Planet Yelnick

Google is Doing Fine, Actually

Comscore let out a report earlier this week that suggested that Google's click-thru rate was dropping, and fed the fire of concern over how Google would do in a recession.  The report sent a shudder through the tech investment community, and sent GOOG down sharply.  GOOG has since meandered, awaiting further info on the report.  Today the Comscore CEO commented on the report and reinterpreted the data in Google's favor.  Rather than signal more evidence of a slowdown, the drop in click-thru's instead reflects an improvement in quality.  Whew! The Surge is still possible ...

Blow Off Top!

Sometimes the STU is a joy to read.  Tonight's STU is an example.  Hochberg begins with the extreme sentiment across so many markets that have spiked:

Swiss Franc 97%; Euro 98%; Yen 93%; U.S. Dollar 7% (essentially the opposite of the euro); Crude Oil 93%; Heating Oil 93%; Gold 97%; Silver 97%; Platinum 93%; Corn 93%; Oats 94%; Soybean 97%; Soybean Oil 98%; Soybean Meal 93%; Cocoa 98% and the CRB Index 96%. Not far behind these 90%++ readings were U.S. T-notes 83%; Nat Gas 88%; Wheat 85%; Coffee 86%; Sugar 88% and Cotton 89%.

Source: last night's Daily Sentiment Index readings from www.trade-futures.com

As they note, serious tops in markets, especially commodities, are often preceded by a blow-off.  The implication is a rapid reversal across all markets.  All go down, including equities, except the lonely Dollar, which bounces.  We should know in the turn window next week.  Watch for the Euro below $1.50 and the Dollar Index above 75 to confirm a strong Dollar bounce. 

The Naz has completed a "textbook" triangle and now should drop in a fifth wave thrust down at least below the wave 3 (Jan22) low of 2202.  The STU gives lower targets based on Fib relationships of the whole movement since the late Oct07 highs. 

The Dow and S&P they still have in a nested 1-2 of three degrees, albeit the final i-ii is a bit stressed since ii retraced 99%.   Put differently, after the thrust up from Jan23 to Feb1, the Dow has essentially been flat in Feb until the last few days.  It came back to *just* below the Feb1 level then dropped hard.  Since the wave 2 of the drop off Oct07 was a zigzag, this could be counted as a wave 4 flat or triangle, or a smaller degree wave 2 flat rather than nested 1-2 and i-ii.  In a Zoran sense, we had a thrust off Jan23 and a plateau since then.  The sharp drop looks like a bifurcation move out of the plateau, but we have not yet breached the trading range.  Hence to support the fast downside case, we would want to see a breach of the Feb low in the next trading day or two.  Otherwise the Naz may fall but the broader markets may continue a complex corrective pattern.   

US Peso

Dollar drop is obviously causing the oil & commodity spike.  Bush and Paulson (Treasury Secy) talk of a strong Dollar policy but they certainly aren't following it.  Dow has been going UP on Dollar weakness due to overseas money coming in (Dow looks cheap in Euros!), so it is unclear if the last two days DOWN have been end-of-month portfolio cleansing or a larger trend of foreign investors staying out until the see where the Dollar goes.  This all feels like deja vu of the period from 1971-1974 when Nixon went off the Bretton Woods system and threw the world financial system into turmoil.  I thought we had learned then that wasteful one-time rebates, cheapening the Dollar and inflating the currency didn't work.  Nor does jawboning (remember WIN?  Whip Inflation Now buttons).  The big issue in this election should be Dollar and fiscal management; a few more months of this and maybe it will be!  The Dollar has no known support levels because it has never been this weak. 

Given the turn window next week (Mar 4-6), we might see a contrarian move - Dollar strengthens, Dow reverses up.   Neely says to watch the speed of this decline, if it slows, he would expect a continued complex pattern rather than a  sudden slide down.   As to the Dollar, Neely called this spike.  The Euro/Dollar ratio is following his prediction closely!  Worth checiking out if you are currency trading.  We will see later today what Prechter thinks.  Will his nested 1-2's hold?  

Opportunity Rebounds!

Nice rise since the last 1/2 hour Friday.  Puts stress on both the STU's and Neely's counts.  Now the STU has to wait for a 78% retrace to hold their wave 2 count.  I cannot remember how many times we have been at this count from the STU since 2002, and watched the "nested wave 1-2 with 78% retrace" simply fail.  Means to me that  a triangle 4th wave is more likely with a truncated 5th to complete the down move.  The triangle is clear in the Naz, and now is becoming clearer in S&P and Dow.  For the simplified Zoran view, with a triple bottom, this may end up with a truncated 5th to about the Jan22 level, then a 1 up and 2 down where the 2 comes near the Jan22 level as well.  As to the bullish view, maybe; but the impulse up off Jan23 seems to have stalled. 

Obscurity Abounds

Nice bounce at the close.  Dumb money comes in the first half hour; smart money in the last.  Tonight's STU believes the smart money will look stupid by early next week as the rescue bounce is retraced and more.   Neely also stands by a coming big down move.  The Nasdaq has completed a wave 4 triangle and should spike down first.  But is this the little Big One?  The look of both the Dow and the S&P is that the BOUNCE off Jan22-23 is impulsive and the retrace meandering and slow - a correction.  Wave 1 up and wave 2 correction of a new bull?  The Nasdaq may be presaging a wave 4 triangle in the broader indexes. Neither the Dow nor S&P has *yet* dropped enough to form a triangle; perhaps the Naz drops in wave 5 and the others drop in leg-b of their triangles to catch up. 

