Planet Yelnick

Yves Liquidity Model Says Buy!

I love a debate among guestbloggers.  Tony Ch sees us in a wave C of a deep zigzag that should go towards SP1200.  Yves in contrast now has a buy signal!  His analysis is below the fold. I suppose Yves is the John McCain of this debate - he supports The Surge (albeit his Surge is financial stocks not tech stocks).  Tony Ch must be the Mitt Romney - his version of the Little Big One down means we need some experienced consultant type to manage the economy out of the funk.  Any Ron Pauls out there arguing for a return to Gold to support the Dollar?  Or a Huckabee railing Don't Crucify Us on a Cross of Gold?  Enjoy Yves analysis - his timing model has been pretty good for the past year, albeit sometimes with a lag as long as 55 days from signal.    

A Probable Path Revealed

Tony Cherniawski is back with an update to his Not Wave 3 guestblog.  He now sees enough wave clarity he can make a fairly crisp call.  He also gives some good insight into Elliott Wave theory and practice.  Highly recommended!

STU and Neely Agree

As expected, tonight's STU essentially agrees with Neely's morning post: likely a wave 2 has ended today and the next move is below the Jan22 low.  Alternative is a developing wave 4 triangle (meaning the recent impulse down is not complete, and a bigger counter-trend rally is in store).  Tony's count is also still in play.  We will have to see if this is but a bottoming process off the Jan22 low, or a setup for a deeper fall. 

The Surge: VC Sees 6 Month Pause

At a panel yesterday, Dan Nova, managing general partner of venture firm Highland Capital Partners, found 2007 to be a great year for exits, but said 2008 is off to a "horrible start" according to VentureWire.   His firm has put several IPOs on hold, and he thinks IPO markets are frozen.  We'll see, as several deals are winding their way through their roadshows.

Glenn Neely sees us ending a counter-trend wave 2, probably after the Fed announcement today.  The Fed decided to drop 1/2 pt,  in line with expectations.  Dow popped to above 12.5K, S&P above 1371, both key levels.  Prechter's STU will opine tonight.  I expect the two eWave leaders to concur for the moment on a sharp drop ahead, but if not today than Friday or early next week.  You don't want to put too much weight behind a sudden pop on the Fed news.  Happens often, and usually the market fades after.  But, if it goes above Dow13K or SP1400, they may have to change their counts. 

First IPOs Support The Surge

From VentureWire, Monday, January 28, 2008:

The initial public offering market received a much-needed boost Friday, when RiskMetrics Group Inc. and IPC the Hospitalist Co. - the first venture-backed companies to debut on the public markets this year - posted double-digit gains on their first day of trading.  Risk-management firm RiskMetrics rose 36%, and medical-staffing company IPC the Hospitalist gained 28%.

RiskMetrics closed at $23.75 a share on the New York Stock Exchange, up from its IPO price of $17.50. A total of 14 million shares were sold near the midpoint of their expected $17-to-$19 price range. ...

IPC the Hospitalist, which provides hospital staffing services, closed at $20.48 a share on the Nasdaq, up from its IPO price of $16. A total of 5.2 million shares were sold at the midpoint of the expected $15-to-$17 price range, which was set by underwriters Credit Suisse Group and Jefferies Cos.  ... The company increased the number of shares it offered from 4.7 million ... .

The Little Big One: A Mid-Swoon Update

I give credit to our periodic guestblogger, Yves, for a good call on TV on Jan 20: he expected this counter-trend rally, and recommended Nymex, which is up 25% in a week.  I am awaiting his next guestblog to predict the next move in this market.  Many of you read and commented on Tony's recent guestblog, which lays out a bearish picture.  The STU tonight lays out two others bearish scenarios: that we are in a wave 4 that should meander for a week or more, with the final leg down to follow; or we are in a larger degree wave 2 with the dreaded 3 of 3 to follow.  If this counter-trend rally goes near or above Dow13K, the STU fears the wave 2 count and a massive drop to follow.  Neely has the most interesting view: that the S&P won't break its Jan 14 high, but we are in a complex wave form which could be impulsive or corrective, too soon to place a bet. 

The next two days should be volatile as we go into an expected 1/2 point rate cut on Wed.  The STU points out that the spread between the Fed Funds rate and the 3 month T-Bill is now 1 1/14%, a huge divergence, and so the Fed will have to act to close the gap.  While they do not expect a cut larger than 1/2 point, they do expect a series of cuts to catch down to the 3 month rate. 

