03
Jun
Muddy Waters (by Springheel Jack)
Written by Anna   

I've been playing round with the 15min chart on SPX and have found a rising channel that looks as though it might have some legs:

 

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The channel top and bottom both started on the final day of the move to the low, and apart from the move to the last high within it, it looks good and indicates that we should find resistance in the 1120 area.

I've left the IHS marked in as it is still technically valid, but I wouldn't trust a head and shoulders pattern that pulled back so hard past the neckline myself.

In the very short term it is worth noting that the RSI, MACD and stochs on this chart all look very overbought.

The market has been floundering without clear direction since the recent low. Looking at the copper chart, if it is as good an indicator as many think, this latest rise should not be trusted particularly:

 

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One problem for equities is that after hitting the lower trendline of the broadening descending wedge two weeks ago, EURUSD has failed to make any meaningful bounce. It just traded sideways from the bottom of the wedge to the top over nine weeks after the last time that it hit the lower trendline in February. It could yet do the same again:

 

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GBPUSD has been bouncing well since hitting the bottom of that broadening descending wedge at the same time, and is forming a broadening ascending wedge on the return to the top trendline of the larger wedge in the 1.50 area. I'm looking for a hit of the lower trendline in the 1.4525 area today or tomorrow for a good long entry:

 

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01
Jun
Long Term Possibilities (updated) (by Apple Al)
Written by Anna   

NOTE: THIS POST WAS WRITTEN OVER THE WEEKEND SO THE CHARTS ARE AS OF CLOSE FRIDAY 5/28

In early May three possible longer term scenarios were presented.  They were the P3 scenario (bearish), the new bull market scenario, and the X wave scenario (intermediate term bullish, longer term bearish).

Daneric does a great job outlining the P3 count (http://danericselliottwaves.blogspot.com/). His P3 count looks like this:

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P3 scenario is that a major (decades or even centuries) long term top was made in 2007 and the Mar 2009 lows were only the end of wave 1 of a just as major corrective sequence with wave 2 in progress or terminating.  Wave 3 ("P3"), a mega crash, is thus in the offing.  Under this scenario, the action since early May can be characterized as a series of 1 - 2's and looks like this:

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There are no major objections to the P3 scenario from an Elliott standpoint that I can see.  I do question it for several reasons. First, it is an election year and the Ben and Tim  show will be doing their best to keep the boys on the Hill happy. Second, the P3 scenario is a financial collapse scenario, and the signs of a credit market collapse are not evident at this point, despite EURO difficulties.  Two ways to monitor this are the TED spread, which is the difference in interest rates between T-bills and the overnight interbank borrowing rate as represented by LIBOR, and also LIBOR itself.  As credit market risks increase and liquidity decreases these benchmarks will increase.  As you can see, although there has been a recent uptick in these two, they are no where near the levels seen in 2008 - 2009.

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Finally consideration needs to be given to the ability of the market to discount the probabilities of future circumstances, real or imagined.  The fact is that the fortunes and influence of the current folks in power in Washington are on the wane, and investors are bound to see that as a plus for equity values down the road.  So the more those folks stub their toes, the more the investing public is likely to view equities as an opportunity.

One last thing needs to be pointed out for all you P3 fans.  The fact is that except for a very minuscule portion of the world represented by traders and blog-o-sphere types (and maybe some Middle Eastern fanatics), the vast majority of folks don't want a financial collapse and, of course, will do everything in their power to prevent it.  That's not to say that some entirely unpredictable Black Swan event, such as an alien invasion or something, can't come along and slam us, it just means that the nature of things mitigates against a collapse happening.

The new bull market scenario is one held by Tony Caldaro (http://caldaroew.spaces.live.com/) amongst others.  It sees the top in 2007 as the end of a decades long wave 1, with the lows in 2009 as the end of wave 2.  His count looks like this:

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From an Elliott standpoint there is difficulty labeling the bull market from Mar '09 to the high last month as a 5 wave impulse for two reasons: waves 2 and 4 are both zig zags and thus do not alternate structure as Elliott requires, and the structure of wave 3 can be counted as a 5 wave impulse only with great difficulty.

Here's what this count looks like so far this year:

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As you can see, this scenario currently requires another C wave down at minimum to complete the current corrective sequence.  His targets are SPX 1007,  SPX 944 or worst case SPX 876.

In addition to the problems with this count from an Elliott standpoint, there is another point of contention.  Although the credit markets are not currently showing signs of any great difficulty, it's hard to imagine that the amount of US national debt outstanding and the rate of continuing increase of that debt are not going to be a major problem down the road.  Thus the thought that we are embarking on a major cycle Wave III is difficult to accept.

Finally there is the X wave scenario. That count puts a major cycle wave top at the highs of 2000 and sees the pattern from there into the 2009 lows as a flat correction.  Since then the markets are in the process of putting in an A-B-C ""X" wave which will eventually end in the vicinity of the 2000 and 2007 highs.  The A leg of X is complete and the markets are currently working through or have completed the B leg.

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The count so far this year looks like this:

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As you can see this count shows the B leg complete at last Tuesday's (5/25) lows.  There is a problem with this count from an Elliott standpoint, and that is that waves 2 and 4 (purple) of C of B do not alternate in form, they are both zig zags, although W4 was complex while W2 was simple.

However, there is reason to believe that last Tuesday marked a significant low based on some daily technical charts I've been keeping for some years (since 1987 in some cases).

First is a study that sums CBOE index call volume over a 20 and 100 day period and compares them in the form of a ratio (20 day sum/100 day sum).  I know this sounds weird, but bear with me.  It turns out that the ratio is a great "bottom finder".  It meanders around most of the time, but in a bear market it will spike as the market approaches it's bottom.  Here's what that looks like (graph is out of Excel, sorry):

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Next is a volume study that generates a ratio of NYSE positive volume to total volume over a 30 day period, positive volume is defined as the volume on any day the NYSE has an up close.  Note the current extreme oversold condition of this indicator:

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Last is a study that's a blend of several momentum type statistics, let's call it Al's Daily.  Note the similarity in the indicator pattern of Mar '09 to that of the last month.

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-Apple Al


 

 

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