11/30/11 - I Am Short. Yes, *Now.*

"But Mitch," you protest.  "Seasonality, Santa rally, presidential election cycle, HFT and algos, Bernanke won't let it blah blah blah."  First of all, please stop trying to stretch the Santa Rally to the entirety of Q4.

The count is   STILL  Minor 3 down.

Why?  Because it occurred to me that a while back I said something about Minor 3 perhaps acting as a fractal of Minute [iii] of 1.  Minute [iii] began with a leading diagonal with very, very deep retracements.  So why shouldn't Minor 3 begin with a leading diagonal with very, very deep retracements?

Sentiment is absurdly bullish everywhere now.  But this multifecta of good news could very well be the "news hook" for a top.  The bombshell central-bank announcement exogenous-cause-watchers are attributing the market rally to failed to force the SPX through the LD resistance line, and despite being all about the dollar, failed to even get it to the 38.2% retracement (77.76 - today's low in the dollar was 77.92).  Silver?  This rally - and I mean the whole thing from October - has hardly budged it; it's been rangebound for two months.  So I have gone short.

The nice thing about the current situation, though, is that the invalidation point is close (1252-ish), after which it is either an absurdly deep retracement of some down move (the worst possible scenario, as I'd probably go long) or C of 2 up (or something more bullish). 

I have a small hedge in... Netflix.  Yes, Netflix.  Why?  Mostly, because it's hourly oversold but showing improving technicals.  It probably doesn't have much down left in it before a sizable correction upward, unless the broader market takes a tumble, and if the broader market takes a tumble, then... um, oh right, I'm short.

11/29/11

Short term the count is unclear.  Somewhat higher highs were made on weakening technicals.  I suspect we are still in wave "ii" of (iii) of [i] of 3, with upside potential to ~1225.

Because of the similarity that I and others (Pebblewriter in particular) have noticed to 2008, I propose a Groundhog Day count:  a bearish leading diagonal at Cycle degree.

This large-scale count postulates that the Grand Supercycle top was 2007 and that it is, indeed, P[3] down and maybe already Intermediate (3) of it, but that P[3] isn't P[3] the mutant monster that will annihilate everything.  Rather, this P[3] is the third wave of a leading diagonal, with the target being the line passing through 666.70 parallel to the 1576-1370 trendline.  (In this case, my short-term counts still stand... just hike them by a degree.)

It should be noted, also, that the Cycle degree wave I have labeled here is Cycle I, not Cycle a, and arguably is more bearish in the long-term as it implies that Grand Supercycle [IV] (if indeed it is "just" G. S. [IV]) would be a zigzag correction rather than a triangle or flat.  In this case, Cycle III of Supercycle (a) would likely be the "demographic meltdown" in the early '20s expected by a lot of permabears.  Cycle V might truncate as the Kondratieff cycle would probably put us in Kondratieff Spring or even Summer by then.

Supercycle (b) would, presuming it's not hyperinflationary (as the deleveraging would have finally been completed), be a welcome relief that would probably encompass the later 2030s and the 2040s before Supercycle (c) hits in the 2050-60s.  This likely would be the oil crash and "peak everything" (delayed somewhat by the demographic meltdown).  It ends in all sorts of not-very-pleasant things happening.

11/28/11

Oh, what a week.

Full disclosure:  I didn't update the blog, but I was still watching the markets over Turkey Week.  I observed what appeared to be signs of a short-term bottom, and scaled into long positions in UWM (double long RUT) over Wednesday and Friday, which I liquidated today.  I believe this almost counterbalances my far-too-early November short (which I liquidated too early).

Expect a similar hiatus around Christmas time.

I will admit that I perhaps over-invoke the fifth wave extension, but it seemed to be the best-proportioned, and the waves work well.  The main disadvantage is that Subminiscule [v] of 3 of (5) of [5] of "i" appears on the 30-minute chart at least to be a "three" - but there's an alternate count with the exact same implication that would call what I have labeled as Submicro (4) to simply be A of 4, with C of (4) being what I have labeled as 2 of (5), Subminiscule [i]-[iii] being Miniscule 1-3 of (5), and [iv] of 3, [v] of 3, and 4 being [a/w], [b/x], and [c/y] of 4.

