Monday, October 31, 2011

Market Timing Update (10/31/11)

[EOD]Stocks -
Primary count is [ii]-down of 3-up under the bullish count and at least a near term trend change under the bearish count (Chart 1). Squiggles show a five wave decline from the recent high (Chart 2).

[255pm]SPX squiggles -
Could be looking at another bearish triangle if the low is not in.

[1230pm]NQ update -
EWP to be saved by a potential EDT? Here's how the potential EDT fits into the larger count (Oct 27, 2011 update).

[1150am]DAX update -
gap fill, close to negate a potential 4th wave, but still above TL support.
[840am] JPY, ES, DAX update -
BoJ intervention, large moves in USDJPY and DX. Chart 1 shows the mixed performance following the previous interventions in 2011. We'll find out if this one sticks.

Moment of truth for ES based on various counts. Is this a 4th wave or something more bearish? Watch the 1254.50 level (Chart 2).

DAX finds it in a similar situation on the squiggle level, but is relatively more bullish one degree higher (Chart 3).

Thus, if the bearish count is playing out, leave some room for a complex (double zigzag or complex three) wave (2)/(B)-up rebound in ES, as discussed in Points of Recognition (10/28/11).

Friday, October 28, 2011

MTU Weekend Ed. - Points of Recognition (10/28/11)

Stocks, Points of Recognition
The conclusion reached in Chicka Chicka Boom Boom (10/21/11) that “odds favor a zigzag rebound or the bottom being in place” is consistent with the subsequent price action. Stocks surged globally on news of the latest deal on European debt crisis, with SP500 up 3.78% over the past week and for a fourth straight week.

Whether the October rally is a rebound against the decline since May or the beginning of a fresh leg of the Hope Rally remains to be seen (Chart 1). Nevertheless, here are some relevant observations under the bearish and bullish interpretations.

Under the bearish interpretation …
The rebound in SPX to date is well described by a simple but powerful zigzag, a structure and accompanying personality that suites a 2nd wave rebound. There are potential challenges:

(a) The surge over the past week may be too strong to suit a terminal wave (i.e. C-up of (2)-up).
(b) The proposed wave (2) rebound may be too short relative to the sell-off from the top (i.e. 1 month vs 5 months).
(c) NDX has almost retraced to the maximum and is about to breakout to a new recovery high. It’s possible that NDX is on a different wave count, but a difference of 6 months (and potentially longer) in topping dates is probably too generous. Note that NDX and SPX topped in 2000 within three months.
(d) DAX, a key European benchmark, may be wrapping up only the first wave of its rebound (Chart 2).

So if the bearish count is playing out, it's prudent to leave room for a double zigzag or a complex three wave (2)/(B) rebound. In other words, for strategic bearish positions, it’s prudent to maintain wide stops and size accordingly following the next reversal.

Under the bullish interpretation …
All is well as a potential (small-degree) point of recognition (say, [iii] of 1 of (A)) is being made, except for the visual five-wave decline since the May top. If a new recovery high does materialize, a way out of the dilemma without damaging the existing EWP is a complex three since the Feb high or a simple ABC since the early July high as outlined many times in recent weekly commentaries.

Bond, Rhythmic Bond

Following a decent-size sell-off in Treasuries accompanying the early hope rally in stocks, Treasury yields eventually managed to reverse course and dip below their 2007-2009 financial crisis lows, across the curve. Bonds have benefited directly through outright purchases from the Fed and indirectly through yield-chasing bids as a result of persistent quantitative easing policies. From time to time, Treasuries also got a favorable push from flight-to-quality (printing press) bids away from European sovereign debts, the drama over the U.S. debt-ceiling debate and the downgrade of U.S. by S&P notwithstanding.
The continuation of the bull market in bonds and particularly the recent new lows in yields have revealed a rhythmic / fractal-like wave structure that nicely captures the bullish move since the early 1980’s (Chart 3).
The proposed wave structure describes the bull market in bond prices since the early 1980’s as a complex three: double zigzag – triangle – double zigzag – triangle – double zigzag. A secular bear market in bonds is within sight based on this structure. If this is the case, the Fed’s stated intention to maintain its ZIRP policy till at least mid-2013 may turn out to be complacent with respect to its ability to either maintain price stability or manage the bond bubble. Also, it is not clear that falling bond prices will be reflationary and stock friendly per se in an environment where investors focus on sovereign debt bubbles and fiscal sustainability.