With all this bearishness, let me point you to Hoyes recent column which shows a 55 day pattern to crashes: from top to capitulation in 1929, 1987, 2000 (tech) and now Oct07-Jan08.  The recent bottom was 55 trading days off the late Oct top in the Nasdaq.  What these all show is a Zoran-like pattern of a 52-55 trading day thrust down, then a plateau and a double or triple bottom .. and a rebound.  Maybe this one is over for now, other than a coming retest or two? 

The Surge: A Mid-Swoon Update

The Surge is still on the radar.  I expected we would know more by the end of next week.  Clearly the earnings of the tech sector is growing: Microsoft reported record earnings due to a long-delayed upgrade cycle now starting, and overseas results are still robust.  The NYT reports that the US outlook for business spending on info tech is encouraging even in a recession.  I am watching the IPO market for a leading indicator.  The appetite for new issues is the primary reason for optimism of The Surge, even in a challenging market.  Currently several new issues are finishing their road shows, and many are lining up to go out.  A few have been pulled or postponed.  More on this in a week, as new issues tend to start going out in mid January and wind their way across the country over three weeks before launching. 

Third Wave Over? Maybe Not!

Picking up in the grand tradition of Yves, our active guestblogger, Tony Cherniawski weighs in with a fascinating contrarian view of the immediate current market.  Pundits are proclaiming the bottom is in, and the fairly wimpy Bush recovery package enough to stave off the recession.  An Elliott case can be made that we just finished a zig zag from the October high.  Does it hold up?  Well, not quite.  Take a read of Tony's analysis, below the fold. 

Prechter on TV *Today*

Bob will be on Bloomberg around 5pm (NY time) today. 

Now THAT was a wave 3!!

You gotta love the wave clarity right now.  In the last two days we saw an interim bottom with three tests of the low (a classic Zoran thrust and plateau with triple bottom).  We found support around the 2000 high of Dow11.7, and now seem likely to bounce to the just-prior wave 4 low of Dow12.5.  Neely says we have entered a 5+/- year bear market.  STU sees this as a counter trend rally towards a lower interim bottom.  Both advise caution trying to catch a bottom, since fierce bear impulses will bottom, rally, then drop again all the way down.  If this is a small wave 4 that retraces to Dow12.5, where might the final wave 5 go?  Let's wait and see where it retraces first.  If this is but a wave 1 of the BIg Big One, it should ratchet down to the next big support level of Dow10K.  If this is instead a wave C of a zigzag, it might have bottomed already.  So many choices!  Best to give it a day or two before placing a bet. 

Helicopter Ben Comes To Earth

Ben Bernanke made an amazing admission yesterday: that monetary policy is not enough [to avoid the debacle that is unfolding].  This is the same man who is a student of the Great Depression and believed if HE had been Fed Chairman in 1929 he could have stopped the debacle by dumping liquidity into the economy.  Now he got his wish, and already he has lost his bet with history.  The 10-year T-bill interest is about or below the CPI, meaning money is essentially free in real terms. As the last good Fed Chairman, Volcker, puts it: the moral risk of the Greenspan Put has caused bubble after bubble, and people borrowed and spent too much, and now have too much debt and no good way to pay it off. 

Neely Goes Bearish

Neely joins the herd of bears and says:  "the 5-year bull market in the S&P (from 2002's low) is finally over! Monday, January 14, 2008 began a new 4-6 year BEAR MARKET! Maximum downside potential is not clear, but over the next few years, the cash S&P will easily break 1000!" He will release a special set of updates with charts next weeks to subscribers. 

Little Big One

This is what a wave 3 feels like.  Never got the counter-trend rally that the STU expected.  The triangle count is long gone, but it is unclear if this is the Little Big One or still wave 4.  Lots of good comments in The Surge post on wave counts - recommend perusing.  Several key levels to watch on the way down, beginning with Dow12K +/- 0.1.   If we break through that level, the odds increase that this is a higher degree correction than of just the recent 2007 runup.  That would make it the Little Big One, and could run down to Dow10k.  But is it the Big Big One?  Not necessarily: if we count the rise from 2002 as starting in Mar03, this could be 2003W4 with the Surge to follow. 

Tony C, who has counted the 2002-2007 period as a wave 5 since 1982 (or 1974), has gone bearish due to the break of SP1364, a key level.  His other indicators have also gone south.  Check his blog - he is a very good Elliottician.  Neely sent out a missive saying a big move was coming, but didn't say which way.  I am waiting for Fibonacciman's Lucas Wave view later tonight. 

Prechter popped out an EWT today with more color on the count. The complacency of the wave B from 2002-2007 (his prime count) is profound, and matches the 1973 era when the Dow made a new high in an inflationary environment and then fell 50% (and in real terms, even farther).  The period 1966-1974 counts as corrective despite the nominal new high in 1973, which in inflation-adjusted terms was not a new high at all.  And so too here, where the nominal high is happening within Dollar weakness, and in real terms is not a new high.  Worth reading the EWT.

