Sunday, September 29, 2013

Market Timing Update (9/30/13)

[EOD] Stocks -
Please see intraday updates below and Monthly Outlook Update (9/27/13) for additional discussion.

[210pm] SPX squiggles -
[1105am] SPX / NDX update -
Opening-gap-down in SPX came very close to the remaining prior gap (Chart 2). The opening-down-gap in NDX is already filled with the rebound (Chart 1). Previously discussed tracking counts are shown in charts.

[805am] ES update -
Month end. Gap down open in cash market likely. See Monthly Outlook Update (9/27/13) for larger-degree discussion.

[9/29/30-645pm] ES update -
Gap down open. See chart.

Saturday, September 28, 2013

Monthly Outlook Update (9/27/13 close)

Stocks, Bonds, Dollar, Gold

SP500 squeezed out an all time high (1.2% above the August top) in September when the Fed postponed the anticipated tapering of asset purchases, but is now 2.5% off the high on budget impasse concerns.

While the September high in stocks has the potential to be a major top that threatens the August low for the near term, benchmark indexes have failed to decline in sync and confirm each other.  See Chart 1 to Chart 2. One can spot corrective structures and positive technical divergences with relative ease – a potential near term bullish wedge in SP500, a triangle in Nasdaq100 and possibly in SP400, and a running flat in Russel2000.  While it should be noted that failure of these potentially bullish patterns are bearish, it appears that odds favor a new high before the August low should be breached.

Our near term assessment fits well into the following four larger degree count, which are key scenarios to monitor.

[1- bearish complex double three] We track the advance since the 2009 low in SP500 as a double three followed by a triple three, a [W]-[X]-[Y] cycle wave b-up (Chart 5). The September high or the coming high is the final wave (c) of [Y]. Near term dynamics as discussed above suggest one more high which likely delivers a typical overthrow - it's nevertheless prudent to be vigilant for signs of a truncated advance.

[2- bearish zigzag] We track the advance since the 2009 low in SP500 as a simple 5-3-5 zigzag (Chart 6-red). The September high and subsequent retrace raised the possibility of a skewed-triangle final wave (4)-down, which also allowed for waves (4) and (5) to be more proportional to waves (1) and (2) in duration.

Under this interpretation, SP500 is wrapping up wave E-down of the proposed wave (4)-down. The subsequent wave (5)-up is likely to offer more upside potential than scenario [1] discussed above.

Alternatively, one can count a running-flat-like complex wave (4) and expect an extended wave (5) as in Chart 6-green. The upside implications of the two counts are similar.

[3- bullish regular five] We track the advance since the 2009 low in SP500 as a regular five wave advance (Chart 7-green). Recent price dynamics allow us to entertain the possibility of an ending diagonal triangle wave 5-up of (3)-up.

Under this interpretation, the current pullback is wave [iv]-down of 5-up of (3)-up, which fits well with near term wave structures in Nasdaq100 and Russell2000.

[4- bullish ending diagonal triangle] We track the advance since the 2009 low in SP500 as a large ending diagonal triangle fifth wave (Chart 7-red). Based on the wave count in Chart 5 above, the September high or the pending high marks the end of wave [C]-up and the subsequent wave [D]-down should bring SP500 to below 1400 to overlap with wave [A]-up.  The final wave [E]-up should push stocks to new highs.

Bonds rallied decisively in September on lack of any tapering of the existing stimulative monetary policy (Chart 8).  Technically, 10-year UST yields have respected a long term prior support area which has turned resistance as discussed in the last Monthly Outlook (Chart 9). 

The current rally in bonds or drop in yields tracks
[1] a 4th wave correction if the bull market in bonds ended in 2012 (Chart 8 green,  Chart 9 green) or
[2] wave E of a final ending diagonal triangle which should push long-term rates to new lows (Chart 8 red, Chart 9 blue).

In either case, yields are now approaching our initial target.  A short term backup is likely.

U.S. Dollar
We anticipated near term weakness in USD in Monthly Outlook Update (8/30/12) and the market did not disappoint (compare Chart 10 below to this chart.)

Our long term count on the US Dollar index has not changed (Chart 11). Price actions are in line with our expectation that the USD index remains range bound for some time as indicated.

The 10% pullback in Gold from its late August high after a visual three-wave rebound raises the prospects of a retest of the June low if not more. Most of our tracking count remain intact (Chart 12):

[blue] a potential ending diagonal triangle wave [5]-up, with (B)-down in progress and (C)-up, (D)-down and (E)-up yet to come.  The proposed EDT could also be wave (1) of [5]-up.

[blue-alt] a large ABC rebound with B-down in progress and C-up yet to come.

[red, green] a wave five-down in progress.

Friday, September 27, 2013

Market Timing Update (9/27/13)

[1250pm] Discounted markets -
See charts (SPX, NDX, RUT).

[8am] ES update -
ES can now be counted as five-down again with an extended 3rd wave and a triangle 4th wave. If so, a near term low today is likely. A greater decline likely fits the blue ABC structure better. See charts.

Thursday, September 26, 2013

Market Timing Update (9/26/13)

[EOD] Stocks -
With a bunch of three-wave structures in recent sessions, we need to consider bullish/bearish triangles. See charts.

[810am] ES update -
Note the actions around the prior neckline.

Wednesday, September 25, 2013

Market Timing Update (9/25/13)

[EOD] Stocks -
SPX continue to hover around prior neckline with positive divergence with technicals (Chart 1), which is somewhat bullish near term. Squiggles counts point to a near term low, barring a nested 1s2s structure (Chart 2).

Another new high in RUT today satisfies the minimum requirement of a five-wave advance (Chart 3).

[810am] ES update -
ES retesting prior neckline as well (Chart 1). Squiggles in Chart 2.

Tuesday, September 24, 2013

Market Timing Update (9/24/13)

[EOD]Stocks update -
Intriguing market development.

[1] The new high in RUT presents a potential expanded flat correction and thus potential subsequent bullish extension (Chart 1). If so, the weakness in other indexes would be associated with a small degree C wave (Chart 2 SPX). At a larger degree, the pullback from the September high would be (1) wave D of and EDT (Chart 2 blue lines), (2) wave E of a skewed triangle since the May high (not shown), (3) wave 2 with respect to early September lows.The bearish alternative is naturally a major top at the September high.

[2] SPX is again testing the prior neckline, which presents potential support. However, a potential HS is forming, pointing to a target around 1660 (Chart 2) at the same time.  Let's see which way the market is heading. 

[1230pm]SPX/RUT update -
A visual five wave decline in SPX, not confirmed by Nasdaq and small-cap indexes (and mid-caps to some extent). RUT appears to be making new highs. See charts.

[815am]ES update -
Tracking a five-down, a seven-down or an unfinished five-down with an extended third wave. See charts.

Monday, September 23, 2013

Market Timing Update (9/23/13)

[EOD]Stocks -
Indeed, SP500 bounced off prior neckline (Chart 1), delivering a three wave decline so far from its high (Chart 2) while ES completed a five-wave decline from its high (Chart 3).

The logical scenarios are [1]  further rebound at least (2/B in ES and X in SPX) if not new high,  [2] further subdivision down into a 7 or 9 in ES.

[945am]SPX update -
See weekend commentary for discussion.

[805am]ES update -
Lower low in ES. A visual five down. Let's see how it morphs. Potential support at prior neckline. See charts.