Friday, October 29, 2010

MTU Weekend Ed. - Moment of Truth II (10/29/10 Close)

In honor of QE2, U.S. stock market is approaching the moment of truth for the second time this year (MoT2) – whether the April high will hold. Note that the April high is also the retracement high since the financial crisis.

Recent market developments suggest that the market is more likely to first surpass the April high than to test the July low. The Nasdaq 100 Index and the Transport Average have already conquered their April highs. The recent retracement high in the Dow is less than 11 index points (or 0.1%) away from its April peak and the rest of the pack is not far behind (Chart 1). At the same time, initial signs of a reversal from retracement highs (i.e. a motive wave down) remain elusive in all indices, despite signs of near term fatigue with respect to the recent advance. Globally, the list of markets that have exceeded their April highs as well as their 2009-2010 retracement highs continue to grow (see Unfinished Business (update 2) (10/22/10)).

While an immediate reversal remains a possibility, it is increasingly less likely and needs to be priced accordingly. For an immediate reversal to take place, the most sensible wave structure requires the April high to also remain intact for the Dow, suggesting a truncation or a very shallow breakout.

If the April highs are surpassed, the bear market rebound continues (Chart 2 and Chart 3). Interestingly, the proposed long term wave structures since the Y2K high become more intuitive and consistent between junior and senior indices from this perspective. A call for a new bull market remains premature (See relevant discussions in Potential Reversals in the USD and Bonds, Will Stocks Follow? (10/15/10)).

Target zones
For the Nasdaq 100 Index (NDX), a likely target is around 2462.84, where [Y] = [W], or 15.23% upside potential from its recent retracement high of 2137.33.

For SP500, a likely target zone is 1352.67-1378.31 where (C)=0.618(A) and a 15.23% increase from the recent high based on the target for NDX. A second (less) likely target is 1222.16-1228.74 where (C)=0.382(A) and a 0.618 retrace of the 2007-2009 crash).

Regarding the near term wave structure from this "bullish" perspective, current signs of a top could be associated with the end of wave [iii] of 3 of (C). (Chart 4 and Chart 5).

The advance since the August low being wave B of a regular or expanded flat (i.e. a potential fake breakout) is another possibility, but a less likely one for two reasons. First, the risk of rushing the count with a bearish tilt is high. Second, the most likely implication of this scenario is that the pullback from the April high is primary wave [2] of a new bull market, which remains a less likely scenario at the moment (see above.)

Appendix - bearish squiggles

Real Time Update (10/29/10)

Archived at MTU Real Time.

Thursday, October 28, 2010

Market Timing Update (10/28/10 Close)

[1040pm] Futures update (NQ, ES, AudJpy) -
[7pm] This is a table presented when the market was approaching the August high. It's time to track these indices again.

[4pm stocks] Please see earlier entries regarding the wave structure in NDX - the index with the most motive structure. The first chart below offers two squiggle counts from the Oct 19 low, one nearly immediately bearish and the other more bullish.

Regarding SPX, the three tracking counts are still tracking. The second chart updates.
[250pm] NDX squiggles -
One possible count, see the 2nd chart below.
[1105am] Count update (NQ/NDX) -
See the [810am] entry for details.

[810am] Overnight stocks (NQ) - What if ...
Higher high in the NDX Dec futures overnight - the index with the most motive structure. What if NDX is already in [v] of 5 since the July low based on the following count? If (v) of [v]of 5 as shown in these charts OR [v] of 5 in general does not extend, the top could be in today, this week, or the next week at the most.

The bullish alternative is a relentless extension where the proposed label 5 is [iii] of 3. While technicals on the daily may be ok with this interpretation, technicals on the 60min chart appears to be weak for a [iii] of 3.

Wednesday, October 27, 2010

Market Timing Update (10/27/10 Close)

[4pm] stocks -
The following charts present tracking counts.
Wave structures of $COMPQ and $NDX appear to favor the blue count with one more squiggle high. If the blue count plays out, it will likely price out the bearish minor wave 2 count unless $INDU truncates or diverges.
[320pm] SPX/ES -
Price action around the 130pm low counts better as an expanded flat than a completed three down (adopting a triangle or a running three) (Chart 2).

Odds favor an incomplete triple-three down per the bullish count (green), OR
an bearish LD down (not shown) , OR
a nested 1s2s per the bearish count (red).

The larger picture count is here -

Real Time Update (10/27/10)

Archived at MTU Real Time.

Tuesday, October 26, 2010

Market Timing Update (10/26/10 Close)

[4pm EOD update] Interesting movements take place outside of stocks today.

The USD is rebounding, keeping the possibility an bullish LD open for the moment. A close alternative is a fourth wave triangle, which is bearish for the dollar near term and likely longer term too.
The VIX and interest rates are waving in ways consistent with a trend change.

