10/31/11 - Spooked?

The market fell about 34 points on this, All Hallow's Eve.

The astute reader will notice that I have reverted to my previous count, in which 1197 was the bottom of (ii) of [c] and thus that we completed wave (v) (and by extension, Minor 2) at 1292 on Thursday.  Yes, the RSI looks like there should be more upside, but it has been known to be wrong before.  10-minute and lower do show lower highs on THE price high, whereas 30-minute, 60-minute etc. may be trying to capture the [c] wave itself rather than simply (iii)/(v) of [c].

However, we have: (1) a plummet back below the 200-day SMA after only two days above it, (2) what would otherwise have to be a wave 4/1 overlap caused by a 3:58 drop below 1256.55, (3) bad European news as realization sets in that, in fact, not everything was solved, (4) bullish sentiment - even many bears believe there must be more to this rally and/or that this pullback is a [b] wave because "there must be a Santa rally", etc.

It very strongly looks like a clear 5 down now, and the lower blue line from 1292 to 1287 crosses the .618 retracement (1277) Wednesday near the open.  The midpoint of the drop down is passed later Wednesday, and the .500 retracement is reached Thursday.  The blue line starts to touch channel lines around Thursday afternoon, and on Friday morning touches the 1197-1221 channel at just about the 38.2% retracement of 1268.

Also, it should be pointed out that this drop is now the longest we have gone without a return to upward conditions since the October rally began, and if we go past about 10:15 tomorrow without making a high above 1292, it will be the longest we've gone without a new high since the October rally began.

10/29/11

The SPX closed Friday basically unchanged (less than a point up).  The Dow was only up two digits and not even above 50, which is flat by the standards of this run-up.  The Nasdaq actually fell.

The primary count is that this is Minuette (iv) of [c], which is more or less supported by Friday's action.  In particular, drastically overbought conditions from Wednesday's bull rush needed to be ameliorated.  Crucially, we have moved back below overbought on all of the 10-, 30-, and 60-minute timescales.

I have Friday's close as being Subminuette b of (iv), which shaped out a triangle.  Micro [E] of said triangle overshot, which is normal.  A gap down at Monday's open to around the 200-day SMA (1274) would look really good.

An alternative is that we're not that close to done with Minuette (iv) yet.  I've been looking at the run-up from late June to early July which closely resembles, on a fractal basis, this October run-up.  In early July we consolidated for a couple of days before one final push higher to the July 7 high at 1356.  I therefore wouldn't be surprised if a few more days of consolidation are needed, followed by a small push higher above 1300 but probably no higher than 1336.  The VIX is still above its .618 logarithmic retracement at 22.47-22.68, and its waves appear to suggest that it, too, is in (iv) of [c].

If more consolidation is required, my labeled Subminuette a and b might really be Micro [A] and [B] of Submin a.  Here Minuette (iv) would trace out either a flat, with a "b" up to the 1290s to come followed by a "c" back down to wherever "a" ends, or a triangle, which would be similar but of course have a "d" and "e" wave to follow.  This should probably keep the VIX in the 24-26 price range until (v) sends it down to sub-23.

10/27/11

I made money in the stock market today.  On the short side.  (I.e., the last hour of trading.)  Yay intraday scalps?

RSI made higher highs on higher price at 60-, 30-, and 10-minute ranges today, which would seem to suggest that Daneric's wave 3 count is correct.  I put it on as an alternate.

If 1370 is the orthodox top, we probably still have another push up as the .786 retracements are above 1300.  If 1356 is the orthodox top, we might very well be done in spite of the hyper-RSIs (or we might truncate or nearly truncate our wave 5) as the correction range is basically 1290-96.

At any rate, even if this is a bull wave, we are overbought and should consolidate.around the 200-day SMA.  Notice I bring that up:  It broke.  If anything, this proves Minor 2 is doing its job - I wonder how many bears turned bulls just because of that.

But if this is a bull wave, I have trouble seeing it as anything other than one indicating incipient hyperinflation, and that's only bullish on paper.

