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The market went up today.

Unfortunately this market seems to be relentless in its uptrend.  It is rapidly approaching the trendline from May, which currently rests at about 1322ish and which I believe represents the last line of resistance for the Minor 2 count.

On the other hand, there's always the possibility that this is actually Intermediate (B) of Primary [2], which has become an increasingly compelling count to my mind.  One advantage of Intermediate (B) is that it actually would allow the SPX to breach 1370 (for, say, C=A at 1375) without invalidating the count.  Bears who had capitulated and turned bullish would then be re-P3'd in Intermediate (C) down - the difference, of course, is that instead of being followed by Minor 4 and 5, it would be followed by a bull move.  This would be P[3] of ending diagonal Cycle V, and would unfold in three waves.

There has been some discussion on the NDX.  I personally think the NDX and Nasdaq Composite are on a different count than the SPX.  In particular, to me it seems more appropriate to think of them as being in Primary [C] of Cycle b.  Whether or not they're finished with that, I do not know.  At any rate, the NDX looks quite weak on weekly RSI and is just about poised to make a higher high on lower monthly RSI.

P.S.:  The underlying text is in fact present underneath the black bars of doom.

1/17/12

Announcement:  There will be few if any posts on the week of January 23-27.  The reason for this has nothing to do with certain anagrams of soap, but rather due to the fact that both my Internet access and my ability to have a stretch of uninterrupted time long enough to conduct a full analysis will be up in the air.


The market technically went up today, but relative to its gap-up open on what frankly I consider to be absurd ebullience.  I find it amusing that the word "ebullience" has "bull" in the middle.

The move up from 1202 looks like this now.  Notice that each successive high occurs on an increasingly shallower slope, and that we are once more under the thick orange line that had stopped most of the previous retracements of this move.  Yes, we gapped over it today, but failed to hold it.  This indicates that the market no longer thinks that line is important. 

Today's high went above the 1301 target.  That's okay, because it is still within the .786 retracement range of 1301-1307 - not to mention it reached this value with the help of a gap up, which results in stops triggering, shorts panicking and covering, etc.  The market may want to hold on through opex earnings week, but I think this reversal - even though we closed higher - means that risk isn't exactly as on as it was during the festive holiday season.  Yes, we rallied late in the day, but we also hit short-term oversold conditions, so that wasn't so surprising.

Several of the banks are not looking good.  C gapped down and crapped.  It topped on the 12th, but is showing improving 10-minute technicals and therefore probably should correct fairly soon.  BAC closed down ($6.48).  MS closed down.  WFC closed up - it should be worth noting that Wells Fargo's reaction to the 2008 decline was quite interesting.  They were trading at around $30/share until it happened, blipped down to $7 a share and then skyrocketed back up to around $30/share where they still trade.  (I.e., they recovered much better, but I'm not sure how much of that is due to absorbing Wachovia.)  Goldman Sachs, the bank everyone loves to hate, was down as well.

I think we could be done here.  I think.

A Couple Long-Term Count Possibilities

The long term count possibilities, as I see them, are as follows:

First of course is the Prechterian or pseudo-Prechterian "P[3]" count.  The main thrust of this count is that 2007 marked a Cycle-degree top of some kind, and that the May 2011 high was Primary [2] of a Cycle-degree impulse down.  It could, in fact, actually have been Primary [B] of a Cycle-degree correction where the top is 2007 and the March 2009 low is P[A] - the salient point is the same:  we are ultimately headed for a low below 666.70 before breaching 1370 to the upside. 

What happens after that point is up for debate and depends on the exact count used.  A P[3] count proper would have us wallowing in deflationary misery in P[4] followed by things deteriorating even further in P[5].  A P[C] count of course would take us to new highs (though these new highs may be aided by inflation).  The "Minor 3" count presupposes the larger P[3/C] count, as would a higher degree count that has us at Intermediate (3).

An alternative count, which still has a significant bear move down but which does not take us to new lows, is as follows:

This is a sketch of the "medium term bear, long term bull" count, which is my alternate.  This has us in or having just finished Intermediate (B) of Primary [2] of Cycle V.  This Cycle V would be an ending diagonal (3-3-3-3-3), which accounts for the move up from 2009 being in three waves.

The next step down in such a count is an Intermediate (C), which would look a lot like a Minor 3.  The difference is in the targets--an Intermediate (C) would probably make it at least to sub-1000 before reversing upward; a potential target I would be watching is 878, the .618 retracement of the move from 666 to 1370.  A Minor 3 might stop at the same places, but would be followed by a tepid Minor 4 that probably won't get above 1100.  An Intermediate (3) of P[3] would almost certainly take us to 665 or below...

