Sand in the Line of No Return

Market appears settled into a trading range despite all the prognostication of a big collapse or a renewed bull.  The STU's line in the sand was obliterated 7 minutes into the trading last week.  Neely's line stands firm for the moment (SP1475).  Neither has solid guidance other than to watch.  Prechter's monthly Financial Forecast is heavy on history (of credit bubbles) and investor psychology rather than wave count.  Even Friday's STU was circumspect - after their line in the sand was blown, they thought a major countertrend rally as underway; but when that stalled they now are unsure.  Sounds like the rest of us!

Simplest explanation:  No Bifurcation, so we are stil in a corrective period.  Nasdaq finished a wave 4 triangle and a wave 5 spike down, and wave structure says it IS in a counter-trend rally, but it remains anemic (no Surge yet!).  Dow is murky.  S&P appears to be still in a large triangle wave 4, which means the big rally is not yet, and the trading range continues. 

To me what is happening is the Dollar. Seemed to find a bottom, then promptly fell back again.  Euro seems headed for at least $1.59; maybe $1.60; while the Dollar Index seems destined to break the all time low of 70.69 of two weeks ago.  In the meantime commodities have all come off their highs, led by oil dropping, with one exception - rice.   This will cause a squeeze across Asia - high oil, high rice, bad josh.  No wonder the Shanghai Index is off some 45%, with more to fall. 

Comments

[Canadian Money]

On Friday's close I was expecting a possible upturn for the SP500, DJIA and Nasdaq relatively soon. It appears to have started this am for all three indexes.

For the SP500, at 1326 as I write this, (if I have the count correct)...the extreme limit could be near 1340-1345. If this rally becomes a triangle it could end higher.

As always...only one of the markets options.

CM

[GSXR]

Contrarian Richard Band sees 33% gain ahead and Dow 16k
Source: Marketwatch[dot]com

Technical factors appear to have led Band to make such a bold prediction, which amounts to a 33% return for the overall market over the next 12 months.
The first has to do with the stock market's internal characteristics when it hit a low earlier this month. Band argues that that low possessed "many striking technical resemblances to the great bear market bottoms of the past."

"We're in a critical stage for stocks right now, what technical analysts call the 'right shoulder' of a head-and-shoulders bottom. The left shoulder formed on March 10, when the Standard & Poor's 500 index touched its closing low for the year (so far) at 1273.37. The upside-down head came on March 17, when the index broke to a new low intraday but finished at 1276.60, slightly above the March 10 close. Now we're sliding down again to complete the right shoulder of the pattern. If all goes well, the S&P should remain comfortably above the two previous closing lows. Then we can rocket higher in April."

[Slammer]

$SPX has retraced the 5 wave move down from 3/24 in a 3 wave move up to .786 as I write this. So far it's a triangle formation....A wave B up with Wave C down to follow?

[Upstart]

Each week gives more indication that the 3.3-yr. cycle bottomed. The March low was the end of a 2nd wave. We're in a third wave up. Final top in July.

[Eventhorizon]

In 15 trading days we have had 3 380+ point days on the Dow. Presumably the breadth will be 90+% again today. Has this happened before?

The dow is only off 11% from its high a year into what many in the finance industry describe as the worst credit crisis since the '40's. This just doesn't seem reasonable to me - have we really conquered the economy to the degree implied? So it's pretty clear that fundamentals just don't matter, which of course is part of EWP.

I figured "they" would be running the market up through all the shorts' stop losses from last week. They certainly managed that.

If you buy EWP, then how else can you count the action on the Dow since January as anything other than a flat? I can only see 3 waves up to 12768, then a drawn out 3 waves down to 11732 (alternation), and this recent ride up seems to fit ending diagonal wave 3. Today's surge shows bearish divergences in momentum which would suit a 5th wave with a marginal new high (vs last week's high). And everything is over-bought.

Presumably Zoran would say we are still in a corrective pattern, right? 11732 may or may not prove to have been a bifurcation.

Can anyone detail for me how to count this differently?

Sorry to ramble, I am a bit shell-shocked watching once handsomely profitable positions being ground back towards break-even.

[Eventhorizon]

I meant wace c not wave 3 in 4th para above.

[Ham Actor]

Eventhorizon I am with you. Good luck to all the botttom fishers. I took a caning by those looking at sentiment measures two or three weeks ago but all we have is a broad sideways move, albeit with some vicious rallies. To count 5 waves of the Jan low is poor Elliott analysis at this point until proven by much higher levels. What we do have is a series of overlapping 3 wave sequences since Jan. I'll stick with the bear, very happy to have slightly higher levels at this point but am not hanging out for new highs.