10/25/11

The market went down today.  Hope you weren't long NFLX or AMZN.  The latter tanked after hours to under $200/share.  The latter gapped down nearly 35 percent this morning - I thought there was a plunge protection team?  Also, NFLX is down a further 1.5% after hours.

There is a cross at almost exactly 11 a.m. tomorrow at almost exactly 1220, which, if this move down from the 1245.87 intraday high is a C wave, would mark a likely bottom before we head up in wave (v).  This pivot value is also extremely close to the 61.8% retracements of the 1197-1256 move (both log and linear are at 1219.xx).  Furthermore, our intraday low is just about the 50% retracement.

The channel line is gaining approximately 6.3 points per day.  If this is wave (iv) of some sort of ending diagonal (which it would have to be now if it is wave (iv)), wave (v) if it is to top, say, Thursday, would be limited to the low 1270s which again is where the 200SMA is.  Theoretically an ED could get down all the way to ~1210 before correcting (the lowest black line), but... I think it's probably high time I set up a position.

10/24/11

I read today that Paranormal Activity 3, a horror movie, set several records at the box office.  I also vaguely recall Prechter saying something about horror films and bear markets...

My count has us currently in (iv) of [c] of Minor 2, the last hurrah for the bulls for a while.  Minute [b] was a brief expanded flat (the (a)-(b)-(c) may actually be (w)-(x)-(y) as the third wave is actually the shortest of what I have labeled (c), or we could chalk up the upward tick from 1199 as HFT overshooting).

Timewise, if this count is correct, Minute [a] lasted seven trading days, and Minute [b] three.  If [c] = [a] in time, it should also last seven trading days of which five have passed.  This would suggest sideways to slightly down motion tomorrow, with one last uptick Wednesday (maybe into Thursday in early trading - a gap down is not the best thing for bears, particularly if it requires a move up to something on the order of 1270-80 to fill).

A down move that is at least a [b] wave should follow.  Remember, we have gaps at 1238, 1215, and 1155 to fill.  But first we probably have one more push up.  Why?  For one thing, 30-minute RSI says so - new highs were made on higher RSI.  This suggests 1256.55 is a wave 3 of some sort (e.g. (iii) of [c] of 2, which I have).  Hourly RSI is lower now than at the top of wave [a].

The market has moved up enough that the 1233.10 wave (i) high is below the .382 retracement of (iii).  This retracement now stands at 1233.59-1233.93 and is a logical target for (iv).  A lesser .236 retracement would put it at 1242.31-1242.56.  If (v) is to equal (i) (41.62 points), from 1233.93 this would place it at 1275.55; from 1242.56 this would be 1284.18.  The 200-day SMA is at 1274.61 and will be slightly lower tomorrow; it may stop the rally in its tracks or break, creating a fake buy signal.

As for the VIX action, it looks to me as if it's in the process of completing a bear flag within a larger bull flag.  The 50% retracements for the advance from July 7 and May 2 are both in the 26 range, which would be a fake breakout, fooling many bulls.

10/21/11

The world did not end today.  The market, for some absurd reason probably involving a combination of Europe and [c] of Minor 2, went up today.

I don't see this possibility mentioned very often... that [c] of Minor 2 is tracing out a bizarre ending triangle following a [b]-wave flat.

There are probably a million reasons why this diagonal should be impossible, particularly under Prechterian rules.  Meh.  Whatever the case, I believe we are probably now in [c] of Minor 2, which is either just about to end or has just started.  Minute [a] could still be underway, but I doubt it.

What this count would mean if it were true is a move to the 1240s - possibly a gap up - followed by a trip down to 120x in the early part of the week, followed by a wave (v) up.  Wave (iii) is already slightly longer than wave (i) - by literally 0.07 points - so wave (v) is free to be longer, probably reaching at least into the 1260s.  If we do get a push to 1240 followed by a retracement to sub-1210, I'll probably be going long with a stop at 1197.  (A substantial breach of 1197, and especially of 1190, is bearish and suggests either that Minor 2 is over or that a deeper [b] wave is underway.)

