A friend noted last week that the market seemed to be in an odd pattern, as if the program trading bots were scrubbing near the close and fleecing the small investors. Then this Friday Zerohedge provided the analysis to explain what is happening: The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans. As he is wont to do, Karl Denniger nails what this means:
"[T]he retail bag-holder, wind up with the shares at the end of the day, and the institutional and quant-driven "fast money" departs with your cash. When they stop their high-frequency "pass across the table" game, and they will, you find yourself with some very expensive shares as the floor disappears."
When will this occur? Back to Zerohedge:
That particular post also generated a ton of comments, some of which are worthless, but a lot of good criticism of the interpretation of the data and the conclusions.
Posted by: DG | Sunday, April 12, 2009 at 07:59 PM
Yves et al-
I addressed Tyler's post in my own blog and attempted to break it down so the average reader would understand it. (I did not realize the famous Denniger had done that as well...) In my post I referred to Yves' liquidity index as another sign of trouble. I would appreciate any comment in that regard as it has been a while since we have had an update.
Thanks,
Donna
www.donnaklinenow.com
Posted by: Donna Kline | Monday, April 13, 2009 at 05:42 AM
Does anyone follow the USD/JPY since it correlates with (or proceeds) stock market direction?
Posted by: Bob M | Monday, April 13, 2009 at 06:28 AM
Donna, yes my model has those players integrated and is one reason my liquidity index has picked up this enormous liquidity trap risk .There is also another intesting point to mention as I did before .This is probably one of those last attempt of the plunge protection team at manipulating stocks higher.I think this effect is phasing out and that big players are leaving the table now.For massive transaction on the repurchase and taf and pomo front we are getting a believable bounce but looks orchestrated to me.
Posted by: Yves | Monday, April 13, 2009 at 07:39 AM
Big U-Turn by Neely, now saying he's looking for much higher prices, even as high as 1000 SPX?
I liked him but he is losing credibility now.
Posted by: saahilcap | Monday, April 13, 2009 at 09:24 AM
I don't subscribe to Neely but I have felt for a while that his wave count was wrong and would require a local change. My count labels the flat beginning Oct and ending early Nov as an X-wave. This is followed by an expanding triangle that would conclude the bear market with legs as follows:
Wave A - begin early Nov and end late Nov
Wave B - begin late Nov and end early Feb
Wave C - begin early Feb and end early Mar
Wave D - begin early Mar. This wave should exceed the top of wave B set in early Jan.
Wave E - longest wave should take out the low set this year and will conclude the bear market
Posted by: gambler | Monday, April 13, 2009 at 09:35 AM
>>Big U-Turn by Neely<<
I had heard that. Can you be more specific, and tell us what he says?
Ned
Posted by: Mamma Boom Boom | Monday, April 13, 2009 at 09:48 AM
I think you guys are slightly misrepresenting or mistaken about what Neely is saying. He's saying that the count is ambiguous and we're in a zone where the NeoWave rules can't firmly rule out the alternative of a continued rally.
Posted by: DG | Monday, April 13, 2009 at 10:19 AM
neely is saying that the sentiment is not bulish enough for market to make a fall of the required magnitude..since the rally began off lows last month.. he has been uneasy about the count and the way market has been moving.. slower but persistently higher..so now he has provided the logical count alternative...
which for me works .. stocks show no distribution as of now .. market cannot fall till it distributes
Posted by: vipul garg | Monday, April 13, 2009 at 10:52 AM
Vipul,
Agree that he has been uneasy about the count, but neither of the other factors you cite (sentiment and distribution) have an objective basis that everyone can agree upon, so I would discount them as determinants of the current count. There is a pretty clear price-based marker of which count is active, as Neely's update shows. I am going by that.
Posted by: DG | Monday, April 13, 2009 at 11:06 AM
Vipul & DG !!
Can u please elaborate on whts Neelys latest alternate count at the moment on S&P500.And wht count is he favouring.IT all seems very confusing.
Posted by: Account Deleted | Monday, April 13, 2009 at 11:47 AM
I am looking on page 5-32 of Neely's book on expanding triangles and he classifies them into three versions: irregular, running and horizontal. Reading through their descriptions, I don't see how this particular expanding triangle fits into any of these three. I think the problem is that the apex of wave A is higher than the apex of either wave C or E. Does anyone else see that? Had wave A terminated below 943, then I could see it being a horizontal version.