...unless it's of a leading diagonal.

While in the near-term this count is less bearish than the Prechterian P[3], further afield it is worse.  A leading diagonal is, well, leading, and presupposes a Cycle III/c down in the still-distant future.  In other words, at least the traditional "P[3]" count has a large-scale bull market (even if just a corrective bull market) begin sooner.

1/13/12

The market went down today.

Obviously, it turned out that 1292 was not the Minor 2 top after all.  I have updated my "Targets for Minor 3" count to adjust for this assuming that 1296.66 is the top as I have it here.

It may not be - in particular, if the market were to hit 1301.26-43, it would be pennies away from an interesting Fibonacci confluence:  1301.26 is the log-scale .786 retracement of the move from 1370.74-1074.77, and a 3/C = 1.618*1/A move from 1301.43 would, on a log scale, put a target at 878.00, which just so happens to be the .618 retracement log-scale of the entire move from 666.70-1370.74.  This would work well with a "medium term bear, long term bull, super long term bear" count in which we are in or have just finished Intermediate (B) of Primary [2] of a Cycle V ending diagonal.

However, we dropped below the channel line that had heretofore limited our retracements, and failed to get back above it.  Notwithstanding the permabulls' or neo-bulls' cries that the fact that we retraced the opening's down move means we are in a New Bull Market, it looks more like a mini-wave 2 than anything else.  Not to mention the fact that it stopped at just about the .618 retrace of today's down move (1289.41; 1289.34 would have been exact.  The .786 is at 1292.56), and the fact that the 5-minute chart is showing bearish RSI divergence on this afternoon's up move already.

The main downside for bears is that there was a gap down, which may want to fill and would do so dangerously close to the high (above 1295.50).  Still, in late July the first wave after the interim top at 1347.00 retraced to roughly 1346.99.

1/11/12 - Looking at Divergences

I know there are some people who don't like using divergences, but...

The market still looks like we're in a complicated topping process.  In particular, the wave count since Dec. 29 is quite tricky to figure out.  So I have instead decided to look at RSI divergences in various markets.  These are all RSI(13), the Fibonacci value I typically post in my charts, not RSI(14).  I look at XLB mostly because I am now long SMN, but that's beside the point.

Bearish RSI divergences (bullish for the VIX) are present at the 60- and 30-minute levels on all of these.  Many of the highest values occurred in the powerful New Year's thrust up.  The two markets I looked at that have yet to make a new high on lower 10-minute RSI are the SPX and RUT.  The SPX closed today at 1292.48, four points below its high set yesterday morning of 1296.46.

This may suggest marginally higher highs tomorrow morning before a selloff - I'd be highly amused if the market topped at 1299.99.  Many of these indices are very close to their late October Minute [w] (or Minor W) highs and will not need much more to get above them.

1/9/12

The broader market decided to stay still today, much as it did Friday.  It's probably tracing out a triangle of some sort.  About the only thing that seems clear to me about the past couple of days with respect to the SPX is that the move from 1283.06 (Thursday 1:40 p.m.) to 1274.55 (today 11:15 a.m.) looks a lot like a flat.  To which I have to say:  Pick a direction, market, and go in it.

So instead I'm going to look at Netflix, which has been explosive the past couple of days, rising nearly 14% today alone.

The weekly chart for the past year does not look particularly good.  From this it looks as if the recent surge, powerful though it may have been, is simply a backtest of the 200-week SMA which it gapped through in October.

Speaking of gaps, NFLX's history is full of them.  Let's take a look at the daily chart, highlighting the gaps.  (Blue = gap up, red = gap down.)

Currently it looks as though the stock is trying to fill the massive (largest on this log scale) gap it left when it plunged overnight from 115 to under 80 a share.  NFLX is already daily overbought (RSI(13) at 75), but may have a little more room to run.  An operative question is whether this dramatic upturn is the C wave of a correction, or 3 of A (or 3 of 1 of the new NFLX bull).

IF the broader market is about to have a major crash, I would find it hard pressed for NFLX to continue double-digit daily rises.  On the other hand, if such a crash is still a few days or weeks away (market making a topping process ultimately to reach the 1310-1330 range), NFLX may power through to at least fill the gap at 115.  I find it difficult to believe it would fill the higher gap at ~200 soon, though, as the 200-day SMA is at 185.60 (about the bottom of that gap) and declining.  If the market is still ascending, NFLX may, however, try to challenge this SMA in a wave 2/B.