Minor 3, ideally, should not begin with a gap down.  Yes, it will be a powerful bear wave.  But gaps like to fill, and given how high Minor 2 could climb, that says a lot about Intermediate (2).  Of course, it's entirely possible the gap might not fill.  That small one in the low 1150s sure doesn't seem to want to.

Whatever the case, this uptrend is not over until and unless 1197.34 is breached.

10/19/11

The market has decided to place itself in a perfect state of ambiguity.  So for the time being let's eschew wave degrees and look at the few keynote waves:

Wave *0 is the 1074 bottom, whatever that is (Minor 1 of a bearish move, Minute [b/x] of 2, or the end of a large-degree correction in a bull move).  Wave *1 is the first five up from there, with wave *2 being the substantial retracement.  Waves *3, *5, *7, and *9 are tops and *4, *6, *8, and [in progress] their subsequent bottoms.


A lot, I think, hinges on whether wave *7 is a "three" or a "five".  If it's a "five," then it probably isn't Minuette (b) of [b].  The SPX having stopped at just about the .618 retracement of its 1191-1233 move gives a green light to the possibility that in fact Minute [b] may be over already; if it's still a bull wave we could already have reached (ii) of [c] and if so, we should see strong third wave action that will likely propel us most of if not all the way to the last top that will be seen for a while, probably with a gap up tomorrow that Minor 3 will fill. 

Further substantiating this is that the DJIA stopped within a couple points (Dow points) of its 50% retracement, and the RUT bottomed within a fraction of its 61.8% retracement.  Futures are green, but futures tend not to mean much until Asia opens, which at the time of this post it hasn't yet.

On the other hand, today's action could have just been Micro waves [2] and [3] down of Submin i/a of Minuette (a) of [b].  Or of an impulse down - we cannot yet rule out the possibility of the ENTIRE correction being over.

For what it's worth, I still don't see why everyone thinks Minute [b] "must" be limited to ~1170 or it would "damage the rally feeling" or whatever.  If anything, this seems as much if any a good reason for a deep correction, at least to fill the 1150 gap.  On the other hand, the action doesn't seem favorable for that to happen.

Tl;dr the market could go up tomorrow or it could go down.

10/17/11

Well, today was an interesting day.  We have gaps both upward and downward now.

I think we may still have a little upside before a downward move.  I have trouble counting the upward move so far as anything but seven waves, which suggests either {1} there is still another up wave to come, {2} we're in a flat and Minute [b] could and probably will retrace further than anyone thinks, or {3} I'm counting it wrong.

The breach of the 1150-1190 channel bottom (the purple line) strongly indicates that we are at least in THE wave (iv) of this move (rather than the "Minuette" wave (iv) I labeled on the chart).  Assuming, of course, that we are in either [a] of a zigzag or [c] of anything (or, if you must, wave 1 of a permabull count) and thus require a 4th wave proper.  The purple line crosses through the entire gap and 1230 all by 2 p.m. tomorrow.  Additionally, we stopped at just about the 1181-1190 trendline, which is amenable to (iv) having ended.

If the wave to follow is a retracement (either Minute [b] of 2, or wave 2 of a bull move), likely retracements from the current high are 1165-67 (38.2%), 1147-49 (50%), and 1129-31 (61.8%).  Of these I think the 1147-49, 50% retracement is the most elegant.  Provided it occurs by Monday (and I see no need for Minor 2 to last through the end of the year or any of that jazz), it would stay above the burgundy line that runs from 1074 to 1079 (though I question whether this line has any meaning at all).

For what it's worth, however, I see no need why the B wave retracement of this move must be shallow.  Yes, it would hurt the rallying feeling - that's what B waves are supposed to do!

If those calling this move [c] of 2 are right, the wave to follow will be Minor 3 and will make ground beef out of any bulls (which are likely to include several bears operating under the assumption that it's only [b] of 2, or that the Fed won't "let" it fall etcetera ad nauseam). 