On a side note, I should never have to label subminiscule degree waves on a chart that spans an entire month.

I am pretty sure the correction is not over.  It is sharp, which we expect from a wave "ii", but a move that takes place almost entirely as a gap up to correct an impulse that lasted 9 1/2 trading days?  While yes, it did almost make it to the 38.2% retracement, if this is a wave 2 - even if it is a wave "ii" of (iii) - probably should at least try a little harder.  We didn't even make 30-minute overbought with the gap up.  Therefore I think the gap up was only wave [A] of "ii".

If 1184.15 was [B] (rather than (A) of [B] or something of that ilk), a few good stopping points for [C] are a little higher up.  [C]=0.618*[A] at 1208.05, which is not that far away from the 50-day SMA (which I have labeled as the horizontal burgundy line).  [C]=[A] at 1222.83, which is not that far away from the 61.8% retracement at approximately 1225.  Also, the 200-day SMA currently is at 1266.98, the exact wave (ii) top as I have labeled it.  Coincidence? ...Yes, probably.

11/21/11

The market went down today.

The count I posted yesterday is still viable, provided that the market does not make a low below 1183 cash-equivalent before a reasonably significant correction.  If you think 1292 - which is suddenly a long way up - was Intermediate (2) rather than Minor 2, simply bump up everything on this chart one degree.

From today's low of 1183.16, logical correction points (assuming the wave to be corrected is from 1266) are 1214-15 (.382), 1224-25 (.500), and 1234 (.618).  If the wave to be corrected is from 1277, these values are 1218-19, 1229-30, and 1240-41. 

The major disadvantage to this count is that the low was made on lower RSI and MACD, which suggests that the final descent might be yet to come.  It is entirely possible that this is a wave [5] of 9 or something of that sort.

11/20/11

Due to the Thanksgiving holiday, there is a high probability that updates will be sporadic or absent this week.  (Of course, American markets will be closed Thursday anyway, but...)

I feel fairly safe that the wave I have labeled as Minuette (ii) is a complex correction, as evidenced by my inability to count the move on Nov. 10-11 as a "five" and the clarity of the Nov. 9 plummet as a "three".  The main issue with the count I posted Thursday is that Friday's action looks like a 4th wave, not a 2nd wave. 

Now, there is a possibility that Submin "ii" is tracing a flat, of which the [A] and part of the [B] wave have finished.  On the other hand, RSI lows at 15 and 30 minute scales were essentially colocated with the SPX price low, and we have yet to have a lower low on higher RSI - indicating that 1209.43 was a third-wave low.  Given futures action tonight, it's possible this fifth wave might manifest as a gap down with subsequent reversal up (or a "turnaround Tuesday" up).  A possible target is ~1200.87, where 5=1 in price length, which is also near the psychological support of 1200

As for where this reversal might terminate before initiating "iii" of (iii) of [i], the "triangle" baseline still is a logical resistance point.  It goes through the 1240s throughout this upcoming abridged trading week, and does not breach the 1266.98 invalidation point until December 12.

11/17/11

Triangle - if it was one - broke.

The primary count is bearish, namely, that Subminuette "i" of (iii) of [i] of Minor 3 (or, if you prefer, Minuette (i) of [iii] of 1 of Intermediate (3)) bottomed today.  The natural reaction is for a correction (dead-cat bounce) to occur.  We sort of saw this in the last candle of today, but notice that this bounce (even though half the world screamed "Manipulation!") ended up not making it all the way to the interim high made just an hour earlier.

And futures in the early going don't look so hot, though again... futures in the early going.

As I noticed on yesterday's post (refer to the picture), the action from the 11th to the 16th resembles a downward-sloping head and shoulders.  A little unorthodox, perhaps, as the head is actually at a lower price than the shoulders, but that's what it looks like.

