Monday, September 6, 2010
Friday, September 3, 2010
MTU Weekend Ed. - An Informative Roller Coaster Ride (9/3/10 Close)
Spurious correlation or disturbing market dynamics
The AUD/JPY cross rate and the SP500 index have possessed a near perfect correlation in 2010 (Chart 1 bar=AUDJPY, line=SPX(esu0)). Moreover, such perfect correlations have also been present on an intra-day basis on many occasions. If this linkage between the two markets is not entirely spurious, it would be truly disturbing.
While it is acceptable to find traces of risk taking in U.S. stocks derived from FX carry funding, it is extraordinary to see such a tight correlation for so many months. One does not need to cook up a conspiracy theory to be disturbed by such observations, for the persistent and tight correlation implies that the marginal price setters in both markets are incredibly one and the same. The rest are price takers. Which group do you belong to?
For the sake of completeness, the other possibility that the underlying forces are driving pricing in both markets in an identical fashion is extremely unlikely, even in hindsight.
An informative roller coaster ride in stocks
The triple test of the 1040 area in SPX over the past two weeks and the subsequent violent rebound has not only factually postponed the anticipated sell-off but also raised the odds that the entire structure since the April top is a mere correction within a larger upward movement.
This bullish interpretation has NOT achieved the primary count status yet, but Chart 2 and Chart 3 highlight two triangles that facilitate the bullish interpretation. The smaller triangle in Chart 2 paints a near-immediate bullish picture, while the larger triangle in Chart 3 suggests a rally beyond the April high after one more round of sell-off below the July low (which could be deep but is not required.)
In all likelihood, the August high may be taken out after a potential pullback next week. In addition to potential wave structures, this upside potential is inferred in the cycle chart (Chart 4) which projected this week's low accurately, the VIX (Chart 5) and the violation of the August high in FTSE (Chart 6).
Top near term scenarios (stocks)
Chart 7 tracks four big picture wave counts that are the most relevant. Chart 8 presents a more detailed count on the E-mini. I'd rank each scenario based on its likelihood as follows, from the more likely ones to the less likely ones. The note in Chart 8 regarding the Aug29-Aug31 sell-off is a key element which enables one to assess the pecking order.
* Minute wave [c]-up of minor wave 2-up is in progress. Expect a moderate pullback before taking out the June and August highs, but not the April high.
* Minute wave [ii]-up of minor wave 3-down is in progress. Expect a deep pullback followed by a moderate advance. The August high holds. The subsequent sell-off will be deep, lengthy, and will most likely take out the March 2009 low.
* Minor wave E of the large triangle (B) is in progress. This is the scenario highlighted in Chart 3. The subsequent sell-off is typically moderate, but could be deep if it is extended or the entire structure is the first in a combination.
* Minute wave [ii]-up of minor wave 3-down is complete at today's high or early next week. The subsequent sell-off will be deep, lengthy, and most likely taking out the March 2009 low.
Note that each of these scenarios either calls for a near term pullback or a sell-off.
Chart 9 offers a squiggle count of the violent advance over the past week. Chart 10 closes in on Friday's action - the last of the last squiggles.
Bonds – topped for good if they have topped.
Bonds likely have topped as discussed over the past two weeks. See The Bond Mania (8/20/10) . Chart 11 updates.
The AUD/JPY cross rate and the SP500 index have possessed a near perfect correlation in 2010 (Chart 1 bar=AUDJPY, line=SPX(esu0)). Moreover, such perfect correlations have also been present on an intra-day basis on many occasions. If this linkage between the two markets is not entirely spurious, it would be truly disturbing.While it is acceptable to find traces of risk taking in U.S. stocks derived from FX carry funding, it is extraordinary to see such a tight correlation for so many months. One does not need to cook up a conspiracy theory to be disturbed by such observations, for the persistent and tight correlation implies that the marginal price setters in both markets are incredibly one and the same. The rest are price takers. Which group do you belong to?
For the sake of completeness, the other possibility that the underlying forces are driving pricing in both markets in an identical fashion is extremely unlikely, even in hindsight.
An informative roller coaster ride in stocks
The triple test of the 1040 area in SPX over the past two weeks and the subsequent violent rebound has not only factually postponed the anticipated sell-off but also raised the odds that the entire structure since the April top is a mere correction within a larger upward movement.
This bullish interpretation has NOT achieved the primary count status yet, but Chart 2 and Chart 3 highlight two triangles that facilitate the bullish interpretation. The smaller triangle in Chart 2 paints a near-immediate bullish picture, while the larger triangle in Chart 3 suggests a rally beyond the April high after one more round of sell-off below the July low (which could be deep but is not required.)
