Monday, September 13, 2010

Market Timing Update (9/13/10 Close)

[4PM] Many markets look wedgy - stocks, UST10Y, vix - signaling risks of a strong reversal.

The advance in stocks is helped by a squeeze on the shorts and a focus on the Chinese data and the Basel III news.

There's no change on the big picture assessment - see discussions in Moment of Truth (9/10/10). Note that NDX exceeded the August high today, making the discussion on the implications if the August high is violated more relevant. However, I intentionally excluded NDX in the weekend commentary due to its narrow focus and small number of holdings. As such, a divergence between NDX and broader indices may be less relevant.

Chart 1 updates the bearish counts on the SP500 (cash). Today's high could be the end of a double three (red labels). The alternative count is that the wedge continues as indicated by the blue lines. Note that the wedge as highlighted is not technically valid as w3 is longer than w1.

Chart 2 updates the bullish counts on the SP500 (cash). Among the top four counts, the orange labeled count looks the most "solid" - one more squiggle high to finish (iii) of [c] of 2 (or B), followed by (iv)-down and (v)-up to above the August high. Chart 3 to the right illustrates this particular count on the ES (Dec).