On the other hand, if a crash is due, now (or soon) would be a good time for NFLX to reverse.  Of course, it is always possible that the stock may hold up through Minor 3 (i.e. not go below 77 causing 4/1 overlap), rise in a 5 of A during the broader market's Minor 4 filling the gap at 115, fall in a B-wave during the broader market's Minor 5, and rise to meet its 200-day SMA somewhere in the 150s (?) during Intermediate (2) before filling the gap in the lower 50s during Intermediate (3).

NFLX is severely overbought hourly, but the structure suggests that even if this is NFLX's C wave, there still needs to be a 4 and 5 of C.  A pullback of some kind is likely; it's just a matter of how strong and long-lasting this pullback will be.  I may consider buying shares of NFLX in the near future, possibly within the next 72 hours.

1/5/12 - A Tale of Three Indices

Let's look at the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all together, shall we?

The primary count in the SPX is that we are currently in Micro [5] of v of (c) of [y] of 2.  If so, the SPX should not go much above 1288.50 and the DJIA should close no higher than 12,467.  Unless the DJIA and SPX are on separate counts, which is not out of the question, and assuming the primary is the correct count, Micro [5] on the DJIA should truncate, terminating below Micro [3] (Tuesday's high).

On the Nasdaq we do have a new high above Tuesday's high.  Micro [3] on the Nasdaq is longer than Micro [1] (88 vs. 86 points), so Micro [5] is not limited in how high it can go before invalidating the wave count (well, besides 2887.75, its May 2 top).

On the SPX and DJIA, we had negative RSI divergence with respect to the December 27 and January 3 highs.  The Nasdaq did not confirm this, as its January 3 high had higher RSI than Dec. 27, but we have lower RSI on a higher high for it here.  All three indices have lower MACD highs (though it's hard to see on the Nasdaq so I have helpfully included the values).

What does this mean?  It means the market's tired.  At the very least, it will likely undertake a significant correction soon (down to the lower 1200s at least).  More bearishly it means we may be only a matter of hours before Minor 3.

The above chart adds credence to this view by suggesting that the entire move from May 2 so far is fractaling the action from May 2 through the end of July.  In such a case, we are at the equivalent of Point 5.  In July, the market topped and then began to oscillate near its top making steadily lower highs and lower lows before finally collapsing to point 6.

1/4/12

The market went to the right today.  I think, if it were to have gone to the left, we would have more to worry about on our hands than even a Submillennial-degree downturn.

The count I described previously remains intact, with a necessary truncation on the Dow and a possible truncation on the SPX.  I added to my short position today.

Extremely small-scale intraday waves can be difficult to count and are more prone to breaking rules.  The point is that the market seems to be struggling even as social mood has become quite relieved.  What Eurozone crisis?  What China slowdown?  This is what you expect at the tip-top of wave 2.

Provided 1288.50 does not break in the SPX, the market can make a new high above where I have Micro [3].  The preference is for the DJIA to go no higher than 12,468.71, only fifty points from its close today.  But this is doable; the Dow stocks could, for instance, start a tumble "early" while things like AAPL and GOOG lag it - the Nasdaq, unlike the Dow and SPX, is still under its daily Bollinger band.  (The Dow is also weighted by share price, not by market capitalization; this might have an effect.)

1/3/12

The market went slightly up today.

1288.50 did not break, and therefore my count remains.  Additionally, we have lower 30- and 60-minute RSI and MACD than earlier in this seasonal rally despite the shell-shocker of an opening, suggesting it may be just about to peter out.

One argument against the immediate bearish case is that what would be the fifth wave on the Dow Jones Industrial Average is now longer than what would be the third wave (which was shorter than the first), meaning this may just be Micro [3] of Submin iii instead of Submin v itself.  That may or may not be the case.  If it is, and the SPX confirms, the indices could make a 4-5-4-5 pattern, topping at around SPX 1301-07, which is where the 78.6% logarithmic retracement of 1370-1074 is.

On the other hand, indices need not always confirm, and there is a third option as well:  Micro [5] of v on the DJIA could truncate, finishing below today's intraday high of 12,478.86 and - critically - no higher than the v=iii point of 12,468.71 (yes, just 10 DJIA points lower). 

As for the new bull market scenario?  Certainly, it's a possibility, but a lot of this talk has been from aggressive (perma)bulls and/or capitulating bears.  My preferred bull-market scenario is that P[1] up ended in May 2011 and we are currently in Intermediate (B) of P[2] (Int. (A) was the trip to 1074).  The (C) wave of this move would probably look very similar to wave 3 down in the bear counts; its bottom has the potential to be a significant bear trap.