In all likelihood, the August high may be taken out after a potential pullback next week. In addition to potential wave structures, this upside potential is inferred in the cycle chart (Chart 4) which projected this week's low accurately, the VIX (Chart 5) and the violation of the August high in FTSE (Chart 6).
Top near term scenarios (stocks)
Chart 7 tracks four big picture wave counts that are the most relevant. Chart 8 presents a more detailed count on the E-mini. I'd rank each scenario based on its likelihood as follows, from the more likely ones to the less likely ones. The note in Chart 8 regarding the Aug29-Aug31 sell-off is a key element which enables one to assess the pecking order.* Minute wave [c]-up of minor wave 2-up is in progress. Expect a moderate pullback before taking out the June and August highs, but not the April high.
* Minute wave [ii]-up of minor wave 3-down is in progress. Expect a deep pullback followed by a moderate advance. The August high holds. The subsequent sell-off will be deep, lengthy, and will most likely take out the March 2009 low.
* Minor wave E of the large triangle (B) is in progress. This is the scenario highlighted in Chart 3. The subsequent sell-off is typically moderate, but could be deep if it is extended or the entire structure is the first in a combination.
* Minute wave [ii]-up of minor wave 3-down is complete at today's high or early next week. The subsequent sell-off will be deep, lengthy, and most likely taking out the March 2009 low.
Note that each of these scenarios either calls for a near term pullback or a sell-off.
Chart 9 offers a squiggle count of the violent advance over the past week. Chart 10 closes in on Friday's action - the last of the last squiggles.
Bonds – topped for good if they have topped.
Bonds likely have topped as discussed over the past two weeks. See The Bond Mania (8/20/10) . Chart 11 updates.
Thursday, September 2, 2010
Market Timing Update (9/2/10 Close)
[4PM Stocks, VIX] The stock market is ready for atpull-back (at least a temporary one.)
The market has delivered an impressive impulse wave advance from the Aug 31st low. Per squiggle counts, any nearby top is either the end of the 3rd wave of this impulse or the end of the impulse itself.
The following charts (Chart 1 and Chart 2) highlight the two squiggle counts for the SP500 cash index and the SP500 Sept. e-mini.
Chart 3 offers the larger picture wave counts -
The more permanent risks facing the bulls are
Technical indicators show a near term overbought market.
If the larger structure is indeed a triangle (green labels), it's final wave E which is supposed to be a three, is about done.
There is likely additional upside potential for the rest of the counts, but a pull back in the meantime is quite likely.
And finally, here's a potential count on the VIX (Chart 4), assuming the prior low holds!
The market has delivered an impressive impulse wave advance from the Aug 31st low. Per squiggle counts, any nearby top is either the end of the 3rd wave of this impulse or the end of the impulse itself.
The following charts (Chart 1 and Chart 2) highlight the two squiggle counts for the SP500 cash index and the SP500 Sept. e-mini.
Chart 3 offers the larger picture wave counts -The more permanent risks facing the bulls are
Technical indicators show a near term overbought market.
If the larger structure is indeed a triangle (green labels), it's final wave E which is supposed to be a three, is about done.
There is likely additional upside potential for the rest of the counts, but a pull back in the meantime is quite likely.
And finally, here's a potential count on the VIX (Chart 4), assuming the prior low holds!
Wednesday, September 1, 2010
Market Timing Update (9/1/10 Close)
[6PM squiggles and targets] Here's the squiggle count on SP500 cash index on the 1-min chart, along with potential target levels.The squiggle structure on the e-mini is (not surprisingly) somewhat different. It has always been a challenge and an art to identify the one to emphasize and to reconcile the two.
On the cash index, assuming the advance from yesterday's low is a regular five (which is quite reasonable), potential targets (for this segment of the advance, at least) are 1085, 1090, and 1099. See chart for more details.
[4PM stocks] The market resolved to the upside as suspected (see discussions in yesterday's EOD update). Odds now strongly favor this advance as minute wave [ii]-up of minor wave 3-down OR minute wave [c]-up of minor wave 2-up. The difference is whether the June and the August high will be taken out by the current advance.Chart 1 tracks the top 3 relevant wave counts.
(black) From a time perspective, there could be more upside potential after a wave (x) pullback if [i]-down ended yesterday. In other words, the coming top could be just (w) of [ii]-down.
(red) If [i]-down ended last week, [ii]-up is tracing out a large double three and should be done after the the current advance. Follow the squiggles. The final leg could either be a three or a five from yesterday's low.
(blue) The most bullish count is a [c]-up of 2-up in progress. No need to over-count the squiggles before the June / August highs are taken out. Chart 2 highlights a confirmed turn and the potential upside potential.Chart 3 and Chart 4 offer squiggle counts.
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