Tuesday, November 9, 2010

Market Timing Update (11/9/10 Close)

[Bonds] Bonds have turned smartly as well. The following charts update the primary (blue) and alternative (red) counts in the 10Y yield index (TNX).
[USD]The USD index has been rebounding smartly. We still need confirmation on whether (3) of [3]-up (bullish, green) is already in progress or whether the current rebound is only completing an expanded flat wave (4) of [1]-down (bearish, red) or wave (4) of (Y)-down of [2]-down (near term bearish, blue). See Chart 1 and Chart 2 below.

[Stocks] While it is possible that the latest advancing wave to today's high is a small degree fifth wave and we have a truncation in SPX and INDU (see the blue count in Chart 1 below ), odds favor the entire structure since last Friday's (Nov 5th) high being a fourth wave (see the blue and the green counts in Chart 1 below) (and possibly even a second wave?) Note that with the exception of the Dow futures (Chart 1), the latest advance to today's high counts better as a three in all cash indexes as well as in the SP500 e-mini (Chart 2 below and Chart 3 to the right).

However, there's plenty of ambiguity regarding the degree of this proposed fourth wave. Chart 4 (60min) and Chart 5 (daily) offer two appealing possibilities at opposite end of the spectrum.
(blue) This is an immediately bearish count, with today's high or potentially one more squiggle high marking the end of a five wave advance since the late August low. A decline of at least the same degree should develop over the next few weeks. The challenge to this count is that
(1) if we have a truncation today, it is not obvious (see discussions above.) But if minor degree wave 3 has indeed topped, minor degree wave 4, a fourth wave, is in progress per the alt-blue label.
(2) if this is a small-degree fourth wave pullback with respect to the proposed post-triangle thrust, the size of the pullback is almost too deep.

(green) This is a very bullish count. Base on this count, the market has either finished wave (iii) of [iii] via a truncation or about to finish wave (iii) of [iii] over the next few days. The appeal of this count is that
(1) the additional bullish potential contained in this count is proportionate with the larger structure in Nasdaq indexes as well as the proposed large zigzag structure since the 2009 low in the senior indexes.
(2) RSI appears to have peaked around (iii) of [iii] in both daily and 60-minute time frames.
The challenge to this count is the stretched underlying fundamentals and sentiment.

The upcoming MTU weekend commentary will discuss thoughts/top possibilities on the large degree wave structure since the Y2K peak.