Why Another Dark Age Is Possible, Part I

Part I:  The Vulnerability of High-Tech

This is a two-part series about why another dark age is possible.  Inevitable?  Not necessarily.  But possible, and definitely not out of question, particularly if the bear market underway (and notwithstanding the last couple of weeks, it is still underway) is of anything higher than Grand Supercycle degree - which, as I have previously discussed, is not out of the question.  (Also, it's worth pointing out that if it's G.S. [V] that topped, Prechter's ultra-long-term count, which is predicated on this being G.S. [III] that topped, is incorrect, and who knows what other fifth waves it could be the top of....)

Here in this Information Age, it seems ludicrous to suggest that we could ever regress technologically.  After all, virtually every bit of knowledge ever amassed has been put on the Internet in some form, and likely mirrored several times.  Need to smelt a lot of iron into steel?  It's not like we're going to un-discover the Bessemer process, which you can read all about on Wikipedia.  Need to learn how to grow tomatoes?  Google has plenty of results on that topic.  Expecting a cold winter and need to find out cheap ways to stay warm?  Yep, the Internet has that too.

The Internet has become so ubiquitous that we hardly even remember how to live without it.  Among the youngest generations, it has become internalized.  It's everywhere.  You can't avoid it.  If you're reading this, by definition you have access to it - or someone you know has access to it.  You probably do your banking online.  Many of my readers actively trade the stock market - how many of them actually go call a broker every time they want to make a daytrade?

But there's something a lot of people forget about the Internet, and that is that it costs money to use it.


Oh, certainly, it may not cost you any money to use it, especially directly - you might not have to pay a monthly bill to an ISP.  Maybe you only go online at work, or at school, or at Starbucks, or on a mobile device.  Maybe you live in a city with public wi-fi.  Maybe you bum off your neighbor's unsecured Linksys connection (in which case, shame on you).  But someone pays an ISP for access - your employer, university, neighbor, or landlord, the city, Starbucks, whatever.  If you're on a phone, the Internet service is part of your phone bill.

The point is that it costs money.  And moreover, virtually everything that has Internet access consumes electricity, which also costs money.  Granted, a laptop uses far less energy than a typical air conditioning or heating unit, but even so, you are using electricity to run whatever it is you're getting Internet off of.  (If it's battery-powered, like a mobile phone, you're still using electricity that will eventually have to be paid for by someone.  That battery will have to be charged at some point.)

Obviously, if a massive deflationary depression as predicted by Prechter inter alia comes to pass, money will be tight.  And given the choice between food or Facebook, my guess is most people would choose food.

More to the point, however, is the fact that electricity is not 100% reliable.  Rolling brownouts may occur in the event of nothing more than people using more than the power company can supply at the time.  Power can go out for an hour or so on account of things as common as lightning strikes.  Should a more significant weather event occur - say, a hurricane or an ice storm - it could go out for days or even weeks.

In other words, the steady supply of electricity is dependent on the power grid not being disrupted.  The reason the power sometimes goes out during severe weather is generally that a power line, transformer, etc. has been damaged.  Electricity supply depends on very physical systems, which are susceptible to damage by, among other things, acts of nature.  It's partly for this reason that places that really, really need to make sure the electricity's on 24/7 no matter what (e.g. hospitals) make use of generators.

No electricity, no Internet.

Furthermore, we have this tendency to think of the Internet as a place:  We "go" online and "visit" web-"sites".  This is not entirely accurate.  The Internet is first and foremost a network of computers - hence the term Internet.  Your computer connects to another computer somewhere (typically a server), and your browser downloads and interprets the webpage you wanted to see, which is stored on that computer.

The key word here is "stored".  Every bit of data has some physical manifestation somewhere in the real world.  If you save a file to your computer's hard drive, the data contained within that file is, of course, on your hard drive, which is a physical device located inside your computer.  You could, theoretically, remove your hard drive and put it in some other computer, and you could access your file perfectly fine (this is the principle behind external hard drives).

