Friday, July 30, 2010

MTU Weekend Ed. - The Bull Trap Continues (7/30/10 Close)

Bottom line –
Three top scenarios have emerged following market actions over the past week (Chart 1).

The most likely scenario (grey labels), in my view, suggests a continued rebound moderately beyond the June high (1131.23 in SPX) before a fresh sell-off to levels below July lows (1010.91 in SPX) begins. The wave structure in stocks, and price actions in the VIX and the US Dollar index support this scenario.

The second most likely scenario (blue labels) allows for a stronger rebound (a deeper upward retrace), to around 1170 in SPX, before a fresh sell-off to levels below July lows commences.

A lower probability scenario (red labels) has Tuesday’s high (1120.95 in SPX) hold as minute wave [ii] of minor wave 3-down and calls for an immediate sell-off ([iii] of 3-down) to new lows. Keep in mind that lower probability events do occur some times.

Thus, the bull trap (led by a second wave rebound) continues.

Details -

[Grey Labels] Minor wave 1-down ended early June as a leading diagonal. Minor wave 2-up is tracing out a lengthy expanded flat with [c] of 2 being an ending diagonal. Friday’s low should hold under this count and 2-up should end at levels moderately above the June high.

There are a couple of things going for this count in terms of its wave structure. First, the ratio between [a] of 2 and [b] of 2 is within the typical range of an expanded flat. Second, while a leading diagonal (1-down) should often see a deep retracement (2-up), it seems that what price has failed to achieve (in a P3-down environment) is compensated by the amount of time wave 2-up has taken up to develop – this is a feature familiar to E-Wavers.

Price actions in the VIX and the US Dollar index appear to support this scenario as well.

One count identifies a triangle (b) wave in the VIX (Chart 2) – if this count played out, a final post triangle thrust lower in the VIX would accompany a final upward stretch in stocks.

The pull-back in the USD index has finally entered the upper-end of the text-book target zone (Chart 3) following an extended fifth wave. There’s room on the squiggles to allow for a final downward thrust in USD, which would accompany a final upward stretch in stocks.

[Blue Labels] Minor wave 1-down ended in early July as a larger leading diagonal. Minor wave 2-up is tracing out EITHER a complex double three OR a zigzag with an extended “zag” (see the Friday rebound portion of the squiggle count on the Wilshire 5000 in Chart 5 below.) This count allows for a deeper upward retrace to around 1170 in SPX, before a fresh sell-off to levels below July lows (1010.91 in SPX) commences.

The wave structure in the 10-year Treasury yield support this count (Chart 4), with the caveat that bond market technicals tend to dislocate markets more often than not in the current QE-prone environment.

[Red Labels] Minor wave 1-down ended in late May and Minor wave 2-up ended at the June high. The early July low is [i]-down of 3-down and Tuesday’s high (1120.95 in SPX) marked the end of [ii]-up of 3-down. A powerful [iii]-down of 3-down is in its early stages.

Chart 5 offers a squiggle count on the Wilshire 5000 index under this interpretation.

Intraday Update (7/30/10)

[240PM]Wilshire 5000 squiggle update -
A follow up to the 1115AM update. The context remains the same.

[1115AM] Wilshire 5000 squiggle update - I continue to think that odds favor a continued 2-up (bull-trap). But for the immediately bearish count ([iii] of 3-down, say), here's an update on the Wilshire 5000 squiggles.

[838AM]Post GDP update - a double three? possibly with an ED to finish?

[735AM] SPX/mini overnight update -
Last trading session of July. Q2 GDP a focus at 830AM.
The decline from the recent top has been an overlapping mess in the futures so far.
The corresponding count in the SP500 cash index is shown in yesterday's EOD update.

Thursday, July 29, 2010

Market Timing Update (7/29/10 Close)

[1030PM]Inspired by Daneric's 953PM update, I offer the following bearish squiggle count, which channels better for [1]-down.

[4PM] This 4PM update takes a step back and reviews the larger degree bearish count. Odds favor a continuation of the minor wave 2-up rebound (Chart 1) barring an immediate and endless sell-off (red labeled count) - hence the bull trap continues.

The green-labeled count, a large expanded flat with an ED [c] of 2, is particularly interesting.

The blue-labeled count has a variation of a double three option.

At the end of the day, the difference among these counts is where and when minor wave 2 ends. Chart 1 offers several potential locations.

Intraday Update (7/29/10)

[1135AM] SPX/mini count update -

[1005AM] SPX/mini count update - Either topped or a triangle (iv).

[810AM] SPX/mini overnight update - Yesterday's low held overnight. The good news is that there's no need to redraw and relabel yet. However, the rebound is not yet motive. Squiggles point to either the end of a triple three rebound as [2] (blue) or [3] of iii of (v)-up (grey), perhaps driven by the weekly jobs report at 830AM.