Why Cycles Aren't That Easy

It's easy to understand why one might think cycles are easy to figure out.  Let's take a simple sine wave and call it Figure 1.

Fig. 1:  Sinusoidal wave with wavelength 100 units, amplitude 10.

Actually, the equation used here (and for subsequent figures) was negative cosine, rather than sine, because I wanted the cycle to be at a bottom at timestamp 0.  This cycle behaves as any such sinusoidal wave should:  it bottoms at 0, 100, 200, 300 etc. at a value of -10, reaches its top at 50, 150, 250, 350, etc. at a value of +10, and passes through zero at 25, 75, 125, 175, etc.

Now let's suppose I add a 50-year cycle, with the same amplitude and with its phase set so that its bottom is also at timestamp 0:

Fig. 2:  50-unit and 100-unit cycles combined

Now, at timestamp 0, the value of the "market" (if this is to represent the stock market) is -20.  The 100-unit and 50-unit cycles, both at their respective bottoms, exhibit constructive interference and so our "market" is down much further.  The subsequent top actually occurs a little later than timestamp 25 as would be expected, because while the 50-unit cycle is going down, the 100-unit cycle is still rising.  The same effect occurs in reverse at about timestamp 70, resulting in an earlier peak than expected (while the 50-unit is still rising, the 100-unit is falling).  At timestamp 50, the 100-unit cycle is at a top, while the 50-unit cycle is at a bottom - we get destructive interference and a "market" value of zero (+10-10).

Now, for fun and to illustrate how tricky cycles can become even when there are just a handful, I combine cycles of 100, 64, 36, 16, and 9 units.  They are all of the same amplitude (10) and are all in phase at time unit 0.

Fig. 3:  Several cycles, all in phase, all same amplitude.

Okay.  You can, for the most part, see what's going on.  Obviously at timestamp 0 they all undergo constructive intereference with each other and the "market's" value is -50.  The prominent "triple top" observed by the market has its highs at about timestamps 22, 40, and 58 - these highs, in fact, are 9-unit cycle highs that occur, for the most part, during the "high" phases of the 100- and 64-unit cycles.  Similarly, the high in timestamp upper 80s can be attributed to the juxtaposition of the 64-unit and 16-unit cycles approaching peak and the 9-unit and 36-unit ones just past it.

But would you have been able to figure those cycles out if I hadn't already told you what they were, and if so, how long would it have taken?

Now let's make things more complicated by putting the cycles out of phase at timestamp 0.

Fig. 4:  Like figure 3, but cycles out of phase.

 In this instance I have helpfully included the magnitude of the phase shifts.  Notice how the graph has changed compared to Figure 3 - there's no true "triple top" anymore.  Now, what happens if I mess with the cycles' amplitudes, and add a secular "bullish" linear trend y=0.25*t, where t is the timestamp?

Fig. 5:  As graph title implies.

Notice how suspiciously like a continuation head and shoulders pattern this looks like.  There is a strong "bull" move up in timestamp 35-40 where, if this were a market, fortunes could easily be made on the long side (depending on what the actual market values of this would be).  Similarly, after an extensive topping process including a "bull trap" from about timestamp 53-67, there is an equally powerful "bear" move down from positive 36 or thereabouts to about negative 11.

Now, to further complicate things, let's add some noise.  Using Random.org, I generate for each time stamp a uniformly distributed random number between -15 and +15, and add it to the cycles.  I do this with four different sets of random numbers, which you can consider to refer to different market indices.  These random numbers are supposed to represent smaller variations in the market.  Take their cause how you will - smaller-scale cycles, earnings reports, fundamentals, the psychology of the collective investors, the whims of central bankers, etc.

Fig. 6:  As graph titles imply.

Clearly the prominent larger trends remain intact--there is a strong "bull" move, for instance, at timestamps in the late 30s and a strong "bear" move in the late 50s/early 60s.  But they don't equate--there is significant non-confirmation, for instance, in index I (which peaks at timestamp ~55) relative to indices II, III, and IV (which peak at timestamp ~40).

Obviously, you'd need to use a smoothing algorithm to determine the time cycles from this; the questions, of course, are (1) would you get the right period for the cycles?  (2) would you be able to tell which are of the greatest magnitude?  (3) would your smoothing algorithm catch cycles that aren't there (or ignore cycles that are)?  And it might create more problems if the "noise" is patterned (e.g. Elliott waves) rather than purely random.