Wait and C

Both Neely and the STU say the count is ambiguous, so wait and see.  No Little Big One or Big Little One for a bit.  If you are Tony-bearish, this counter-trend wave 2 up is extending but the C wave down awaits.  If your are Yves-bullish, the confidence is rising that Jan23 was a bottom and we have just ended a wave 2 down - market should now pop up.  If you are Zoran-focused, we are in an extended corrective period that will end without a major drop.  Let's concede a third high happened in Dec (first two in Jul and Oct) and the trend has changed down; but we seem to be building towards a triple bottom which will signal a trend change back up.  The STU also sees this possibility: they have a "tertiary" count of a developing triangle since Jan23.  Since a triangle is rare if ever seen in a wave 2, it would be a wave 4 triangle and Jan23 would be the end of a wave 3 rather than a wave 5.  Triangles break in five waves, often labeled abcde.  The pattern the STU outlined last Friday would have the b-leg of the triangle come down near the Jan23 low, a c-leg up, then a d-leg which ends higher than the b-leg, a final e-leg up, and then a wave 5 thrust down.  If that thrust ends near the Jan23 level, as it may given an upward sloping triangle, we would have a triple bottom and a Zoran simplified Elliott trend change.  Timing?  The Feb19 turn window is a bust, so next one is Mar4-6, then around Mar21.  Given a triangle, the triple bottom may continue as far out as May. 

IPO Update

Watching tech IPOs as a window on a tech Surge, here is the latest:  three VC-backed IPOs in 2008, two postponements, seven withdrawals and 41 companies remaining in active registration.

Hop on the Hochberg Hedge

Lots of good comments to the prior post.  I decided to bring this to the front due the importance of the next few trading days.  Please check the prior post comments.  EWT Trader makes a great observation.  Mark Lytle sees a broader bearish pattern, and in an email exchange Tony Caldaro essentially agrees that his count is showing overbought.  (Check out Tony's blog).  In tonights STU, Hochberg says the slowing momentum means this counter trend rally could be over, but leaves open that the coming options expiration Friday is a wildcard for possibly delaying his Little Big One down.  Similarly, I still expect the next downturn to begin at or after Feb19 after the coming three-day weekend in the US. I remain doubtful that it is the Little Big One. Keep reading below the fold for a Zoran View as to why.

Ride the Neely River

We are approaching the moment when the Lights Out bearish view works, or the Surge or DIe! bullish view emerges.  I am finding that Neely's NeoWave service is doing a great job of following the twists and turns tightly, especially for those of you gearing up to short.  The Neely River is more fluid than the STU prime and alt counts, and provides a good alternative veiwpoint day by day in periods like this.  As Zoran used to say, the market seeks order, and then makes its impulsive move.  Right now were are seeking and have not yet found.  As each day goes by the Bulls get more cocky.   This is a good time to sample Neely and see for yourself.  We are approaching a turn date (which I gleaned from various sources, but not from Neely or Prechter) next Tuesday after the three day weekend. 

Lights Out?

Both the STU and Neely agree: a little more counter-trend rally then the Little Big One down.  As Neely elegantly puts it: "If [the counter-trend rally] ends this week or next, the S&P will experience its largest and fastest decline in years between now and mid March."  Hochberg says: "This push will correct the preceding impulsive decline and help set the market up for wave iii (circle) of 3 down, which should be a very strong selloff."  The other side (Yves for example) think the bottom is in.  The Naz turned up first; the Dow and S&P followed today.  My view is that the Surge is coming, but the bottoming process may take into March at least before this is clear. 

The most interesting part of today's STU is their Lights Out analysis.  They had shown last summer that high-yield corporate bonds went from available to non-existence over a very short time frame, one month.  Similarly,  last week the STU noted how the Baltic Dry index and the ISM index both dropped precipitously.  The STU then points out other examples.  By analogy they expect the equity markets to similarly wake up and fall off a cliff.   

The rapidity of a market window closing on an asset type squares with my experience: in June 1983 I got a tech IPO out, but in July 1983 the tech IPO window shut hard; in April 2000, I was on a roadshow and got my IPO funded, but right afterwrds the IPO window shut hard on dot-coms; and in late 2000, I saw  Covad and similar telecom stocks raise money in September, and suddenly they could not raise a dime in October (debt or equity).  Slam!  In one month.

We shall see between now and the next turn date, Feb19, whether the rolling LIghts Out in market after market will panic equities, or whether this is a buying opportunity. 

Oh No! Free Week at EWI!

Prechter's EWI has had an awful record with free weeks: they seem to come when the Big One down is predicted, and then the market bottoms and starts a new bull leg.  Well, go ahead anyway and read the source.  A free Club EWI membership is all you need to get access to FreeWeek.   Sign up for FreeWeek now here.  They are convinced the Little Big One is on us.  Yet Hank at Elliott Fractal sees a pattern he saw in 2005: a double bottom in the Naz ahead of the Dow.  The Naz may now diverge from the Dow - watch for the tech leaders to begin to recover (AAPL, GOOG, MSFT).  Yves is watching the financial stocks - he says keep an eye on Citi BAC and WB.  We have come through one of the turn dates.  Next up: Feb 19. 

Surge or Die!

We are on the cusp.  The longer this correction meanders the less likely the Little Big One is on us, and the more it seems the Jan22 bottom was a lasting one.  On the other hand, we seem to be in a setup for the Little Big One to start - as early as Monday!  Below the fold we look at turn dates and scenarios.