Wednesday, March 31, 2010

Market Timing Update (3/31/10 Close)

As discussed in the intraday update, the near term bearish and bullish counts discussed in recent days have most likely aligned with each other. The is a welcome resolution from a wave count perspective.

According to the near term bearish count, B-down of (Z) is in progress (Chart 1). But according to the near term bullish count, A of (Z) has [v] of A (or C?) yet to finish (Chart 2).

From this perspective, the contracting triangle which may have ended at today's low is either the end of B-down or the end of [iv]-down.
[1] There remains some uncertainty as to whether today's low is the end of the triangle or wave [c] of the triangle is still in progress - it implies a lower low if wave [c] of the triangle is still in progress.
[2] The near term direction of the market should turn up if the triangle was completed earlier today. The only difference between the two counts is the wave degree of this triangle, and thus the corresponding upside potential.

Chart 3 offers a squiggle count of the SPX (cash), assuming the triangle ended at today's low.

Tuesday, March 30, 2010

Market Timing Update (3/30/10 Close)

There have been a lot of "3"s and no new high so far. The dynamic fits that of a B wave or an ED. Chart 1 offers an update on the near term bearish B-wave count.
Chart 2 offers an update on the near term bullish count, with [v] of A? as a potential ED.

Monday, March 29, 2010

Market Timing Update (3/29/10 Close)

Bottom line: The violation of last Friday's high in many indices seriously challenges the near term bearish scenarios outlined in the Weekend Update. Thus it is a good idea to highlight first the most probable (subjective) new term bullish count. That said, one particular count still tracks the price action well within the near term bearish context.

Bullish count - The market is in wave [v] of an impulse wave advance since the 2/5/10 low.

Bearish count - A small degree second wave (with respect to last week's high) is approaching its end.

Friday, March 26, 2010

MTU Weekend Ed - A Turning Point (3/26/10 Close)

Bottom line: Thursday’s intraday reversal in stocks signals the presence of a potential turning point, possibly a significant trend change. Friday’s intraday high remaining intact is a necessary condition for this initial sell-off to gain traction and momentum. In addition, an update on my long term outlook on bonds/interest rates.

A potential turning point
While stock indices have continued their advance over the past week with SPX up 0.58% for the week and up 1.79% to Thursday’s high, Thursday’s intraday reversal (-15.6 points or -1.32% in SPX)

[1] Signals a trend change with respect to the advance since the 2/5/10 low (of 1044.50 in SPX), see Chart 1. This scenario suggests new recovery highs following a moderate pullback, possibly to the high end of the 1090-1135 range in SPX.

[2] Represents the end of P2, see Chart 2 (red labels). This scenario suggests that the low of last March will NOT hold.

[3] Represents the nominal high of this segment of the rebound, see Chart 2 (green labels). This scenario suggests an even more complex structure of rebound is in progress since last March and the first leg of which has ended at the January 2010 peak. Wave (X) in the form of an expanded flat or a triangle is currently in progress and the current peak is wave X (or wave B) of (Z).

What are the odds of this being the top?
The most relevant question is certainly whether this is the “top”, within the context of scenario [2] or [3] above.

I think the answer is in the details, i.e., the lower time frame structure of the decline since Thursday’s high. Chart 3 shows how I’d count the decline so far if Thursday’s high is indeed a significant turning point. It is obvious that Friday’s intraday high remaining intact is a necessary condition for this initial sell-off to gain traction and momentum.

Bonds – a cycle wave degree trend change
Recent sell-off in U.S. treasuries has generated an increasing amount of attention worldwide.

In the 2/19/10 post of my long term outlook on stocks, bonds, gold, oil and USD – see the left-hand side panel of the MTU web page – I commented that “a cycle wave degree trend change has likely started (in bonds).”

This view and my wave count of the long bond have not changed. Chart 4 offers an update on the long bond valuation changes.

Thursday, March 25, 2010

Market Timing Update (3/25/10 Close)

Bottom Line: The sell-off into the close most likely confirms that B-down of (Z) IS/HAS BEEN in progress. The remaining probability mainly belongs to the possibility that [v] of A-up of (Z) is still tracing out an ED. One count also marks today's high as the end of primary wave [2].

Additional details to follow.

[Primary Count - red labels & lines] Wave B-down of (Z)-up has been in progress since the 3/17/10 high (Chart 1). Wave B is likely tracing out a triangle or an expanded flat. Today's high is [b]-up of B-down. SPX is approaching (a) of [c]-down if B is a triangle, or is in the middle of (iii)-down of [c]-down in the case of an expanded flat.