Wednesday, July 28, 2010

Market Timing Update (7/28/10 Close)

[1130PM]Thoughts on the bearish count- If some kind of top is indeed in, and note that the SP500 cash index and the futures have somewhat different structures. The SPX futures could be developing in a series of 1s and 2s down as highlighted in the 4PM update, the SPX cash index could be tracing out an initial LD down, as corroborated by the RUT cash index (See Chart on the Right).

[4PM] As Chart 1 shows, the decline since from the recent top has been a three so far - unless it is i/ii/[1], but the decline is a bit large to my liking to call it a iv.

Thus I'll call the pullback as (iv) of [c] of 2 for the moment (Chart 2). Note that the pullback has halted, at least for now, at the text book target support following an ED as well as an extended 5th wave.

Another more bullish possibility is that the pullback is only [2] of (iii) of [c] of 2. This is a lower probability scenario given my preferred count in the VIX (Chart 3).

Intraday Update (7/28/10)

[330PM] SPX/mini count update -
Approaching the text-book support for a pullback from the ED, if it is an ED.

[1150AM] VIX update - ED?

[1030AM] SPX/mini count update -
On the bullish side, currently looking at a cap of 1125 (0.618x) to 1138.25 (1x) if this pullback is a fourth wave. Adjust the cap lower accordingly on additional pullback. The pullback does look corrective so far.

[805AM] SPX/mini overnight update -
If the overnight low marks the end of a 4th wave (degree uncertain, could be (iv), or iv), the upside cap is at 1147.50 for the Sept mini. And (v) or v = 0.618 (iii) or iii at 1134.23 for the Sept mini.

Tuesday, July 27, 2010

Market Timing Update (7/27/10 Close)

Bull Trap ...

Blah blah blah

Intraday Update (7/27/10)

[307PM] SPX/mini squiggles -

[1125AM] SPX/mini count update - mini falling out of an ED. This morning's high is important.

[740AM] SPX/mini overnight update - mini is right at the upper limit of the larger ED (chart 1). Alt is a possible smaller ED as indicated in Chart 2. It's not easy at the moment to offer an impulsive count on the mini - the best one is (i)-(ii)-i-ii-LD [1] as shown in Chart 2 (grey) which implies a short term [2]-down. So the bull trap remains.

Monday, July 26, 2010

Market Timing Update (7/26/10 Close)

Still think that it is a bull trap, SPX closing above MA200 notwithstanding. Here are the larger-picture count and the squiggles.

Sunday, July 25, 2010

Intraday Update (7/26/10)

[330PM] SPX/mini pre-close update -

[1020AM] SPX/mini count update-

[8AM] SPX/mini overnight update - we have an initial tiny-degree five down from the overnight high.
[1040PM for 7/16/10] SPX/mini Sunday night update - potential ending diagonals at a couple of degrees. See squiggles in the following charts.

Friday, July 23, 2010

MTU Weekend Ed. - Bull Trap (7/23/10 Close)

Primary counts place the rebound since the July 1st low (1010.91 in SPX) as [ii]-up of 3-down of (1)-down, OR 2-up of (1)-down. See these counts as labeled red and blue in Chart 1. So either [iii] of 3-down OR 3-down (after 2-up is complete) likely comes next.

Thus the current advance in stocks is likely a bull trap. The difference is in the magnitude of the retrace.

[RED] If the advance is [ii] of 3 of (1)-down, it’s just about over. The 6/21 high (1131.23 in SPX) cannot be exceeded under this interpretation.
[1] We have a potential ending diagonal (which is likely missing a small final upward push) as depicted in Chart 2 and Chart 3.
[2] There are 21/22 trading days between the 4/26/10 top and the 5/25/10 low (that's wave 1-down according to this count). July 26 (next Monday) is its second anniversary.
[3] To match this scenario, the VIX is likely tracing out its final ending diagonal down (Chart 4).

[BLUE] If the advance is 2 of (1)-down, a deep retrace is likely. The 6/21 high (1131.23 in SPX) is most likely to be exceeded under this interpretation, and remains a hedging-point for those who have bearish exposure.
[1] Either a series of 1s and 2s within [c] of 2 is in progress OR [b] of 2 is tracing out an expanded flat.
[2] Under this count, wave 1-down took 47/48 trading days. For reference only, wave 2 so far has take 1/3 of the time. 2/3 time equivalent of wave 1 will push a potential turn date out to 8/16-8/17.
[3] To match this scenario, the VIX will be tracing out the final (c) of [y] of 2-down as indicated in Chart 4.

Intraday Update (7/23/10)

[1255PM] SPX/mini squiggle update ----- [255PM] SPX/mini count update

[940AM] SPX/mini count update -
Options (1) a potential ED, (2) end of an a-b-c rally (most bearish) (3) an expanded triangle wave iv.

[817AM] SPX/mini overnight update - Various counts are still tracking.
As noted in yesterday's EOD update, the upside cap is 1105.50 in the Sept mini for wave v of (iii) (GREY).