Posted by: Tom | Monday, April 13, 2009 at 04:44 PM
Jayanth,
That count is similar to one I mentioned last week, except I had a neural triangle. (By the way, I think you meant Wave B ended in early Jan rather than Feb.) Neely requires the A wave of contracting and expanding triangles to be the most violent of the formation. This area of NeoWave seems to be somewhat subjective, but it might be met. I think his description of the behavior of a neutral triangle might fit the current market environment better:
Neutral Triangles are some of the calmest, most consistently behaving patterns under NEoWav Theory. If the market’s behavior and style is not changing much, even if the market is covering a lot of price and time territory, that is the environment of a Neutral Triangle.
Under either interpretation, we would be in wave D and the Jan high would probably be exceeded. The question then is whether or not we make a new low.
Posted by: Rich S | Monday, April 13, 2009 at 04:50 PM
Tom,
I think you have to go by the lengths of the segments, if it's a "descending expanding triangle", which is what it seems like Neely means. Even then, it's a bit odd because the maximum length of A is 204.51 points, although at its termination point, A was 167.71 points, and C was 202.83 points. This is measuring by cash SPX.
That said, I don't like having a Flat as wave A and I don't like having an expanding triangle X wave following an expanding triangle.
Posted by: DG | Monday, April 13, 2009 at 07:14 PM
I am looking at the neowave.com question of the week dated 11/5/2008. It states: “In all expanding and contracting Triangles, wave-A will be the most violent segment of the formation, even if it is the smallest in price (i.e., it should cover the most price in the least time from high to low, or from low to high). If this rule is not met, a Neutral Triangle is forming OR another non-Triangle pattern is underway.”
I am applying this rule to the various triangle options that I see discussed on this forum. There are three key options that I see discussed. All start with the movement from Oct 10 – Nov 4 that appears to be a C-failure flat.
Option (1) X-Wave / Expanding Triangle: C failure flat is an X-Wave. This is followed by an expanding triangle of which we are currently in wave D. This D wave will top out about 950-1000 and will be followed by an E wave that will set a new low.
Option (2) X-Wave / Neutral Triangle: Same as Option (1) but the X-Wave is followed by a neutral triangle. This count also puts us in wave D but it will top out at a lower level (perhaps soon) followed by wave E that does not set a new low.
Option (3) Expanding Triangle: This count has the whole movement since Oct 10 as an (X) wave triangle. The C-failure flat is wave A of the triangle. This count has us in wave E of the triangle and will be followed by another corrective wave sequence that will take us to new lows. This is Neely’s count from his Forecasting Newsletter today.
The way I understand the rule outlined in this question of the week, only Option (1) can be valid:
- Option (1) works since the A wave is the most violent of the expanding triangle.
- Option (2) may not work since the A wave is the most violent of the neutral triangle and this rule implies (but does not say) that wave A is NOT the most violent in a neutral triangle.
- Option (3) does not work since the A wave is the C-failure flat. This A wave is not the most violent in the expanding triangle. The B wave in this option is much more violent.
Of course DG has suggested that perhaps we need to look more closely at the C-failure flat. If I understand this point correctly (DG: please correct me if I have misinterpreted this point), it could be that the c wave of this C-failure flat is actually an x wave. Applying this thinking to Option (3) means that the wave a of the C-failure flat is actually the A wave of the triangle. This A wave is very violent thereby making this variation of option (3) workable.
Posted by: Tartan | Monday, April 13, 2009 at 07:37 PM
I am not misrepresenting what Neely said. He claimed (rightly), that the violent rally from the sub-700 low would turn everyone bullish, although it should top out in the 850 range.
That was a great call !
However, after he himself said that the rally would turn the masses bullish, why would he himself also turn bullish? Has the rally that he said would fool everyone, fooled him as well? Maybe his original call of a top in the 850 range, followed by a massive decline to new lows, is the right call?
It just seems that because of his new openness to much higher highs, he is falling into the same trap that he had predicted for other market participants.
Posted by: saahilcap | Monday, April 13, 2009 at 08:26 PM
Tartan,
That last part where you talked about the C-failure flat is correct. As I look at the chart more closely now, there's another possibility, which is that the c wave I was calling an x wave could actually be the b wave of an elongated flat B wave. The A wave of the entire triangle from October's low would only be 3 trading days, though.