[Eventhorizon]

Thanks Ham,

I have been thinking a little about sentiment, esp. $cpc and $vix and of course, Investors Intelligence. I think that the way to use them is to take buy signals in an uptrending market and take sell signals in a downtrending one. By most measures we are in a down-trend (50day-200day cross, etc). What I am getting at is the bull cry: "the put:call ratio is at levels that have been great buys over the last 5 years so get long" and similar. Well that was in an uptrending market, if you take those signals now you are fighting the trend, probably better to use those signals to exit shorts for a better entry later.

Also I don't think it matters what levels these indicators have reached historically - hedge funds have massively increased the supply of puts in the market over the last 5 years through their black-swan defying put-writing strategies. The markets for puts/calls and volatility indexes have changed.

Getting short about 5 - 10 days after a spike below 0.85 on the $cpc, or on the first stochastic cross-over after the spike has provided fairly good entries since (and including) the October high (though of course we didn't know the downtrend was beginning at that time). We hit 0.82 6 days ago (including today), and closed today at 0.9 - we could easily see an even lower value tomorrrow. So I think the bear may still be breathing ... just.

[Plain Ewaver]

Event, here goes my count from the top.

1 down from Oct 31 at 1553 (truncated fifth for SPX & Dow) to Nov 26
2 up more clearly seen in NDX
3 down from Dec 26 to Jan 23, aborted by the Fed
4 up does not overlap with 1
5 down from Feb 27 (28 for NDX) to Mar 10 at 1273 to complete impulse (A) down.

Impulse (A) down was 280 points. Potential targets for (B):

- within previous 4 is below 1396
- 0.382 retracement is 1380
- if (B) is counted as an expanded flat if should not go above 1378.

Therefore 1378 is my line in the sand.

[BBC]

Didnt Prechter once say the "line in the sand" for gold was $425?

[yelnick]

Event, Zoran used to think close counting of corrections as fruitless. He used more a Gann + Neely concept of seeing if the movement out of the corrective range was faster or slower than the prior trend. He was very focused on finding the end of a correction, rather than worrying over the wave peculiarities in the middle - but he adhered to 3 waves vs 5 waves.

In this case what is apparently driving the count is the overall de-leveraging of positions since last July. The first set of hedges went into gold and oil (and other commodities), and returned really well from Oct to March; but now those positions are unwinding (gold below $900, etc.). The deleveraging is long from over. The Fed's intervention in Bear was a seminal event of giving Federal guarantee to the shadow banking system which is outside the Federal deposit insurance universe, and outside the Fed's charter of agencies to monitor. May have even been illegal. But it has worked.

Watch the Dollar/Euro ratio closely. Now has double topped. Will it make one more run and top? Or is this it?

Point: the US Govt needs to back the Dollar with reality not rhetoric. When it does the Surge will be upon us. Until it does I expect a trading range in equities amidst deleveraging in debt.

[Eventhorizon]

Plain Ewaver:

Thanks for such a clearly delineated count. When you describe wave 3 as aborted by the Fed, do you mean that they were able to prevent the fifth wave down, leaving just 3, or that the fifth ended up truncated?

Yelnick:

So do you think Zoran would describe the last 15 days as evidence of a bifurcation, or just more of the same? Up close the move seems phenomenally powerful (but shorts panicking tend to do that) on a one year chart, daily, it just looks like horizontal congestion which favors continuation (i.e. more down).

What a crap shoot this all is, eh?

[Upstart]

When you try to analyze the larger moves internally that they must not break the "rules" and all of that - Elliott is just not a precise natural law like that. It's a guideline, to get to the truth of it. But you won't hear that from Prechter. Trying to follow it to the letter will not give you something definitive. Thus, the move from the January low to very early February will just as easily "perform" like a first wave up as anything, and from there to the March low can be an a-b-c. Maybe a long-time trader who's done a lot of Elliott analysis can chime in here and back me up. But I have read at least one professional contributor on Kitco say the same.

[yelnick]

Event, Zoran thought the fractal of markets was a thrust and a plateau. We had a thrust 2 weeks ago and a plateau. Classic Zoran model. Now a new thrust, which could continue tomorrow. The bifurcation is when a thrust goes beyond a prior trading range of a plateau/correction. Cleary the second thrust bifurcated the plateau of the first.

Is this a stairstep to a break of the range since the thrust of Jan23-Feb1ish? Such a potential can be gauged by speed. Theses two recent thrusts are opposite the drop from Oct to jan22. Question is whether they are moving upwards faster than the down? You can easily check with the slope of the down trendline vs the slope of these two thrusts.

BTW in the de-leveraging process we should expect to see many thrusts up in equities as short positions get squeezed, or thrusts down in the hedge markets of oil/gold/commodities. As we have been seeing.

This is why I think the trading range plateau off the drop to Jan22 will continue into May time frame. More needs to be worked off first. A great distribution is occurring out of leveraged positions and into new ones. The last 3 months will be seen in history as a rotation period.

