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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.


SPX


2 comments:

  1. Thanks Al. So for what time span do you thing this bull thing will be drawn out before the bears have their thing? Caldaro has it as far out as mid-2016.

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  2. If my count is correct this is the 5th wave of a structure that started in Oct 2011. 5th waves and 1st waves tend to relate in terms of both price and time. In this case the 1st wave ran for 18 trading days. if that's a good guideline then the current 5th wave is within a week or two of topping. BUT this wave could extend considerably in both time and price. The market is a 600 lb gorilla, it can do whatever it wants.

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