Note the divergence between price and RSI leading up to the sell-off in Chart 1. Chart 2 offers a squiggle count of today's price action. Note the visible pickup in volume with the PM sell-off.

[Alt Count - blue labels & lines] Wave A-up of (Z)-up is an impulse wave. [v] of A is tracing out a potential ED. Today's sell-off is to conclude (b) of [v]. The blue labels and trend lines in Chart 3 and Chart 4 are self-explanatory.

[Alt/Wild card Count - orange bordered labels & green lines] Today's high marks the end of an ED which has been in progress since the 3/15/10 low. This is the count that raises the possibility that today's high is the top of primary wave [2].

This ED is much discussed within the Ewaver community over the past few days. I've expressed some concerns about this count which are worth repeating here..
(1) The current shape looks TOO wedgy (with the first leg of the ED being too long and itself appears to be an ED which should be an ending part not the beginning part of a structure ).
(2) If this ED is indeed playing out, it is possible that today's sell-off is (d) of the ED, with one more "three" to go, instead of (e) of ED. If so, it will alleviate the concern in (1) above.

But more importantly, this is one of those counts that accommodate the possibility that today's high (or when (e) is done per (2) above) could be the end of P2 (rather than A of (Z)). The orange-bordered labels in Chart 3 highlight this potential.

[VIX] This Update is not complete without mentioning VIX.
VIX has not only broken out various downward trend lines but also successfully retested them and is rebounding up so far.

Wednesday, March 24, 2010

Market Timing Update (3/24/10 Close)

[1] A viable interpretation of the wave structure is that we have a primary degree advance since last March which takes the form of a triple three (W)-(X)-(Y)-(X)-(Z). This structure is discussed in the latest weekend update.

[2] The wave that is currently in progress is EITHER
B-down of (Z) - chart 1 and 2, red labels
OR [iv] and/or [v] of A (or even C) of (Z) - chart 1 and 2, blue labels

[3] The 3 to 4 declines today (including the instance overnight) are much more impulsive than episodes of inter-selloff rebounds. In addition, these intraday declines are accompanied by higher volume (Chart 3). It gives a hint of a 5-3-5-3-5 structure.

[4] Chart 4 focuses on the potential wave counts of B-down of (Z) as corrections are usually much more complex. The top candidates for B-down are an expanded flat (red) or a triangle (green).

Within the context of an expanded flat, chart 4 has highlighted the most bearish squiggle structure, reflecting the potential 5-3-5-3-5 structure discussed in item [3] above.

That is, I've penciled in a LD i-down of (iii)-down of [C] of B. If so, iii of (iii) of [C] of B is directly ahead.

Tuesday, March 23, 2010

Market Timing Update (3/23/10 Close)

SPX - Key observations. See chart.
[1] Price actions appear to be more corrective than impulsive.
[2] A potential expanded flat B-down of (Z) or and the end of A of(Z) or C of (Z) in the works.
[3] There's a notable divergence between price and RSI on the 30min chart.

Monday, March 22, 2010

Market Timing Update (3/22/10 Close)

The Dow and SPX did not make a new recovery high today whereas COMPQ did so slightly, creating a non-confirmation for the moment.

Today's rebound in the SPX is either a fifth wave with respect to the 2/5/10 low OR wave C of an expanded flat second wave retracement of the decline from the 3/17/10 high.

Either wave, this immediate segment of advance is approaching its end (see Chart). For ease of discussion, I'll adopt the labels in the P2 structure discussed in the weekend update - the market is at the end of (i) of [v] of A-up ([v] if the bears are lucky) or [x] of B-down, with respect to (Z)-up of P2.

Friday, March 19, 2010

MTU Weekend Ed. - P1P2, a look at the larger picture (3/19/10 Close)

Bottom line: The current rally is well described by a primary wave [2] rebound (P2), in terms of its structure and personality. P2 is tracing out a (W)-(X)-(Y)-(X)-(Z) triple three. The market has either finished W of (Z) or the (Z) segment itself this week.

Why primary wave [1] and [2] (or P1P2)?
Describing the stock market sell-off from the 2007 top as primary wave [1] and the advance from the 2009 bottom as primary wave [2], of cycle wave c of super cycle wave (a) which has been in progress since the 2000 peak and has taken on the form of a flat, is one of the more viable interpretations of the market structure over the past decade.