Whether we collapse or surge depends a lot on what we do with the Dollar. Prechter can talk of this as wave-based movements but underlying waves is human behavior in a mass sense. Zoran thought a move could go either way during periods of chaos (plateaus) due to underlying decisions and actions of the real world. Our policy makers could screw the pooch or show wisdom.

[TObject]

EWI on Asian markets today(04/01)
http://yorbatv.ning.com/profiles/blog/show?id=2014856%3ABlogPost%3A1905

[Omega]

Yelnick,

Can this really be happening?

http://market-ticker.denninger.net/2008/04/off-reservation.html

[Plain Ewaver]

Event, it should have been "terminated", not "aborted". To make it clear, wave 3 would have been bigger if the Fed had not cut rates. Because of their intervention, v of 3 was extremely brief (just the first trading hours of Jan 23) and barely surpassed iii of 3.

To be honest, the concept comes from Tony Caldaro's March 21 weekend update:

"in this bear market the FED has certainly had a tendency to terminate waves, both uptrending and downtrending with their intervention. In example, in the summer of last year, while the bull market was still ongoing and correcting, the FED intervened on an options expiration friday with a surprise 50 bps discount rate cut. The correction terminated that day. Then the FED cut another 50 bps at the FOMC, and the market soared to all time new highs in October. While the market was pulling back in October, it rallied into the next FOMC meeting. But the FED disappointed with only a 25 bps cut. The bear market started on that day! After the first leg down of the bear market, a rally into the December FOMC meeting followed. The FED disappointed again with only a 25 bps cut and the market collapsed into January. As the selling accelerated in January, the FED intervened again with a 75 bps surprise rate cut, their largest yet. The downtrend ended that day"

[deacon]

1378 SPX (the .382 fib of 1257-1576) paused the run as it hit the exact time QQQQ hit 46.00 round number...right now we are on QQQQ 45.53 (the .382 of 41.05-52.78)...the april unemployment number is known for a high +150 ave adjustment on birth/death model, perhaps why bulls won't let it go down thus far today...neely tried to short euro late last week:
(http://www.traders-talk.com/mb2/index.php?showforum=45)

[deacon]

thats +150K ave. april adj. on the birth/death model, so perhaps it will be easy to beat the consensus for non-farm of -50K jobs created, i left out the 'K'... if the two open gaps on SPX below are not going to be filled(participants certainly had a chance to run market down toward them with all the bad news this morning), then the open gaps are 'measuring gaps' and targets up to 1396-1425

[Eventhorizon]

Plain Ewaver - thanks for clarification, I thought that was what you meant.

I am fascinated by the overlap between various approaches to trading. I agree with Upstart above - to paraphrase: "the rules were made to be broken". (Correct me if you feel I have misinterpreted your post, Upstart).

So, Yelnick, if I look at the moves in the S&P since the January low, I notice the following:

1) the current upthrust (10.1 points/day) is weaker than the first upthrust (15.7 pts/day).
2) the down move from late Jan to mid march was weaker than either upthrust in terms of rate (4.5 pts/day) but covered more distance.
3) the down move was made up of 3 smaller moves in which the downward legs were stronger (15.9 pts/day and 9.4) than the upward one (5.1 pts/day).

So correct my reasoning here ... trying to apply Zoran's thinking ... the down move (Feb-Mar) failed because the second wave down to the low in March was unable to break out to the downside with more violence than its initial wave down (early Feb).

Applying the same thinking to this current up-move ... so far it has not broken the range, and even if it did it would likely fail because its momentum is weak compared to the first thrust up (late Jan).

Is this along the right lines, or do I have it totally bass-ackward?

[Eventhorizon]

Does anyone else follow MacroMan's blog - this is a guy who claims to be in the business of macro hedge fund trading. It offers an interesting insight into the thought process - If you haven't checked it out I highly recommend it. About one post a day, and a small group of commenters who alos seem very knowledgeable.

He posted the following data that I thought was very interesting: between March 1991 and March 2000 there were a grand total of 7 3+% up days on the S&P500 (less than 1/year), and in the up move from March 2003 to December 2007 there were exactly 0 3+% up-days, not a one. Now, between March 2000 and March 2003, when the overall market lost 38% there were 24 up-days of 3+% (8/year), and we have had 3 of them in the last 3 months! Take away what you will, but to me it says panicked bears make mcu more aggressive buyers than charging bulls! Or to look at it another way, this rally is behaving consistent with a bear market rather than the beginning of a new bull market.

I feel like I have hijacked this thread, apologies if I appear rude - just tell me to shut-up and I will!