Now take into account that I have:

• assumed that the cycles are all sinusoidal in nature
• assumed that the amplitude, phase, and wavelength of each separate cycle are all constant

These assumptions may, in fact, not be valid.

12/28/11

So I technically declare hiatus, and then the next day I come back with a post.  But today's market action was too compelling not to comment.

The path of least resistance is, of course, to assume that today's downward action was [C] of "iv" of (c) of [y] of 2.  1242.82 didn't break (creating 4/1 overlap), so this is still a perfectly logical count, and full-blown invalidation would be at 1229.51.

If this is the case, wave "iii" (39.86 pts) is slightly shorter than wave "i" (40.45 pts), meaning that wave "v" should be shorter still.  The theoretical maximum would be 1248.64+39.86 = 1288.50 SPX.  This is below the 1292 October 27 high - wave [y] would truncate below wave [w].

However, it is worth pointing out that the consolidation last Thursday afternoon (the 22nd) might instead actually be Submin iv itself.  Consider that timing-wise, this would give a one-day wave "i", followed by a clear half-day wave "ii", followed by a wave "iii" that also lasted about a day (maybe about 7, 7 1/2 trading hours) from Wednesday lunchtime to Thursday early afternoon, followed by a half-day consolidation and then a wave "v" that lasts, again, about a day.

Additionally, such a wave "iii" subdivides well into a wave [1] up from 12:30 Wednesday to 1:00, an extended wave [3] from ~1:40 Wednesday through 10:00 Thursday (with an extended Submicro (3) from 2:30 to 3:30 Wednesday), and a wave [5] up from 10:45 Thursday to sometime between 1:30 and 2:00.  Wave [2] of "v" would have been the consolidation during the 10:00 hour Friday, with wave [4] of "v" being the significant rightward move Friday afternoon. 

Lastly, such a third wave would, in fact, not be the shortest wave--even if we place the wave "iii" high at Thursday morning's 1252.25, it would still be 22.74 points compared to wave v's 21.83 up from 1247.54.  Placing the wave "iii" high at the higher 1255 afternoon high, of course, simply makes wave "iii" that much longer.

And it certainly does look like five down from 1269.37...

Hiatus

I have several evening plans this week - lingering holiday festivities etc.  Expect updates this week, if any, to be sporadic.

Market looks very much like it is about to do a 4th wave, if this is not in fact the end of the entire move up (though RSI at several time scales seems to suggest we still have a little more up left to go).  We are no longer hourly overbought, though a little more down (say, a gap down open tomorrow) would look nice.  A thrust to 1270 or so with lower RSI would likely be the top (or at the very least, the top of Submin iii of (c)).

12/20/11 - Santa Claus in Town After All?

There will not be a post tomorrow.

The seven waves down from 1267 was followed by an explosive up move.

Today's action provides strong evidence in favor that this is in fact Minuette (c) of [y] of 2, or even (iii) of [c] of 2, or if you're a permabull, (iii) of [iii] of 3 of (1) of P[3] up.

I do not think the move from 1267 counts well as an impulse.  In order for it to be a "five", the span from what I have labeled Micro [3] of "e" all the way through the "f" top would have to be [4] of an extended "v", which means "c" has to be "iii" and it would be the shortest wave.

Assuming the HOD is the top of wave "i", and with 5- and 1-minute technicals weakening throughout the afternoon there is no reason to assume it can't be, we notice a peculiar parallelism to wave "i" of (a) of [y]:  "i" of (a) ran from 1158.67 to 1197.35, a 38.68-point, 3.34% rise, whereas "i" of (c) ran from 1202.37 to 1242.82, a 40.45-point, 3.36% rise.  The rises are almost exactly the same in percentage terms, which might suggest A=C on a log scale.

If this is to be the case, since wave (a) was a 9.35% rise from its 1158 low, we would expect wave (c) to be the same, which would put it the target at 1314.85, which is near that 1370-1356 trendline I keep talking about.  Minuette (a) took 8 days to reach its peak; if Minuette (c) does the same, it would place the top on the final trading day of the year.  Happy New Year, everybody!

12/19/11

Let's eschew the actual degrees of the subwaves following the 1267.06 high.  We can clearly see that there are seven waves down of significance.

If this is the first significant wave down of Minor 3 (either Minuette (i) of [i] of 3, or Minute [i] itself), then we would expect there to still be an eighth and ninth wave of the move.  Given that the most dominant motion of the move was the downswell on 13-14 December, it would not be unreasonable to consider that the 3rd of 3rd and therefore that what I have labeled as Submins iii, iv, v, vi, and vii are really Micro [1], [2], [3], [4], and [5] of iii.