One way in which the A could be the entire C-failure flat is if Neely means that the initial thrust of the A wave has to be the most violent move of the expanding triangle, which that initial thrust was, covering nearly 25% in the course of those 3 trading days. Since Neely claims that most patterns do not end at their high or low, this is feasible, although it could be spelled out in the QOW that this is a possibility, in which case the time differential issue would go away as well.
I'm still hoping that this "alternative" count ends up going away, but until we took out today's cash low, I wouldn't even begin to say that's happened.
Posted by: DG | Monday, April 13, 2009 at 08:41 PM
Neely labeled Wave A to include the entire move from Oct 10 to Nov 4 as shown by the red-dashed box on his chart, so that includes the initial 2-day violent rally.
The current rally looks like it's losing momentum, so hitting 950-1000 in the next week or two doesn't look easy. Within the context of how he is subdividing the waves, if we are currently in wave (c) of c of the rally off the March 6th lows, it would suggest an extreme extension of wave (c) or for wave (c) to further subdivide into another a-b-c, if I am reading him correctly.
Posted by: Tom | Monday, April 13, 2009 at 09:05 PM
However, after he himself said that the rally would turn the masses bullish, why would he himself also turn bullish? Has the rally that he said would fool everyone, fooled him as well? Maybe his original call of a top in the 850 range, followed by a massive decline to new lows, is the right call?
It just seems that because of his new openness to much higher highs, he is falling into the same trap that he had predicted for other market participants.
Posted by: saahilcap | Monday, April 13, 2009 at 08:26 PM
I think the key to Neely's openness to new highs has been the reaction to the 850 level. Without a decisive rejection of that level, price behavior remains bullish. For price behavior to be bullish at 850, that means the count might have to change. It looked like we were rejecting it this morning, but then price came back, although the move up was quite a slow grind.
I doubt that's the same analysis that is going on in the average market bull's head, though, so I don't know that Neely is falling into the same trap, he's just reacting to what the market is doing versus what he initially forecast.
To build on your "U-turn" metaphor, I don't think Neely's done a u-turn, he's saying that the road he initially thought went straight ahead actually has a fork in it and we will have to wait to see which side of the fork the market picks.
Posted by: DG | Monday, April 13, 2009 at 09:07 PM
Regarding the rule that wave A of a contracting or expanding triangle be the most violent, I think Neely only requires that to be true for part of the A wave. I could be wrong, but he's not very specific, and that's how I interpret it. If that's the case, then the C-failure flat works for his count. That move off the Oct low was probably the most violent move since 1987, with the SPX rocketing nearly 25% in less than 3 days! Also, with his alternate count, he seems to be forecasting a much less pessimistic outcome as well, with an ultimate low somewhere near 600 rather than 400.
Posted by: Rich S | Monday, April 13, 2009 at 09:50 PM
ha ha ha You silly(neely)wavers. Seely question of the week says neo wavers do not have more than couple of counts. and you already have so many. hahahahahahah....
Posted by: mark | Monday, April 13, 2009 at 09:50 PM
mark,
it's a news breed of wavers, called NeoStupidos.
They complicate simple things so nobody can understand them.
Than they say it's objective.
Only Elliott Wave Forkology provide the True path!
May the fork be with you, trader!
Posted by: Forkoholic Serge | Monday, April 13, 2009 at 10:09 PM
Tartan,
With both options 1 and 2, wave D is allowed to be shorter than C. So D can terminate anywhere between today's high and roughly 1000. In fact, Neely says the wave D is usually the longest of a neutral triangle pattern. Also, I don't see wave A's behavior ruling out the neutral triangle. It's been the fastest segment so far, but not exactly what I'd call violent.
Posted by: Rich S | Monday, April 13, 2009 at 10:13 PM
atleast neely wavers know when they are wrong as oppossed to other seely wavers and hence can position themselves accordingly..
anyways .. the market has to take or say waste 34 months which was time from highs to lows in the depression era..market needs to rule that out
so the X wave in progess since october and currently looks like an expanding triangle as per neely ,should actually become a combination corrective which current e wave followed by x wave and then a contracting triangle or flat.. will lead to alternation; consumption of more time ;and have a distributing pattern to it at the end ...
an analogy will be the current gold market which is in a slow declining x wave ..then a final distributon pattern to begin shortly
Posted by: vipul garg | Monday, April 13, 2009 at 11:47 PM
are you positioning up or down? hahahahaha..