Logical upside targets for a correction are 1230 (38.2%), 1236 (50%), 1243 (61.8%), and 1252 (78.6%).  The "triangle" lower trendline has already passed 1230 and 1236; it passes through 1243 on Tuesday the 22nd and does not make it to 1252 until Monday the 28th (it would still take until the 28th if the markets were open their full hours on Black Friday).  The neckline of the head and shoulders hits 1236 Monday morning and 1230 Wednesday afternoon.

The bull count is that this is the C wave of B/2 down (e.g. Minute [b] of a still-ongoing Minor 2).  C=A is at about 1200 if 1277 was the B of B/2 high, but just as I think 1264.25 is the orthodox high of my bearish (ii) of [i] of 3, I think it would be the orthodox high of a bullish B of B/2, in which case C=A is at about 1187.  C=1.618*A is at about 1140.

11/16/11

Another day, another 78.6% retracement followed by a - wait, did that plummet happen during market hours?

I've been pondering this count for a little while.  It's not nested 1-2-1-2, but it would explain the messy overlapping slop without creating the potential for Miniscule waves that last the better portion of a trading day.

The main problem I have with the "triangle [b] count" everyone and their dog seems to believe in is that we have been struggling to get back to the top (black) trendline where (d) should reach - that, and the move down from 1292 to 1215 looked impulsive.  If indeed we are in a triangle, it's probably a bearish one (say, Minuette (b) of [b] of 2) from the 1215 low.  In such a case, we probably bottomed out at Submin "d" of (b) and should retrace to the upper 1250s in "e".

Also, a 3-3-3-3-3 W-X-Y-X-Z might look like a triangle, without actually being one.  And those can happen in second waves.  I think we might be done, given that we had a market tank during trading hours as opposed to in the futures only.  This would mean we could gap down, and fill the gap without approaching new highs.

Regardless, I now think that 1264.25 was the top of the correction from 1226.64, not 1266.98.  Though 1266.98 is closer to a perfect Fibonacci retracement, 1264.25 is a better fit for a resistance trendline down from 1277.55.

11/15/11

Another day, another deep correction but which doesn't invalidate the ultrabear count.

This count also works for 1292 being Intermediate (2) - just move all the waves up one degree. 

We have had a rash of deep corrections, an experience also associated with the period from the 1370 nominal top to the late-July watershed. 

• 1356.48 top relative to 1370.74 top/1258.07 bottom:  88.6% correction minus 0.92
• 1347.00 top relative to 1356.48 top/1295.92 higher bottom:  88.6% correction minus 2.44
• 1346.99 top the next day:  100% correction minus 0.01

 In other words, if Minute [i] of 3 is trying to play fractal to Minor 1, it's doing a rather good job of it, complete with extremely deep retracements, bullish sentiment, "powers that be won't let it fall"-ism etc.

Notice two things:  First, if you draw a line from the 1356 to 1347 high on a log scale and extend it to the present day, it gets pretty close to the 1266.98 high and today's intraday high, after 1292 and 1277 surpassed it somewhat.

Second, all of a sudden cities have started to bring out the big guns with respect to "Occupy Wall Street" - evictions, police raids of the encampments, etc.  Why would this be happening now, when they were generally tolerated for a good month beforehand... unless, of course, "a good month beforehand" was Minor 2 and this no longer is?

11/14/11

This market is doing its best to stymie all wave counts.  Yes, there's a triangle everyone thinks is going on, which means it probably isn't.

So I'm just going to show this chart.  I am vaguely wondering, actually, if this might be a leading diagonal in which we are in "c" of (iii) right now.  We would, of course, need to break 1215 before breaking 1266 for this to be the case.

Whatever the case is, if this is somehow a bullish triangle I am willing to bet it is (b) of [y] of 2, or possibly the second [x] of 2 in a WXYXZ correction, with the Z wave to follow on its way up to something like 1307.