The more bullish (at least for now) possibility, is that we are in, or have just finished up, Minuette (b) of [y] of 2 (or, if you prefer, Minute [b] of Y of (2)).  If this is the case, we have room for a marginal new low, provided we do not go above around 1215 before making it.  If we go above 1215, one becomes hard-pressed not to consider any new low to be of significance, which would make it wave "ix" of the down move severely weakening the bullish case (unless another mild 4-5-type move comes into play, in which case you could consider it an 11-wave correction, but...)

One of the things favoring the bullish possibility is the SPX having made a lower low on higher hourly and 30-minute RSI and MACD.  It is also just about touching the 100-day SMA, which has acted as support in several instances recently (though, oddly, not as resistance when touched from below) - March, mid-July, and early November.  An A=C bounce from today's lows would get us into the 1310s, which is rather close to the major resistance trendline from 1370-1356 (which is now in the lower 1320s). 

On the other hand, the fractal similarity between the move from 1292 and the month of July doesn't bode well for the markets... what if Santa really is just your parents after all?

12/15/11 - Shiny Yellow Metal

I'm going to talk about gold today.

It looks as if gold is in a significant correction in an overall secular bull market.  This is the left-hand count.  Based on the length of the waves, we probably had a top of at least Intermediate degree.  (If it was an Intermediate (5), of course, then a Primary wave down is now underway and the right-hand count is in effect.

The main point of order is that the late-August/early-September move in gold looks like a "three" rather than a "five".  StockCharts does not show intraday on precious metals, but I have trouble counting it as five waves in the absence of any intraday data.

These charts suggest there is still more downside in gold to come, even if it's just a correction.  How far?  Well, the channel parallel to 1917-1804-1767 and crossing through the Minor A (if it is that) low at 1535 currently is in the 1430s.  If there's an overshoot, and/or Minute [iv] lasts a while, it could theoretically see sub-1400 before turning back up again (either in the next leg up of the bull market, or in Minor 4 of a new bear market.)

Musings on the Education Bubble

I think the main impetus driving the development of the education bubble was the Cycle IV recession in the '70s.  This long-lasting recession, coupled with the cessation of things like the Vietnam War, the opening of China and its eventual conversion into de facto state capitalism, the increasing availability of computers in the late '70s into the '80s, the inflation-adjusted price of oil peaking in 1980, and even the various social movements that took place in the '60s and '70s, probably all played a role in it.

So you have a long-lasting recession driving companies to start automating and offshoring to save costs, which also raises their profits during the subsequent bull market by cutting down on overhead.  Generally, as Paul Krugman and his citations point out, the easiest jobs to automate are those involving a generally fixed, easily programmable routine (whether blue- or white-collar).  With the comparatively slow computers of the '80s, this generally meant things like assembly line work.  Offshoring, likewise, probably hit manufacturing the hardest because (1) the telecommunications infrastructure wasn't yet in place to enable cost-effective offshoring of any white-collar work, and (2) unlike construction, maintenance, and the like, you don't actually need to be on site for manufacturing—you can simply have the product made overseas and shipped to the U.S. (or wherever) when done.

Also, you have government (which, at least during this time, wasn't really affected much by the recession) growing, and a significant percentage of government jobs are skilled white-collar ones that are best done with a college degree.  And you also have the Japanese Bubble in full roar which of course is making some people fear America is "falling behind" educationally (you see this sentiment today as well, just with China).  And you have an increase in high-tech, which requires educated workers who know what they're doing.  And you also have Sallie Mae, and with a Cycle-degree bull raging—and especially afteer the fallout from "Black Monday" in 1987 subsided—what's a little more credit?

Essentially, then, you have the blue-collar manufacturing economy faltering, being automated, or shipped overseas, while at the same time skilled white-collar jobs are growing in number, even during these mild recessions.  You can see from that how the "everyone should go to college because it practically guarantees you a good job, and not going to college means you probably won't be able to get any job better than flipping burgers" mentality came about. 

On top of this, you also have the various social movements dedicated to stopping inequality (real or perceived) whose heyday was in the '60s and '70s.  If not enough members of X group go to college, they'll be stuck in the same positions they were shunted into by prior prejudices—how is this progress?

So, you have:

• ·         Fewer decent-paying but unskilled or semi-skilled blue-collar jobs that don't require a college degree and for which they made no pretense that one was required, which seem to be the most affected by recession 
• ·         More decent-paying skilled white-collar jobs that legitimately require a college degree, which seem to be the least affected (if at all) by recession
•          More people wanting, needing, and/or feeling it is their right to go to college / send their kids to college 
•          Greater ability of these people to afford college (owing to student loans, etc.)