Posted by: mark | Tuesday, April 14, 2009 at 01:32 AM
Whoever said "I don't go to flat earth sites" doesn't know how entertaining this site is.
Posted by: fred | Tuesday, April 14, 2009 at 02:19 AM
Rich,
I have wave B of the expanding triangle ending in early Feb because I believe the bifurcation point occurred then rather than at the Jan high. Also, wave B was a neutral triangle and the Jan termination doesn't give you a valid formation.
I think where wave D ends will determine if we have a neutral triangle or an expanding triangle. I use the enclosing lines of the formation to tell me what kind of shape the triangle is going to take. Even if we don't take out the Jan high but come close, we could still end up with an expanding triangle based purely on the shape of the formation although a purist might object.
There are other technical reasons besides NeoWave which lead me to believe that we will see new lows before the market bottoms.
Posted by: gambler | Tuesday, April 14, 2009 at 04:02 AM
no positions but positioning for a rally in s&p, gold and euro
i could not figure what the "hahahahaha.." was for .. must be a chuckle when one laughs at himself!!
Posted by: vipul garg | Tuesday, April 14, 2009 at 05:06 AM
Whoever said "I don't go to flat earth sites" doesn't know how entertaining this site is.
Posted by: fred | Tuesday, April 14, 2009 at 02:19 AM
I kan cleerly see vrom your inability to refrain vrom visiting dis site dat ur intrigued by das Elliott Vave but cannot undershtand it. U shood go shtudy it for fife oder ten years den come back venn u haff someting to offer. As uv now u haff nothink to offer dese nice people but ur stupidity, vich, although large, is vorthless.
Posted by: Austrian guy who diagnoses psychological disorders | Tuesday, April 14, 2009 at 05:13 AM
on s&p your master was wrong. on gold your master is wrong. Now gold will decline and you are positioning for a rally hahahahahah....
Posted by: mark | Tuesday, April 14, 2009 at 05:45 AM
on s&p your master was wrong. on gold your master is wrong. Now gold will decline and you are positioning for a rally hahahahahah....
Posted by: mark | Tuesday, April 14, 2009 at 05:45 AM
The sheer stupidity of this comment in breathtaking. Neely's being "wrong" still got anyone following his S&P recommendations since last October 400+ points and his gold recommendations around 200 points, although his Hourly recommendations on gold are negative by about 60 points.
Context is everything when your judging trading methods.
Posted by: DG | Tuesday, April 14, 2009 at 06:08 AM
Where are your track records, by the way, all you masters of the trading world? I'm surprised the super-secretive, masters of the universe hedge funds you all work at let you post on a message board with us mere mortals.
Posted by: DG | Tuesday, April 14, 2009 at 06:14 AM
--"SWISH"-- Downdraft scenario gaining strength!
Ned
Posted by: Mamma Boom Boom | Tuesday, April 14, 2009 at 08:09 AM
your hahahahahah seems to be getting bigger..!!dont ridicule urself so much mark!
'the master' says stand aside till wave count is confirmed.. dont trade on assumptions .. thats as true as it gets..
however i am positioned for a rally
Posted by: vipul garg | Tuesday, April 14, 2009 at 11:46 AM
So where's this market headed?
Posted by: fred | Tuesday, April 14, 2009 at 01:54 PM
Fred/Barney/Mark: I am quite interested in your assessment of the market. What is your wave count and where do you think we are heading?
Although I would really like to hear your opinions, I suspect that you will not provide them.
If you will not (or cannot!) provide any constructive input to this forum then I suggest that everyone ignore everything else that you have to say.
Posted by: Tartan | Tuesday, April 14, 2009 at 03:01 PM
Yelnick:
It is fine to have intelligent discussions, disagreements and questions with the various approaches that are covered in this blog. But the juvenile comments of Fred, Barney and Mark are anything but intelligent.
If they continue to be disruptive, then is there a way to block their contributions?
Posted by: Tartan | Tuesday, April 14, 2009 at 03:09 PM
Tartan,
People who think that Elliott Wave is supposed to make you the next Warren Buffett don't really understand much about trading, from my experience.
Posted by: DG | Tuesday, April 14, 2009 at 04:44 PM
Tartan, yes it is possible. I have reserved that so far to offensive comments, not juvenile. Best to just ignore and keep to the main threads of conversation. But I will be more attentive to bashing. If bashing were at least witty, it would be ok to lighten up the discussions; but mindless bashing just clogs the page.
