NYSE rate of change, advance/decline and volume statistics to generate a momentum oscillator. It's not 100% correct, but more often than not when it establishes a low below a reading of 1.00 and cycles up from that low prices will continue rising until the oscillator moves up past a reading of 2.20. A reading of 2.20 doesn't necessarily signal a top, it just signals that maximum momentum has been achieved and a top is possible. The important point here is that until that 2.20 level is reached the odds are that prices will continue to rise. As can be seen in the chart below of that oscillator, the indicator cycled away from a low reading of around .60 on Jan 6 and throughout the month of January meandered upwards but did not get to the 2.20 level. Thus the thought that higher prices were in the offing was buttressed.
P.S. I post this indicator here and update it daily.
EDIT: It's been pointed out that the SPX does not show a triangle. However, the count on the SPX does show Major W4 ending at the Feb 2 low. SPX chart has been inserted at the end of the post. Also, and not unimportantly, the NYA does show a triangle.
The good news for the bears with this development is that a triangle is always the final corrective structure in a move. Thus the conclusion of the wave following the triangle will also mark the conclusion of the entire structure that includes the triangle and that following wave. In this case the triangle is being counted as the 4th wave of the bull market that commenced in Oct 2011, so the completion of the 5th wave that is currently in progress will mark a significant long term top and should usher in a serious bear trend. Some targets for the current Major W5 can be drawn from the typical fibonnacci relationship that 5th waves bear to 1st waves. Major W5 will be .618 x Major W1 at 2110.50, Major W5 = .786 x Major W1 at 2147.75 and Major W5 = Major W1 at 2195.00.
Current short term count looks like this:
--------------------------------------------------------------------------------------------------------------------------
I have to confess to making an error in judgement in recent weeks that I've made before. It became fairly obvious around the end of January that the ES was in the later stages of a triangle that it had been forming for a couple of months. However, a market analyst for whom I have enormous respect was quite bearish and didn't agree with the triangle theory. As a result I let that viewpoint influence my outlook as well as my trading. I didn't lose money as a result, but I also jumped out of longs established on Feb 2 a few days later and thus missed last week's run up. The error here is not relying on my own trading system which was telling me to continue holding long. I believe a trader needs to develop and test a trading system before engaging in a market, and if that system shows a profitable edge than it needs to be followed regardless of factors extraneous to that system. And outside opinions are extraneous to my system. This is not meant as a criticism of my friend, who is a gentleman and also a very astute and impressive analyst. But if a trading system is right more often than wrong, then allowing an outside factor to influence the resulting trades will introduce a variable that will likely push the approach into a losing situation.
What made me think that a triangle was in play and new ATH's were in the offing? I have a momentum indicator called "Al's Daily" that was developed years ago. There's nothing particularly unique to the indicator, it combines NYSE rate of change, advance/decline and volume statistics to generate a momentum oscillator. It's not 100% correct, but more often than not when it establishes a low below a reading of 1.00 and cycles up from that low prices will continue rising until the oscillator moves up past a reading of 2.20. A reading of 2.20 doesn't necessarily signal a top, it just signals that maximum momentum has been achieved and a top is possible. The important point here is that until that 2.20 level is reached the odds are that prices will continue to rise. As can be seen in the chart below of that oscillator, the indicator cycled away from a low reading of around .60 on Jan 6 and throughout the month of January meandered upwards but did not get to the 2.20 level. Thus the thought that higher prices were in the offing was buttressed.
P.S. I post this indicator here and update it daily.
SPX
Saturday, February 7, 2015
Saturday, 2/7/15 update
The triangle possibility for the ES/SPX is still in play. Friday's ES high at 2068.00 is within spitting distance of December's ATH at 2088.75. If the ES motors up through that ATH then the triangle count (alternate #1) is validated and an intermediate term change in trend from bull to bear is still in the wings. However, if Friday afternoon's selling resumes next week and the ES drops decisively below last Monday's low print of 1973.75 (alternate #2) then it's pretty certain that an intermediate term bear trend off the December ATH is underway.
Alternate #1
Alternate #2
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