Two potential EDs are tracking actions in stocks. At this juncture, it also makes sense to leave room for the possibility that minor wave 3 since the July low per a bullish count has topped somewhere recently. Note that the decline from the recent high still appears corrective at the moment.

[220pm] SPX count -

Real Time Update (10/26/10)

Archived at MTU Real Time.

Monday, October 25, 2010

Market Timing Update (10/25/10 Close)

[920pm stocks] The proposed top counts continue to track market action. Chart 1 and Chart 2 offer an update on SPX and ES.

The likelihood of today's high being the expected top (either the top or minor wave 3 since the July low) is there but not high - see the black-count on ES (Chart 2) and the VIX squiggles (Chart 3) - because

(1) $TRAN has exceeded its April high and $INDU is getting closer and closer to its April high. Odds now favor many indices to exceed their April highs on the current run.

(2) The decline from today high still counts as a zigzag that requires further development.

(3) The count with the best form since the 10/19 low in ES is a zigzag up (or a general three).

While this could be the final segment of an expanding EDT, the 10/19 low needs to be taken out.

(4) Other possibilities exit (Chart 2), including
[green] A most bullish extended fifth wave.
[blue] A least bullish contracting ED.

Ambiguity in the USD index remains. Chart 4 updates.

Sunday, October 24, 2010

Real Time Update (10/25/10)

Archived at MTU Real Time.

Unfinished Business (Update 2)(10/22/10 Close)

Unfinished Business (10/8/10)
Unfinished Business - update 1 (10/15/10)

Chances of a major reversal at levels below the April highs continue to diminish as the Dow and the Transportation Index are within points of a fresh high. In addition, FTSE (which has a high correlation with SPX) is nearly at a new high as well. Regarding downside risks, a pullback around current levels are likely (see the latest weekly commentary) and fake breakouts are not uncommon either.

Globally, the following markets have exceeded their April highs as well as their 2009-2010 retrace highs:
$djw - DJ world stock index
$tsx - Canada
$dax - Germany
$hsi - Hong Kong
$bse - India
$kospi - Korea
$inm - Malaysia
$sti - Singapore
$seti - Thailand
$ndx - U.S. Nasdaq 100 index
$ftse - U.K. (nearly there)
$twii - Taiwan (nearly there)

Friday, October 22, 2010

MTU Weekend Ed. - What looks like an EDT ... (10/22/10 Close)

The current wave of advance since the late August low in U.S. stocks likely will end within days, if not already. Chart 1 offers three tracking wave counts that support the assertion.

The most likely wave structure since the August low is a zigzag (pink). In hindsight, senior indices such as SPX have been tracing out a string of overlapping threes over the past month that show the signature of an ending diagonal triangle – but an expanding one in this case. On more fresh high should complete the pattern. The red-count has the high already in place this past week. And the blue-count has the market in the early stage of a small-degree fifth wave which in itself could be a contracting EDT. Chart 2 presents the corresponding squiggle counts of the market action over the past week.

Much ambiguity exists regarding the more relevant question - Is this top minor wave 2 or intermediate wave (B) that leads to a sizable reversal OR minor wave 3 since the July low that only leads to a minor wave correction as discussed in Unfinished Business (update 1-10/15/10) and Unfinished Business (update 2-10/22/10)? The proposed decline in the near future will shed light on the issue. Chart 3 illustrates.

A sizable reversal could be logical given strong bullish sentiment, unusual complacency (Chart 4 and Chart 5, VIX), and the relentless front-running of QE2 that has already pushed many USD-crosses to the limit. A continued rally into the year end after a pause is unlikely to change the big picture, but does alter market timing and the wave structure since the 2009 bottom. The August high is a logical stop for those with a bullish view. The proposed top (once it’s identified) is a logical stop for those with a bearish view.

Finally, it’s important to monitor stocks priced in Gold (Chart 6), which looks poised to surge and triple its current level. There are only four ways to support this bullish outcome in the Stocks-Gold ratio (see Dollar Bottoming and Risk Assets Topping (10/8/10)).

Real Time Update (10/22/10)

[340pm] Count update - still tracking the pink-count, with a potential small degree triangle at play.

Thursday, October 21, 2010

Market Timing Update (10/21/10 Close)

[4pm stocks and USD] The [205pm] update remains applicable - and there's no confirmation of the top today (the red count). The rebound into the close is a rather deep retrace of the second leg of the prior decline and appears to be a nearly completed five. Thus, odds favor additional (toppy) upside (the pink and blue counts).

The following charts offer an update. Given the appearance of numerous consecutive threes over the past month, I find the notion of an expanding ED most attractive (the pink count). The third chart shows how an expanding ED would look like on the daily time frame.

Again, the USD index had better deliver an LD or face the risk presented by the bearish count.

[205pm stocks] Need to decline below the Oct 19th low to offer confirmation of a minor 2 (bearish) top or a minor 3 (bullish) top, ideally before the cash market closes, to price out the nocturnal crowd.