This results, of course, in a higher demand for college admissions, which can either be met by raising tuition prices, by expansion of existing colleges / building of new colleges, or (because Sallie Mae will be there for you) both.  You end up with a higher supply of college students, which results in a higher supply of college graduates.

Now, let's pretend you're a company.  You're hiring for a certain position with three open slots and a hundred applicants.  In your hiring process, you obviously give weight to persons with a college degree (preferably in your field, but a degree in any field is better than no degree at all).  In ye olde dayes, you might have, say, 10 applicants with a degree (of which 4 are in your field), while the remaining 90 don't.  Since there are 3 open slots, if your degree is in the field in question you probably have about a 3/4 chance of being hired, assuming all four candidates are roughly equal.  If it's not in the field, don't despair—you may be a better candidate than the ones in the field because of experience, interview answers, or in general the other factors besides education that play a role in the hiring process.

But today, you have 70 applicants with a degree (of which 20 are in your field), and 30 without.  There are in fact now two open slots, because the third was consolidated or something to that effect.  Your chance of being hired is effectively 1/10 if all candidates are equal every other way.  The degree isn't a magic ticket like it used to be.

The trouble, of course, is that it's still more valuable to have a degree than to not have one.  Those 30 people with no college education at all—they're not getting hired, it's going to be two out of the top 70 (and probably, but not necessarily, out of the top 20).  In other words, the high supply of graduates leads to a lower marginal value of having the degree.  But there is still marginal value. 

Is it worth the cost?  Maybe.  Maybe not.  The point is, perception has now shifted towards the degree being a virtual necessity to have just about any job at all.  This of course, results in a higher demand for college admissions, higher tuition prices, higher student loan debt, a higher number of graduates, and a still-lower but non-negative marginal value of having the degree.  And I haven't even got into the role that professiorial tenure and collegiate athletics might have to play in this.

The billion-dollar question, of course:  What bursts the bubble?  Well, most likely a social mood shift, as (obviously) suggested by The Socionomist, as well as by the "Schumpeter" blog on The Economist, both of which suggest the early stages of this are already starting to happen.  The insulation created by the state support for public universities and the prestige factor (and thus higher demand) for private universities has likely dampened any immediate recessionary impact; the Primary-degree "recovery" has likely delayed the reaction further.

12/13/11

Placing protective stops is a very good thing.  I know that many people seem to think otherwise, citing fear of the Eeeevil Algorithms, but... when you're assured a profit if they trigger...

Yesterday I bought UWM, the double-long Russell 2000 ETF, at about 33.80/share.  When it gapped up today, I set a stop at 34.60, which of course triggered before 11:00.  UWM closed today at 32.88.

While only three waves down were seen today, they certainly looked impulsive.  This is most easily seen on the 5-minute chart, which I have posted - this morning's move down looks like five waves of what I think are Miniscule degree.  The operative question is whether Submicro (3) ended at today's low, or if that was simply Miniscule 5 of a 9-wave move and we have still further to go.

Using the "2008=2011" analogue suggests that today was May 20, 2008 - one day after the May 19 Intermediate wave (2) of P[1/A/W/donut] top at 1440.  If indeed Minor 2 (if this was in fact Minor 2) did end in a truncation at ~1267, and if we're going to follow the same pattern, we should drift downward into early February, move choppily up until mid-March, and the wheels fall off the cart sometime around April - sell in May and be too late.  I doubt the pattern will persist for so long, but....

The obvious near-term bull count is that this is (b) of [y] of 2.  Daneric has a good chart showing the most viable count for this, which suggests that if that is indeed the case, it just now ended.  Certainly, there is reason to believe that (c) of [y] could be coming - today's low was at higher RSI on a few timescales (though not at 5-minute) - on the other hand, we do have that 2008=2011 pattern that is still holding, and I have the strong feeling that when today does finally break ranks with 2008, it will be a break to the downside.

At any rate, I don't want to go long again unless 1238 is breached before any new lows are made.

12/12/11

The market went down today.  Except at the end, when it went up.

We bottomed out today at 1227.25, which is a couple points over the 38.2% retracement level (1224-25) for a (b)-wave correction.  It is reasonable to think that this correction could be over, in which case we just started (c) of [y] up - the last hurrah before Minor 3.  Allowing today's low to be the right shoulder of an IHS suggests an upside target of about 1304 - well within the 78.6% correction range of the entire 1370-1074 move.  The 1370-1347 trendline crosses this area in the next couple of weeks.  Again, I would not expect the market to go much higher than 1320, which is where the 1370-56 trendline currently runs through.