Also, apparently David Tepper's stock portfolio is smaller than it used to be.  But why, I wonder?  Tepper is a hedge funder - aren't they the "market makers"?  Shouldn't he know that The Infallible Algos will never, never, never, never, never, never, never EVER let the market go down so buy every dip?

11/9/11

Hope you weren't long.  I'm still underwater, but nowhere near as much.  I do not wish to divulge exactly how much skin I have in the game, but let's just say that as of yesterday's close I was down 41 currency units, whereas today I am only down about 16.

Yesterday I suggested by my chart that the market might have finished [5] of "c" of (ii) up.  Today's action seems to corroborate that.  Like its cousins at larger degree, Subminuette i of (iii)'s goal is to pass or at least approach the Minuette (i) low, which is 1215.42.  I'd say it has already succeeded in this, having made it to 1226.64, a level which most notably is below the .786 retracement of the 1215.42-1277.55 move.

Now, there is obviously a rather large gap.  However, if this bear market is really as significant as we are expecting, there should be gaps.  According to Peter Brandt, there was a gap down on the DJIA on June 9, 1930 during the Great Depression that went unfilled until 1951.  And of course, from that same source, there are numerous gaps which have been left unfilled since, the most recent of which is DJIA 8361 (7/15/09; this is also an unfilled gap on the SPX and fills at ~907).

The point of this is not to suggest these gaps down we've made since the top at 1292 won't fill; the point is to suggest they don't have to fill.  And even if they do, there is also an unfilled gap at 1155 that probably should fill too.  Also, there probably weren't many futures traders in 1930.

On the other hand, the dollar index is touching its upper daily Bollinger band and is pretty close to the .618 retracement of its down move.  On the other other hand, it did bounce off its 55-day EMA and is extremely close to a golden cross of the 55-day and 233-day EMAs...

11/8/11 - Are You a Bull and Don't Know It?

As I understand it, to be "bullish" means you expect the market (or whatever) to go up.  Likewise, "bearish" means you expect it to go down.  But here's the catch.  If you think the market is going to go up, you are bullish regardless of why you think it's going to go up.  If you believe it's going to go up because "the economic recovery is finally getting steam under it and the fundamentals have never looked better" etc., you are a bull.  If you believe it's going to go up because "the particular 'power that be' I rolled on my conspiracy dice today manipulates the markets and won't let it crash" etc., you are a bull.

Anyway, as for market action.

Oh my gosh, a bearish count!  Whatever will we do?!

This sideways, overlapping slop does not, I am sorry, does not count well as an impulse.  Now yes, of course you conspiracy theorists are going to shriek manipulation at me.  Others will scream 200 SMA at me, but in my opinion if it breaches to the upside, then reverses to the downside two days later, then reverses to the upside within two more weeks, the 200 SMA is effectively meaningless right now.

There is a gap at ~1285 that has yet to fill, which is just about the .886 retracement.  We are also just about at the .786 retracement right now.  Furthermore, we have a higher high on lower RSI on the 15-minute and lower scales, and possibly on the 30-minute as well.

Also, oil.  It's over $115 a barrel for Brent and approaching $100 a barrel for WTI.  That suggests headwinds for any "recovering" economy and might present a "rock and a hard place" situation for any hypothetical market makers.

11/7/11

Today was a frustrating day if you were bearish like me.

This count is a possibility.  I have no real clue what the count currently is; even the bullish counts leave something to be desired.  One potential is simply that the market is behaving as a fractal of the early part of this decline, where the move from 1074 to 1292 is equivalent to the move from 1258 to 1356, and so on.  As an impulse, this move up from 1215 looks rather like crap.  Doesn't mean it can't be an impulse, but...

I was curious, since many of the stocks I semi-follow didn't seem to be joining the party, what was up:  AAPL gapped down slightly and didn't fill intraday, BAC gapped down, filled immediately, then tanked to a lower low than Nov. 1.  CMG, LULU, CROX were all rather tepid - in fact if you followed CROX only you hardly would have known the SPX rallied.