Market Timing Update (10/28/11)

[EOD] Stocks -
As mentioned in the 730am entry - yesterday's high is [iii] (or (iii) of[iii]) of C of (2) or (B) or 3, or W of (2), the top, in order of likelihood, will find out which one it is.

If a small-degree 4-th wave is indeed in progress, stocks has satisfied the minimum requirement in time as well as in price. see the INDU Chart 1. SPX has traced out a potential triangle already (Chart 2). It's possible that (c)-down of [iv]-down is still to come Monday. We'll see.
[12pm] DAX squiggles at the close -

[730am] DAX, ES update -
DAX - appears to have potential to reach the 0.618 fib with an extended (iii) of [v] of A/1/C as marked.
ES - yesterday's high is [iii] (or (iii) of[iii]) of C of (2) or (B) or 3, or W of (2), the top, in order of likelihood, will find out which one it is.

Thursday, October 27, 2011

Market Timing Update (10/27/11)

[EOD] Stocks -
The higher high in NDX presents initial challenges to the bearish count (lower low to come), unless a small wedge is tracing out to complete a double zigzag since the Aug 22nd low (Chart 1).

The structure in INDU since the Oct low is telling. today's high is likely either [iii] of C/3 or end of C/3 (Chart 2).

Finally, a look at the VIX (Chart 3).
[2pm] Transports update -
as mentioned before, expanded EDT or a regular five, chart refreshed

[120pm] NQ/NDX update -
New high in NQ within sight unless a short wedge to complete a double "zigzag" from the Aug 22nd low.
[1140am] DAX, INDU update -
DAX - gunning for 0.618 retrace, end of a five-up (A/1, blue) or C of an expanded flat (red) when done.
INDU - above SMA200, C-up or 3-up. See squiggles since the low on the 2nd chart below under the 912am entry.
[912am] USD update -
DX has retraced around 70% of its recent advance. Overall, it's an ABC structure from its nominal low so far.

[855am] Futures update -
Higher highs in ES and YM overnight, but NQ did not manage, yet.
As in DAX (745am entry below), there's no (w1/w4) overlap in YM and INDU, so is the latest surge a small-degree 3rd wave or 5th wave? 5th waves are often fickle. We'll see.
Yesterday's low is now a key pivot. Approaching SMA200 in SPX today (INDU has touched three days ago). See charts.

[710am, 845am] Dax update -
50% retrace at the moment and a nice looking five wave advance.
End of a five-up (A/1, blue) or C of an expanded flat (red) when done.
Adjusted the immediately bearish count to show better form. INDU finds itself at a similar position,squiggle-wise (see 855am entry above).

Wednesday, October 26, 2011

Market Timing Update (10/26/11)

[345pm / EOD] SPX, INDU update -
The decline from the recent high still appears corrective so far. Without a new high in any key benchmark, it is prudent to leave some room for additional near term weakness.

For example, the red count in Chart 1 (SPX) shows an incomplete correction with a very complex (b)-up. One the other hand the blue count in Chart 1 shows a simple zigzag and the possibility that the low is in.

It is also interesting to note that the neckline of IHS in INDU (Chart 2) has been offering support repeatedly.

It's also interesting to note the possibility of an expanded EDT or a regular five C in transports if it has not topped, as outlined in the 1140am entry. See this chart.

Finally, Chart 3 and Chart 4 present tracking counts on NQ and NDX. Of particular interest is the possibility of a potential ascending triangle B wave (see NQ) if the low is not in.

[1140am] DAX update and another look at Transports, SPX squiggles -DAX - The proposed corrective rebound pattern highlighted in the 920am entry played out. DAX broke to a lower low. Ambiguity in the larger count remains.
TRAN - expanded EDT or a regular five C if it has not topped.
SPX - most likely a corrective decline, tracking counts
[11am] NQ, INDU, SPX update -
A series of threes. INDU at the neckline, again. SPX - see the 2nd chart under the 1015am entry

[1015am] ES squiggles -

[920am] DAX, ES squiggles -
ES - see if the base channel holds, 0.618 retrace ahead
DAX - see if a potential triangle and a EDT holds.
[730am] DAX, ES squiggles -
ES has more or less mirrored DAX overnight. The next advance will shed light on whether it is c of (x)-up or (iii) of [iii]-up. Naturally, the overnight low is a key pivot.