Tomorrow is options expiration.  Should be volatile.  Next week will tell us more about the Little Big One. 

The Surge

In the short run, we have a bounce within the turn window.  It might be a short-lived counter-trend rally, as the STU believes; or it might be the start of a final runup into the 2008 elections.  Tech stocks led the weakness in the first few days of January, and despite predictions of record earnings in 2008, the market is waiting to see how their earnings results come out for the last quarter of 2007, when weakness due to real estate, credit crunch and Xmas disappointment will come through. 

In the long run, however this bounce turns out, I expect stocks to make a final run to new highs.  If I am right, it will be driven by tech stocks.  Call it The Surge.  The leader of the last bubble drives the final run of this one.  The Surge should last well into 2009.  Tech IPOs will come back, and the venture industry will get a needed reprieve after suffering the worst five-year stretch in its history.  For the first time since the Bush Administration, capital will flow back into innovation and growth, away from real estate, takeovers and Old Time Industries like oil and food.   The case for The Surge is below the fold.      

Triangle Fails

The market dropped 250 odd points after my prior post, and the form has now stretched the triangle beyond recognition.  That changed fast!  Is the prime count the Little Big One (big drop below the august intraday low and down towards Dow10k)?   STU expects a countertrend rally at any moment, and Wed begins the turn window.  If it comes, it should take the market back over Dow13k.  This may be the last gasp before the Little Big One; but also may mean the correction is extending into a complex form (ABC-x-ABC).  More tomorrow. 

Triangle Still On

The market is doing what Zoran used to call his Wave Fractal: a thrust (last week) and a plateau (this week) with overlapping waves.  The market is seeking order, in a Chaos Theory sense.  Put more simply, the pro's came back to work Monday and are sorting out which way this market will go.  News is generally negative and expectations of a bigger drop have grown.  STU has shifted its prime count from the triangle to a wave 3 down, showing their susceptibility to the social mood of the market.  Yet the triangle lives, and the longer this plateau meanders, the less likely the Little Big One is on us, and the more likely the triangle has been and remains the prime count.  Another Zoran tool (from Gann) is to look at the Fall Line: does the market fall or rise faster than the prior Thrust.  If it slows down, it indicates a change of direction.  That is where we will be at the end of this week, if this plateau continues.  It should come as no surprise then that Jan 9 - 11 are a Fib turn date of some importance.  Do we fall off the plateau or bounce?   Is The Surge coming?

Read This Book

Fibonacciman has written his book, and it is a darn good one: Breakthrough Strategies for Predicting Any Market: Charting Elliott Wave, Lucas, Fibonacci and Time For Profit, by Jeff Greenblatt (Marketplace Books, 2007).  Jeff attempts to boldly go where no Elliottician has gone before: timing.  He also rediscovers Lucas Numbers, a complement to Fibonacci sequences.  The book is well written, has loads of charts and examples, and has enough depth that a scholar of Elliott will find himself going back to it over and over for insight.  I have had a copy since the summer, and have taken my time to understand Jeff's arguments and examples before committing to an opinion about the methodology and the book.  Let me provide some perspective on recent Elliott history to put Jeff's achievement in context.

Epiphany Week

Next week is Epiphany Week, the week after January 6, the 12th day of Christmas and when the Wise men came and gave the baby jesus gifts.  It should also bring us needed wave wisdom on this market. The year-end STU has the wave count as either a fourth wave triangle, with a furious spike rally UP (wave 5) to come, or wave 2 of the Little Big One DOWN.  Couldn't ask for a wider spread.  This stub week shouldn't count for much, as many traders will still be out on holiday.    The STU also has a turn window around Jan 9-10, the end of next week.   

In the real world, lots of uncertainty.  Kenya's election is leading to tribal warfare.  Pakistan's election is postponed, and the country is becoming unstable.  News out of Iran is that a crisis summit by the leading cleric led nowhere, and there appears to be no one in control.  Australia elected a Labour Government, and right away the new Prime Minister, Rudd, is making his mark with more radical changes than perhaps the electorate had expected.   

In the US, the primaries will come fast and furious, and may lead to confusion rather than clarity as the electorate seems not to have made up its mind about this large slate of candidates.  Bloomberg waits in the wings to come in as an independent.   Will it be Rudi vs Bloomberg, a battle of mayors?  Or Mitt vs Bloomberg, a battle of mega-millionaires?  Bush Clinton Bush Clinton, the end of the Republic?  Or Huckabee vs Obama, Old Time Religion vs. Kennedyesque calls for change? 

This global uncertainty tracks the current wave count, which could go either way.   Watch next week.