Then I decided to look at the sector ETFs, i.e. the XL* were * is a letter.

• Financials (XLF):  Closed up, but not at HOD
• Energy (XLE):  Closed up, but not at HOD
• Consumer Discretionary (XLY): Closed up, but not at HOD
• Industrials (XLI): Closed up, but not at HOD; also only closed marginally up
• Materials (XLB): Closed up, but not at HOD
• Technology (XLK): Closed up and at ~HOD - significant morning decline and afternoon rally
• Utilities (XLU):  Closed up and at ~HOD - significant morning decline and afternoon rally
• Health care (XLV): Closed up and at ~HOD - significant morning decline and afternoon rally
• Consumer Staples (XLP): Closed up and at ~HOD - strong afternoon rally; weak morning decline

I'd overall have to say consumer staples played a big part in this.  Same goes for utilities and health care, which are also rather "mandatory" expenditures.  And then of course technology, but it seems odd that AAPL didn't really join in.  MSFT and GOOG seemed to have pretty strong afternoon rallies.

11/4/11

I'm going to make this brief:

Looking at this chart (the old inverted SPX), what would you expect to happen next?  Sure looks like a 3rd wave "up" should commence on Monday, or at least a C wave.  Also, today's "downward" action looked more corrective than impulsive, and I am wondering if the "upward" move was actually an impulse obscured by start-of-day issues.

11/2/11

Looking at just the price action of today compared to the past several days, you'd never know Bernanke made a speech today.

I hold that Minor 3 has begun and that this pullback from 1215 is Minuette (yes, Minuette, not Minute) (ii) of [i] of 3, whose targets are in my previous post.

We have a gap at 1253 (needs up to fill), yesterday's close at ~1218 (needs down to fill), and of course way back when at 1155 (needs way down to fill).  In addition, we have a right shoulder of a head-and-shoulders pattern forming, and it seems to be doing so quite nicely.

One operative question is, of course, are we done?  The head and shoulders channel crosses through 1246, the .382 retracement is at 1244, the .500 retracement and gap fill are both at 1253, and the LS of the H&S is at 1256.  If the gap at 1253 absolutely needs to fill, then we're probably in my alternate count and we just had [A] of "z".  If it does not, then we might very well have had [2] of i of (iii).

Although, of course, a fill of the 1155 gap before the 1253 gap might actually favor the "this is Minute [b]/Minor B down" counts (1153 is a .618 correction, and C=0.618*A yields a top for C of 1287 i.e. nearly a double top).

Targets for Minor 3

If, of course, this is Minor 3.

When dealing with moves of this length we do have to think in terms of logarithmic scale, but for comparison I will also show it using arithmetic scale.

High (M0):  1370.74 / 1356.48
ln(M0):  7.223106 / 7.212648
Low (M1):  1074.77
ln(M1):  6.979862
Retracement high (M2):  1296.66 (presumably)
ln(M2):  7.167547

Logarithmic distance [ln(M0)-ln(M1)]:  0.243244 / 0.232786
Arithmetic distance [M0-M1]:  295.97 / 281.71

Logarithmic extensions for wave M3:

M3=1.000*M1:  1016.69 / 1027.37
M3=1.236*M1:  959.97 / 972.45
M3=1.382*M1:  926.47 / 939.96
M3=1.618*M1:  874.79 / 889.71
M3=2.000*M1:  797.16 / 814.01
M3=2.618*M1:  685.90 / 704.94

Arithmetic extensions for wave M3:


M3=1.000*M1:  1000.69 / 1014.95
M3=1.236*M1:  930.84 / 948.47
M3=1.382*M1:  887.63 / 907.34
M3=1.618*M1:  817.78 / 840.85
M3=2.000*M1:  704.72 / 733.24
M3=2.618*M1:  521.81 / 559.14

11/1/11 Morning Update

1221 has been breached.

There does seem to be some support around 1191-1197, the bulls' "last-stand" channel line, but it doesn't look very nice for any short-term bull cases other than a retracement.