This interpretation is described in Chart 3 of the small caps point the way (3/12/10). I’ll mention two less controversial supporting aspects here.
[1] In terms of the duration, cycle waves a-down and b-up of this giant flat had lasted 7+ years, from the 2000 top to the 2002 bottom and to the 2007 top. To conclude cycle wave c-down with a 1.5-year sell-off ending at the 2009 bottom appears pre-mature.
[2] In certain indices, such as the Nasdaq Composite Index, the 2008/2009 bottom did not violate their 2002 lows. This would produce a RARE running flat if the 2008/2009 bottom did conclude the flat. In other words, odds favor a regular flat with additional downside potential.

Furthermore, despite the strong rebound since the 2009 bottom, the retracement so far and the sentiment shift are typical of a second wave personality. Here’s how EWP describes second waves:
“Second waves often retrace so much of wave one that most of the profits gained up to that time are eroded away by the time it ends. … At this point, investors are thoroughly convinced that the [bull] market is back to stay. Second waves often end on very low volume and volatility, indicating a drying up of [buying] pressure.”

The wave structure of the primary wave [2] (or P2)
Chart 1 (on the Dow) and Chart 2 (on the Russell 2000 index) illustrate an intuitive wave count of the current rally. The two relatively sizable corrections, Jun09-Jul09 and Jan10-Feb10, are obvious candidates for (X) waves. From this perspective, the entire rally is a triple-three corrective structure (W)-(X)-(Y)-(X)-(Z), with each three being a smaller double three W-X-Y.

It only requires a casual examination to discover that (W) has 11 (or 7) waves, (Y) has 11 waves, and (Z) has 3 larger waves (or 11 smaller waves) so far. The number of waves all support piece-wise corrective structures, as well as a larger corrective structure for the entire rally.

As of this week, the market has either finished W of (Z) or the (Z) segment itself. P3 is directly ahead within this interpretation (e.g., after X-down and Y-up to conclude (Z)-up, if not already).

Inter-market observations
The USD index has concluded its one-month correction and has resumed its advance. The advance is wave 5-up of (1)-up since its Nov09 low (Chart 3). Wave 5-up in USD may coincide with wave X-down of (Z)-up in stocks and wave (2)-down in USD may coincide with wave Y-up of (Z)-up in stocks.

The VIX index is now at the pre-crisis levels (Chart 4). This week’s low in VIX is 16.17 while the Oct07 low was 16.08 and the all time low in Dec06 was 8.6.

Thursday, March 18, 2010

Market Timing Update (3/18/10 Close)

This small degree wave [4] since the Feb 25th low has either one more lower low to make or has ended at today's low (Chart 1). Price actions in the e-mini contract could use a lower low to complete wave [4]. Not ruling out a series of 1s and 2s either.

On balance, the rise from today's low is not very impressive so far. Chart 2 offers the bullish and bearish squiggle counts on SPX cash regarding the advance from today's low.

Wednesday, March 17, 2010

Market Timing Update (3/17/10 Close)

Bottom line - SPX either has topped or could make one more squiggle high.

The the wave structure over the past 2+ days is an ending diagonal, today's high should be the end of the rally since at least the Feb 25th low. Otherwise, there's potential for a final squiggle high with targets around 1173-1181 in SPX cash, against the backdrop of the bullish tailwind, to complete a regular impulse. Dropping below the Mar 15th high confirms this peak.

Tuesday, March 16, 2010

MTU- Making sense of the squiggles (3/16/10 Close)

The preferred simple double three (P2-like) structure discussed in the small caps point the way (3/12/10) as well as in yesterday's MTU (this chart) continues to be in sync with market price actions.

Chart 1 updates the squiggle count on the 60min chart in SPX/June-Mini. It suggests that the advance since the Feb 25th low is approaching its end. The coming top has the potential to be several degrees higher.

The more value-added observation is that squiggles actually point to several distinct ways that the market (SPX) could conclude the advance since the Feb 25th low. I itemize the top three possibilities below in descending order of (subjective) likelihood (see Chart 2).

[1] (Blue) Wave v is a regular impulse. Today's high is [3] of v.

[2] (Red) Wave v is an ending diagonal triangle. Today's high is [C] of v.

[3] (Green) Wave iv is still in progress in the form of a expanded flat. Today's high is [B]-up of iv. [C]-down of iv will perhaps draw SPX more than 20 points lower before rebounding to a new high.