[yelnick]

Omega, I find polemics like the one you cited a bit much, especially with the excessive highlighting of extreme statements. I think the Fed made a brave move to pre-empt a long and complex Bear bankruptcy, which would have frozen many parts of the capital markets. Whether this is an arrogation of illegal power that will keep spreading we will have to see. Both sides in situations like this argue It is a slippery slope! No it is not! What needs to happen is comprehensive restructuring of financial regulation. The Shadow Banking System must now be regulated because its excessives threaten the normal banking system. The history of financial scams and flim-flam make it clear that oversight is required to protect the public.

[yelnick]

Event, you have the right direction of analysis. The down-move from Oct to Jan was faster than the up-move since Jan23, with has had an initial thrust, a long plateau, and now two smaller thrusts up. Hence we have not yet bifurcated in either direction, and remain in a large plateau off the Jan22 bottom. I expect this to last into May. Then we shall see. In the deleveraging that is going on, the thrusts look like short squeezes.

[Ham Actor]

Still with you Event Horizon. I believe what we are seeing is a flat in the US markets whereas a number of other international markets are exhibiting irregular corrections. The rallies are diminishing in strength and sentiment normalising.

Yelnick I think the turn will come next week from slightly higher levels. May seems too late, but I'm open to it.

A break of the March lows and we will see Dow 10,000 in a flash. Sentiment will reach new extremes as it should as we pass the point of recognition. I mentioned a couple of months ago that there was no significant Bradley turn until June, but this has been overlooked. The bulls are very quiet out there.

An acceleration to the upside from this point and I'll roll over, however at this time I'll stick with the overweight of puts to calls

[Ham Actor]

An after thought. Have a look at the level of the Aug and Nov lows centred around Dow 12750 and S&P 1400. These have now become stern resistance. Time and time again as you step down in a bear market, following a break of the lows the market will come back to within the range of these levels and fail. We are at this point now. A five wave rally and consolidation above this point is required to be bullish, otherwise the market is doomed. I'm not seeing it.

[I. Sosceles]

Yelnick

In Bass tournaments you release the fish at the docks. Later, no one ever thinks about fishing around the docks where the bass were released earlier on. Your site reminds of this. YOUR copy is better than the people to whom you are referring your readers to. Anyways-----

We need to break out the log paper for a better read. We are in a long, lengthy plateau that some think will end in five years. (Do you have fifteen years to spare?)
Perhaps investors do not understand how debilitating a plateau is.
Ad nauseam:...a-b-c-x-a-b-c

[noam]

again th STU is the best counterindicator of the markets.1980's tools with fast mouving electronic trading of 2008 this is what EWI is all about.i do not understand how come they are failing year after year at all the fields and still in the market.two years ago when i was a subscriber the called 2007 "the year of the dollar" and predicted gold around 400$ and silver under 6$.i dont think i still have to add somthing.....

[deacon]

b/d model was +140k, but couldn't save the day on non farm(-80K) nor the miss on the unemployent rate(5.1%), so the big boyz pumping should end on the open, and the SPX should grind down to a low late next week(weird wollie week), then pop again op-ex week(same pattern as last month),,,why the boyz have been pumping, even to gap up ahead of the number today, probably due to at SPX 1257 there was 'record short interest' and 'record sideline money'...the death of commodities did not happen this week, due to crude oil holding 100 round number(now 104.77), but perhaps next week as today's numbers indicate recession will spread worldwide

[Rogue Poster]

I read the 4/4 STU and I have one pushback which I would like others to comment on. Steve says the following:

"It has been 18 days since the March 17 wave (1) low and the NASDAQ Composite has retraced 33% of the preceding decline to Wednesday’s high. The 100 index has retraced a slightly larger Fibonacci 38%, which is the same for both the S&P and Dow. So in terms of price, the countertrend push has arguably satisfied the minimum expectations for this move. However, in terms of time, and more importantly, structure, the rally does not look complete."

Now, my observation is that for the past six months the wave patterns have been left shifted in time, in some cases dramatically. So doesn't that beg the question then as to whether the "necessary" .38 fib retracement in the three major indices (no argument there) is not also a "sufficient" retracement.

And does that not set the stage for a resumption of the downtrend next week? And the start of the dreaded (I can hear you groaning already) 3 of 3? BTW, as a sidenote, Bob McHugh and Steve Hochberg rarely agree on anything. However, they both list 3 of 3 as the next most likely wave count. So I think this resurects that notion and gives it some credence.

Look forward to your answers.

[Rogue Poster]

BTW Deacon, re your previous post. That's what I see happening too. Namely grind down next week, pop in opex week, and then, possibly, the BIG PUKE taking us into May. Also open to other ideas about this.

[Rogue Poster]

Steve goes on to say "Thus, there must be at least another down-up sequence before the countertrend rally can be considered complete." So nevermind. That's pretty much what I was thinking as well.

Sorry about that. I've had way too much coffee today.