If you store your file "in the cloud" - say, on Google Docs or something like that - what that really means is that it's stored on some remote host server.  But there is still a physical location of that file on that server.  The same applies to literally everything on the Internet, including this very blog post.  If something happens to Blogger's servers, or if they lose access to electricity, this post will become inaccessible.  (It will still exist, unless the actual data gets corrupted in some way, but it will be inaccessible.)

So now it's not just your own Internet/electricity access you have to worry about, but that on the server side as well.  Oh, well, if all else fails, we still have books and libraries to fall back on, right?  Well, about that... you'll have to wait for part II.

10/13/11

The market actually was marginally down today.  *GASPSHUDDERHORROR*

This is, I think, a Minuette-degree correction at the very least; if so we have probably already seen Submin a and b of it (or at least most of Submin b).  It's one of those "maybe we've topped, maybe we haven't" days.  We fell out of a channel only to fall into another, broader one, though any substantial down from here would breach that too.

I think Minor 2 can happen a lot faster than people realize, particularly if July 7 is the orthodox high rather than May 2.  From the July 7 high (made in the afternoon) to the October 4 low (made in the morning) is just about 61 trading days and a Fibonacci 89 calendar days (62/90 if you go ahead and include the whole day).  If a sharp wave 2 retracement (and one can hardly characterize anything that soars 150 SPX points in seven trading days as anything but "sharp") were to last a 23.6% time retracement, that would be ~21 calendar days or until ~October 25.  If it lasted 38.2% (need a longer B wave or a shallower C wave), that would be ~November 7.

And nobody would seriously expect a NOVEMBER crash, would they?  "But what about the Christmas rally?  Seasonality?  It couldn't really crash then, right?"

10/12/11

The market has been up six of the past seven trading days.  Much hoopla has been made about sentiment, new bull market, still more bullishness on the way, etc.

If this is in fact a Primary-degree bear market, you should expect increased bearishness.  That means even during upward corrective swings, you should still see more bears than you would have during P[2/B/X].  Minor 2 of (1) of P[3] is not Intermediate (C) of P[2]!

I think we get marginally higher highs before a selloff either in [b].  At this point a .382 correction would not fill the gap at 1150.  A 50% correction, however, would.

This melt-up actually reminds me rather strongly of the push to 1356 back in early July, which was relentless but ultimately marked the top.  Also, a reminder that I consider the 1356 high on July 7 to be the orthodox top of P[2/B/X], making the move down only 3 months instead of 5.

Of concern to bears, however, has to be the fact that 30- and 60-minute RSI made new highs on higher SPX highs.  Of course, this could be because it's a correction (and some counts suggest it could actually be [c] of 2 rather than [a] of 2).  There's the possibility, in fact, that this push from 1074 may be the entirety of Minor 2, with an unclear or incomplete B wave.

Looking at it from an hourly chart, I see 7 waves complete, which suggests one more incrementally higher high (maybe around 1230?) before a correction.  Unless, of course, this move was only supposed to be 7 waves to begin with.

Also, remember that C waves don't have to end beyond the end of the A wave.

10/10/11

The market went sideways for much of today.  Then it went down.  Then it went up.

Permabulls notwithstanding, it is pretty clear that we are now in a countertrend correction upward at large degree, which I will call Minor 2.  It could be Intermediate (2), particularly if this is in fact not the superbear Primary [3] but the less bearish Primary [C] or [Y].  (Also, the "2008 = 2011" would imply that we have entered Int. (2).)  If this is Intermediate (2), everything on the chart is probably a degree higher. 

The wave count suggests we are in the latter stages of Minute [a] of 2.  The wave form is complete, which could allow for a correction starting any time, including tonight in futures trading.  We do have a small gap in the mid-1150s which would be a target for the [b] wave. 

If today's high was the high, the 38.2% retracement would put us in the 1147-49 range.  A 50% retracement would put us at 1133-34.  A 61.8% retracement would put us at 1119-20, which would probably would be the lowest we get until Minor 3.  Another target for the high would be 1201.08, which would have 5 = 1.  From there, a 38.2% retracement would be 1151-52, which would neatly fill the gap.

