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.

Under Zoran's simplified Elliott Wave, a movement tends to triple top or bottom before changing trend. We often count those as a top of 3, a top of a truncated 5th wave, and then the top of a 2d (or B wave) before the steep drop.  Three tops that are close in level, although usually the middle one is higher and forms the head of a head and shoulders pattern.  We can over-anlyze this, but essentially it reflects a pattern of rotation or distribution of stocks.  When this sort of churning of positions happens, we expect a major change of direction.  The exuberance of the head presages the length of the next move.  Thus in Zoran's simpler Elliott, don't sweat the fine details of the 4th/5th/A/B waves but look for the break out, the Bifurcation Point.

In the period of Jul02 - Mar03 we saw a classic triple bottom: the thrust down to July followed by a 9 month corrective period of overlapping waves.  We double bottomed in October and triple bottomed in March.  Then a clear thrust out of that range into Jan04.  That was followed by a two-year trading range, then the thrust in 2006-07 to new all time highs.  Also, at the 2000 top, we also see a triple top before we really fall off a cliff.  Especially clear in the S&P. 

In classic Elliott, the B or 2 wave after a top usually comes back into the range of the prior fourth wave.  If you ponder this, it substantiates this triple top or bottom pattern.  In addition, the best move for a trader is to wait until the end of wave 2 before piling on, then catch the wave 3 or C to glory and profit.  Again, same concept - wait for the break.  The trick of course is to pick the end of the 2d wave.  And that is the dilemma right now. 

Zoran used timing and fib models to predict an end of a move.  He would measure from the break out, the Bifurcation, not the end of the prior thrust or the low point in between.  So, he would count from Mar03 not Jul02 or Oct02. 

In this case we have not had a triple top of the 2006-07 thrust; at best a double (July and Oct).  This suggest that the trend has NOT reversed to the Little Big One, but we remain in a correction off that thrust. 

We have also not had a triple bottom yet.  It looks like an Aug bottom, then the Jan bottom (lower), and we need one more.  This suggests that one more test of those lows in in order.  Call this the Big Little One. 

So possibly: a drop after Feb19 to a triple bottom in March, then the final Surge; or a longer meander until the final triple bottom (eg into May) then the Surge. 

In the meantime, those of you who wish to play a Little Big One need to make a decision.  Even under this faux Zoran view,  a drop next week - perhaps a Big Little One rather than the Little Big One - is looming.   

Comments

[Eventhorizon]

I have a technique for trying to neutralize my prejudices about the market - I like to look at pairs of inverse instruments to see if I feel the same way about each chart. If you are a naturally bullish person, I suggest you look at the charts of any of the inverse funds.

A good example would be UWPIX. Firstly it only prints NAV at end of day so you get rid of intraday noise. Secondly it is the inverse of the Dow.

Take a look at the daily chart. It shows clear five waves up from 14.18 in early Oct to 17.45 in lat Nov, 3 waves down to 15.02 in mid Dec and another 5 waves up to 19.66 in mid Jan. Then the first a (also sporting 5 waves), b and beginning of c down to the present. Since the current set overlaps the Mid Nov high, you can only look at this as 1-2, i,ii or as a larger A-B-C up. In addition i showed acceleration vs 1 - no bearish divergences in sight - does this favor the former count? Is it worth getting long UWPIX if the a-b-c plays out down to 16.52 then breaks out of the channel?

I hate contradicting DP since he has a very good track record - I wish he would share what he sees that tells him this is the end of a correction and the beginning of a new bull run, rather than the beginning of a larger correction.

[OracleLurker]

"In this case we have not had a triple top of the 2006-07 thrust; at best a double (July and Oct). This suggest that the trend has NOT reversed to the Little Big One, but we remain in a correction off that thrust."

- love this blog by the way but - what about December 10th as the third top? Certainly the three peeks are as distinctive if not more so than we saw in 2000.

In any case if the best bears can do by May is meander this market down to retest the lows i'll be full-tits long by then.

[OracleLurker]

"In this case we have not had a triple top of the 2006-07 thrust; at best a double (July and Oct). This suggest that the trend has NOT reversed to the Little Big One, but we remain in a correction off that thrust."

- love this blog by the way but - what about December 10th as the third top? Certainly the three peeks are as distinctive if not more so than we saw in 2000.

In any case if the best bears can do by May is meander this market down to retest the lows i'll be full-tits long by then.

[yelnick]

Oracle, 'tis a possible interpretation, albeit the Dec top was lower.

[Eventhorizon]

Yman: "albeit the Dec top was lower"

I'm confused (as is often the case), to be wave 2 or the right shoulder isn't the third peak supposed to be lower?

[Curt Smith]

Tnx to all. BTW do the folks who posted in the previous Y blog, predicting DOW 9500 by mid year, which I agree with, do you have a blog where you post your analysis and charts? IE just posting some number is not that useful, especially to inquisitive minds like mine.