Posted by: yelnick | Tuesday, April 14, 2009 at 05:24 PM
BoB
Think Dollar/Yen will reverse from around 105 levels to try a last leg to 85-90 before reversing hard in a major C for 160!! Could be a long term Head and shoulder reversal. Seems to fit in with the last leg of fall in equities that many seem to anticipate.. The Stg/Yen already seems to have reversed the major decline. So a dollar decline alongwith the last down leg in equitites might do the trick
DG
Could you take a look at Dollar/Yen with a Neely perspective and throw some light on the long term counts. BTW ignore Neely bashing. I think his calls for last 1 yr or so (since I have been tracking them) are nothing short of brilliant. Earlier I used to ignore his counts becos I found them too complex but nowadays trying to learn his methods
Keep up the good work Tartan/Jayanth/Rich/Vipul
Cheers
Posted by: KRG | Tuesday, April 14, 2009 at 10:51 PM
Tartan,
Also, wave B was a neutral triangle and the Jan termination doesn't give you a valid formation.
This is interesting because Neely's alternate count has the Jan high as the termination of wave C of the expanding triangle. Also, wave B of a triangle can't be a contracting or expanding triangle, so I doubt a neutral triangle would work in that position as well. Do you know of any of Neely's writings that indicate otherwise?
Posted by: Rich S | Wednesday, April 15, 2009 at 12:37 AM
Free Fractal Week ( one week only )
4/14 to 4/21
[email protected]
Hank
Posted by: Hank Wernicki | Wednesday, April 15, 2009 at 03:34 AM
Rich,
It was actually Jayanth that said: "wave B was a neutral triangle and the Jan termination doesn't give you a valid formation". I also found this comment very interesting. I very much appreciated Jayanth posting this count because it got the wheels in my mind turning thinking through various scenarios. In the end, I am not sure that it works for the same reasons you provided.
Jayanth,
Over to you...
Posted by: Tartan | Wednesday, April 15, 2009 at 04:48 AM
KRG
160!! wow!!! That would mean a HUGE rally for the stocks.
Posted by: elskid | Wednesday, April 15, 2009 at 05:37 AM
I hope that Yves is right, this market doesn't need to head higher. We need deflationary cleansing IMO, even if it is ugly. Then maybe down the road the American people can operate with some economic sanity. But if monetary policy is such that they simply will spend and create enough dollars to inflate all prices, then the precedents of the past simply don't matter. Obama and company have certainly made it appear that their policy is reflation at all costs. Whether they have enough measures to do that remains to be seen (and to what extent they have taken those measures I'm not privy to). Neely is right about sentiment, there isn't enough good will to sustain anything, but maybe higher prices and the illusion of wealth would. Polling, which I am skeptical of, shows that a vast majority believe in the administration's ability to turn things around. We shall see whether they put their money where their mouth is. Good luck to all and thanks for your views!
http://traderpro.wordpress.com/
Posted by: Traderpro | Wednesday, April 15, 2009 at 06:29 AM
My best guess is that gold and stocks are at lower levels in a year's time but I have practically NO confidence in that guess and I don't really know why I have that opinion, other than I just pick up a vibe that most people think the worst is behind us and we haven't had a really big washout since 1929-32.
Posted by: fred | Wednesday, April 15, 2009 at 07:31 AM
KRG,
Sure, if you can recommend or link to a data source, I'll take a look and post my thoughts.
I did something similar for crude oil earlier this year, using WTIC as my price series. So far, so good.
http://yelnick.typepad.com/yelnick/2009/01/will-the-real-market-please-stand-up.html?cid=6a00d8341c563953ef010536c70e89970c#comment-6a00d8341c563953ef010536c70e89970c
Posted by: DG | Wednesday, April 15, 2009 at 08:00 AM
Tartan,
Yes, that was Jayanth who made that comment. Sorry about that!
Posted by: Rich S | Wednesday, April 15, 2009 at 09:53 AM
7777 on the DJIA looks like a short-term line in the sand. it was last week...
after that the DJIA needs to get above 8,000 soon.
we are rapidly approaching Armstrong's April 19th turn date.
da bear
Posted by: da bear | Wednesday, April 15, 2009 at 11:40 AM