If the market does indeed retrace to this level in [b], the targets for the [c] wave based on the length of [a] would be as follows - 1230 (C=0.618A on a log scale, just about the Aug. 31 high), 1282 (C=A, log scale), and 1369 (C=1.618A - a near-perfect double top).  Of course, there are also the 1248, 1302, and 1333 (.618, .786, .886) Fibonacci retracement levels as well.  The point is, it'll be a C wave, and I wouldn't be surprised to see it at least test if not surpass 1300.

10/6/11

The market went up today for the third day in a row.  What happened the last time the market went up for three days in a row?

We are currently sitting RIGHT on that resistance line I mentioned yesterday.  Maybe slightly over it, but not by substantial enough a margin to consider it a full-blown breach.  I have no positions - I got burned by my bad-decision illness short.  Also, note that I count impulse-wave diagonals as 1,2,3,4,5 rather than a,b,c,d,e (i.e. just because I say Minuette (iv) doesn't mean you might consider it Minuette (d)).

If in fact the downside (I'll call it Minor 1, for the sake of argument; it may be Intermediate (1) and the Minuette waves labeled on the chart above are in fact Minute waves) is not over, I would expect tomorrow to start falling right at the opening bell, possibly with a gap down that will be filled in Minor 2.  Futures action has been flat, but that's pretty typical of the "slack time" between when America closes and Asia opens, and during which I typically write most of these posts.

Should the market go down again, I expect it would do so in a capitulatory 5th wave move that would send it down in a quick burst (probably 3 or 4 days again) that would send the SPX hurtling toward probably 1040 - this is below the lower triangle line, but that is normal for the 5th/E wave of a triangle.  Should the market go up tomorrow and break this trendline (1220-1195-today's close), I would expect that that trendline will be the target for its B-wave retrace.

Strictly speaking the near-term bearish case is not eliminated until 1195 is breached, by which time we'll have made it most of the way up already.  A 61.8% retracement of the entire move from 1370 to 1077 is 1249-1257 (depending on whether you prefer logarithmic or linear); a 78.6% retracement is 1301-1307.  A 76.4% retracement, incidentally, puts us in the 1290s.

Christmastime has been mentioned as a possible time for a Minor 2 (Intermediate (2)) top, which meshes well with the "2007/8 is 2011" as well.  I drew three trendlines which go through two of the 1370, 1356, and 1347 tops.  Notice that at the weekly close for Christmas, the two steepest of these trendlines are within the resistance bands I mentioned.  (The shallowest, unfortunately, is not at the .886 retrace but below it - the .886 retrace is at 1333-1336.)

10/5/11

I apologize for the delay.  I was feeling particularly under the weather and felt little desire to post.  I should also probably avoid trading while I am not feeling well, as it causes me to make stupid mistakes like shorting into what I should have known was a rally.  (Although, to be fair, I was away-from-computer for much of that absurd ramp up.)  I'm still not 100% and so this post will be short.

There are two counts:  we have either finished the first significant wave down (Minute [v] of Minor 1, of Minor 5 of Intermediate (1)), or we finished that at the 1077 low and are now undergoing Minor 2 or Intermediate (2).

The absurd short-killing 40-minute massive interminable stock soaring that took place yesterday, of course, stymies many counts by making the subwaves difficult to calculate.  It parses best as a third wave, obviously, but is it the entire third wave or just an extended 1 of 3?

I believe the trendline from 1220 to 1195 is still important.  This trendline starts tomorrow at around 1170 and ends at around 1165.  It is possible that the move from 1102 to 1079 is in fact the B wave of the correction - recall that the Sept. 22-27 correction (which clearly was a correction, based on the action before and after) had no particularly discernible B wave.  If so, then the "C wave" having its high at the current level is not at any good Fibonacci ratios.  However, C=3A at 1163.86, which would be met sometime Friday around or just before lunchtime.