Monday, March 15, 2010

Market Timing Update (3/15/10 Close)

The following charts represent my SPX/mini working count. For big picture alternatives, please see my weekly commentaries. The links are located in the left side bar.

P2 and 60-min

30-min and 5-min

Friday, March 12, 2010

MTU Weekend Ed.- The small caps point the way (3/12/10 Close)

Bottom line: Odds favor a meaningful sell-off in stocks once the advance since the Feb 5th low runs its course. The upside potential is moderate at best.

Most major U.S. stock indices, with the exception of the Dow, have made new recovery highs. Expect the Dow to do the same soon. In the very near term, there is additional near term upside potential in the advance since the Feb 25th low, based on intraday counts. A small degree fifth wave is currently extending. However, the upside potential is moderate at best and odds favor a meaningful pullback with substantial additional bearish potential.

Note that with the new recovery high, the Russell 2000 index has exhibited a nicely formed triple three or a double three with a large final ending diagonal (my primary count) since the March 2009 low (Chart 1). These potential corrective structures lend support to the view that the current rally is a counter-trend rebound within a larger bear market. In fact, a double three with a final diagonal triangle (which is contracting in the RUT and expanding in other indices) offers simplicity and describes the wave structure of all indices well. For example, Chart 2 illustrates the double three structure with an expanding diagonal triangle in the SPX.

Most big picture counts point to at least a meaningful pullback ahead, even by the most bullish count. For example, Chart 3 to 5 reflect and update the scenarios discussed in An EW Roadmap (3/5/10). Please see comments on these charts which outline the underlying logic.

There's one immediately bullish exception. This is a low probability scenario in my view, but is worth monitoring. The 2/5/10 low could marks the end of the primary wave [X]-down of cycle wave x-up which takes on the form w-x-y(-z). Please see the alt2(bullish) count in the Russell 2000 (Chart 1) and the Bearish Count w-x-y (Chart 4).

Thursday, March 11, 2010

Market Timing Update (3/11/10 Close)

Stocks, near term prospects - to keep it simple, note that visually,
There are nine small waves so far from the Feb 25th low, signaling an end to an impulse.
There are five larger waves so far from the Feb 5th low. We are either approaching the end a 5th wave or the 3 of 3rd wave.

Wednesday, March 10, 2010

Market Timing Update (3/10/10 Close)

* The decline from today's high in the SPX (1148.26) is clearly corrective (Chart 1). Thus Odds favor a higher high, which will push SPX even closer to a recovery high.

* Price actions do look wedgy over the past three days. The possibility of a corrective rebound since the Feb 5th low remains, be it a "P3"-like [ii]-up or a Wave A or Wave C in an aging "P2"(Chart 2, Red). Chart 3 offers a squiggle count, which places the advance into the close as the last leg of [E] of the wedge.

* This wedge also fits as wave v of (v) under the bullish count (Chart 2, Green)

* Chart 2 offers a more bullish alt count (Green/Alt) which reflects an extended fifth wave. Today's high is likely iii of (v) in this case. Also see Chart 3 (green).

* An even more bullish alt count (not shown) assumes an extended (iii) in Chart 2. In that case, the market is only at iii of (iii).

* VIX was able to preserve its low and actually managed to print a decent sized green bar today (up more than 1 index points), implying a less bullish stance on stocks. See Chart 4.

Tuesday, March 9, 2010

Market Timing Update (3/9/10 Close)

Stocks-The Transports, NDX and the Russell 3000 index joined the other indices and made new recovery highs today. The next up is the Russell 1000 index, which is only 1.08 index points away from a new recovery high from today's high. The Dow and the SPX are yet to get there. Overall, short term market conditions are favorable to the upside given the momentum across indices.

However, wave structures calls for an end to the advance since the Mar 4th low (Chart 1 SPX mini), and potentially since the Feb 25th low (Chart 2 Dow mini), as well as potentially that since the Feb 5th low. This offers a sliver of hope for a non-confirmation between these senior indices and the rest of the pack and a "P3"-like count in the Dow and SPX - see the first scenario discussed in An EW Roadmap (3/5/10). The risk to calling the top or a near term top is an extension of the small-degree 5th wave, or an extended 3rd wave one degree higher, or this top is only A of (Z) - a variation of the second scenario discussed in An EW Roadmap (3/5/10).