On the other hand, the action from Dec. 5-7 looks very much like a topping pattern - desperately trying to make it back above the 200-day moving average, only to be rebuffed by it each time.  The moves on December 6 and 7 are very clearly "three up" from the lows, which is of course the reason why I initially treated the action as a triangle.

Bears should note that the sideways action during this time period can still be treated as a triangle - obviously not (b) now; my previous count was invalidated by movement below 1231.47 - but very possibly "iv" of (a) of [y], or even (iv) of [c/y] of 2, with 1258.25 being the truncated fifth wave of the same action.  This last scenario is the most immediately bearish:  it suggests that we started Minor 3 already.

Finally, it still must be taken into account that 1292 as the Minor 2 high is still a possibility - not only have we not breached it, we have yet to breach the trendline from 1356-47 downward which touched 1292 and the tip of the more-or-less horizontal top at 1266-67. 

The argument against is that the move from 1292 to 1158 looks blatantly like a "three" (which is why my primary count is still bullish near-term), but it could theoretically be Minuette (i) of a leading-diagonal Minute [i].  Yes, LD's are supposed to be 5-3-5-3-5... and you should have shorted silver at $20/ounce.  If this does happen to be the case, Minuette (ii) is over, Santa is your parents, and prepare for a move down to at least the lower 1100s.

12/10/11 - Looking at the Large Scale

Sometimes it helps to take a step back and look at the larger picture - otherwise we risk losing the forest for the trees.

The above graph shows the B and C waves of the recent corrective Primary wave (which I deliberately don't identify).  Stepping out at this scale shows us a few things we might have lost in the Micro and Submicro waves of intraday charts.

The upper thick black line is, of course, the 1370.58 invalidation of the entire Primary count.  The thick red line is the trendline from 1370 (May 2) to 1356 (July 7).  This line is in the 1320s for the rest of this month, and I think it would provide strong resistance should the market manage to make it there.

The thick pink line is the trendline from 1356 (July 7) through 1347 (late July), which comes awfully close to marking the 1292 high, and which, notably, has not been retested since 1292: all the action since then has been contained beneath it.  It is entirely possible that the line may in fact not breach at all--Minuette (c) of [y] may truncate or barely surpass Minuette (a), making [y] truncate as well, which would not be out of character if Minor 3 is imminent.

For ease of exposition I have offered a "road map" for the rest of Intermediate (1) (assuming, of course, that the October low was only Minor 1 of (1)).  In order to make the graph visible, the slopes are shallower than they will probably be.  It is entirely possible that more Zweig breadth thrusts will be triggered during Intermediate (2) if it acts as a typical second wave (sharp and not particularly long-lasting); Intermediate (2) will probably be associated with some sort of excuse - likely an announcement and/or inception of QE3.

The rising black line from the Intermediate (B) low to the Minor 1 of (1) low is a logical termination point for Intermediate (2) (and before that, Minute [ii] of Minor 3), but its ability to get there may depend on how far back up the market has to travel.  Although given the market's recent penchant for steep retracements, it should not be ruled out.

12/8/11

Nothing really has changed.  I thought that the 1267 yesterday might have been the "d" wave of some sort of triangle (either for wave 4 or B).  Today's action is conducive with an overshooting "e" wave.  I actually hope this is the case, as I'm currently positioned long the market.

On the other hand, the move down has been rather powerful, and breached the triangle bottom three times with the last, EOD selloff being a solid breach.  And early futures do not look like there is much relief.

If this is E of 4/B of C/Y/(A of Y) of 2, there is little room to keep going down - the market must go back up TOMORROW.  The alternatives are as follows:

• The primary, short-term bullish alternate:  My A-B-C of the triangle are in fact the A-wave of a flat (which probably makes up B of Y), with the B-wave being my D-wave and the C-wave being my E-wave.  Note that we CAN count 9 waves up from 1158.67, which is conducive with this being an A-wave.

• The superbullish alternate:  Same as above, but instead of being B of Y of 2, it is a wave 2 correction of a bull-market impulse (probably 2 of 3 up).

• The bearish alternate:  Wave C/Y and thus 2 is already over and I will look incredibly stupid come the start of next week for having been long.

  It should, I think, be pointed out that a Y=0.618*W (or C=0.618*A) move from 1158.67 puts us at 1293.32... just a tiny bit over 1292.66.  I would be highly amused if it were to work out that way.