Tnx curt

[deacon]

the session before/after pres. day holiday are the worst of all the holidays' historicals, less than 50% green on both...the week after feb. expiration has been down 12 of last 18...feb. is a poor month overall, and 'as goes jan. so goes feb.'... if incumbents are losing 1Q is weak... an 8th yr of decade chart from jake which agrees with the election year chart from chartoftheday i posted here previously would indicate market needs one more downswoop:(http://www.tradewithvision.com/
jbnl/BOSHmbh080211.pdf)

[yelnick]

Event, I was too cryptic, sorry. I am not an expert on Zoran's methodology, although I followed it fairly closely for several years. What I meant ot convey is that the Dec top looks too low - lower than July as well as Oct. Not out of bounds, just lowers the odds of a triple top. Zoran used to go one or too steps farther, including looking for timing and distance relationships using Fib or Lucas numbers, to call a triple end. On the other hand, today looks like Neely will be right - and maybe Hochberg despite his hedge - that the Big Little One is upon us. One thing Zoran used was a Gann method to watch if the movement with the trend moves faster than the prior thrust up - that indicates the trend is still on. Hence if Dec is a triple top, the drop from Dec down should continue at a steeper slope than the runup from late 2006 to 2007.

[Wavetrader]

Please tell me why there is obscurity in what's
happening in the Dow,SPX,NDX ect.?An idoit can see the head & shoulder tops completed all over.
This can only be 5 waves down and 3 waves countertrend to the trend.What is your problem
can't think.With all your knowledge, you need these nabob's of not knowing .They missed all of the Bull market not being with the trend & now you can't see the change of trend. Come on people
you can do better than this .Surge? with what I ask ....DOA.

[MHD]

Mr. Predator.... now would be the perfect time to add to your long positions. Bet the farm on the March 1600 calls as I'm sure you're right about this new bull market. Don't pay attention to Dow Theory or black crosses as they have a terrible record of market trends. Also, if Monday's lows are broken, I wouldn't pay that no mind, and borrow on margin to load up on April 08 calls just in case this new bull market and Yves liquidity takes an extra month to kick in.
To add to all this, the Feds have assured us that an economic downturn is not in the cards, and you know they are super accurate at predicting these kind of things. So, all in all, how can your bullish scenario be wrong? There's just no way. I bow down to your supreme technical analysis.

[rwpd]

Well....are we still in the first leg down with the 4th(triangle forming) now or is this the nested 1,2's. Don"t know...neither does anyone else...
Have followed EWT(over 20 years), Zoran, Tony and fib man (plus many other's who have come along the way)for a long time....chaos at it's best(the butterfly always wins). The only thing I've learned is to cover my "backside" if I'm wrong....the best we can do gentleman...otherwise we would all be in Tahiti on our yachts. Follow the butterfly...ain't that easy...........
rwpd

[MHD]

Even with all this bad news the market is holding up well. Must be a lot of DowPredators out there buying up stock for the all time high that is just around the corner.

[best trader]

neither you believe that is in bull.how will go bull?to go bull must make the turnaroung the profits of banks.from banks start the bull....and from banks finish the bull. now we are in the start of bear market....so put your money inside so i win by shiorts :-)
this year the target of dow is 9500 ....this is support fibonacci of the year.....then bear market around 2000 points and then new low under 7000 :)
i will see you down there bulls ;)

[best trader]

bear market ralli around 2000 points i mean from 9500 and then down ;)

[Hedgefundguy]

MHD - how you doing, mate?

Interesting that Russell, though cautious, thinks that there is a decent chance transports will not confirm any downside move by the industrials. Risk reward may not favour taking a large position at this juncture but it's not clear to me that Dow Theory supports the bearish case.

Have you read EWI global markets lately? Setting aside their fundamentally-inspired Prechterian dogmatic view on US, they seem to be fairly constructive on international markets. Betting on strategic upside here via LEAPS is starting to look interesting. If one wanted to find an undervalued, oversold, hated asset class it would be hard to find something more extreme than the Nikkei.

My reading of certain other indicators + various cycle work suggests 40% upside over the next 1-2 years. Not pulling the trigger yet as I think there may be an ongoing flow of bad news to come - CMBS, credit cards etc until mid-summer.

I think paying attention to what is going on beneath the surface of the major indices will amply reward investors. Look at various index components and international markets rather than just the dow. For now, many international/emerging markets remain in a clear uptrend (albeit sentiment is too bullish).

For some time now the easy money in the market has been made in 'relative value' - sector and country allocation bets. I appreciate the intellectual purity of trying to game the dow... but perhaps that's not where one should allocate the bulk of one's efforts...

[EWT Trader]

MHD, I like your style bro. You said it with wit and intelligence.

[Chas]

We need a big decline before equities are a long-term buy.

http://www.comstockfunds.com/files/NLPP00000%5C028.pdf

[Hank Wernicki]

2-17-08

7:00 PM PST Next: To be announced

Henry Wernicki, expects higher prices. (12min)

http://www.elliottfractals.com/marketview_interview.html

Bullish

LISTEN

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