Peak Rally

Let me go out on a limb and say that the rally is OVER. Today's sharp rise at the open to SP1040 and Dow9630 marks the top, and is sufficient to satisfy the wave count for a minor wave 5 to complete the second zigzag.  If I am wrong, it won't be by much; the next most likely stopping point is Dow10330, the 50% retrace, which is a mere 7% higher.  

We have seen a pattern of a sharp rise in the last two days of a month, and a continuation in the first two of the new month, so perhaps we see a final pop and drop next week.  The sharp drop off the morning peak today, however, casts doubt on that scenario. In general, if the move down is as fast or faster than the move up, it can confirm a change of trend.  More likely if we get any pop in the first few days of Sept, it will represent a last attempt to approach today's highs before the fall, and should not retrace more than 61.8% of the drop today and its possible continuation down Monday.  

Today's flurry of Prechter Prognostication agrees. The STU tonight lays out the detail of the case for a peak. A special EWT today said we have hit their idea range for the retrace (into the wave 4 of the prior 3 down, or SP1040 +/- range; and are close enough to the Dow9654-9794 range).  The monthly EWFF gives additional reasons for the peak: the second zigzag from Jul8 to Aug28 is at 62% of the first from Mar9 to Jun11, a common ratio for an end; and the TRIN (a sentiment index of advances/declines over up/down volume) is now as low as at the Oct9, 2007 peak.  Key levels to watch to confirm the peak are a break below SP1016/Dow9460 (recent minor wave 4 low of Aug27) and SP978/Dow9122 (wave B lows on Aug17).

Another indicator is from these charts, courtesy of Marty Chenard's great StockTiming blog, also reprinted here. He is looking at new daily highs on the NYSE.  The first chart (above) shows 2009, where daily highs started to pop up then faded and are on a decline.  Indeed, overall market volume has dropped for the most of this rally, and the upside volume has dramatically focused on just a few financial stocks, led by the government-backed Fannie and Freddie basket cases!  

The second chart (to the right) shows what a real rally would have looked like; in 2003 daily highs increased and went to very high levels, substantiating a major low was in and a huge rally was ahead. 

As the EWFF points out, with over 30% of volume in five zombie bank stocks, you know this rally is just lipstick on a few pigs.  It got even worse in the past five days. Thin volume on a narrow foundation marks a top. When pigs can fly! then markets will fall.

Comments

[Forkoholic Serge]

Fresh Prechter
http://forkoholic.blogspot.com/2009/08/fresh-prechter.html

[Mike McQuaid]

The '03 chart was a triple bottom while the '09 chart is a V bottom, revealing a big difference in the pattern. The '09 chart bounced off of the shallow 25% July retrace. My primary count has the SPX in wave 3 off the March reversal, that's a bull market.

[Mike McQuaid]

$TRAN daily is a chart painted with some cautionary signs: tweezer resistance Aug 24 & 25, upper band went flat followed by a 3561 low but bounced back to the upper band and now rides above the middle band. A middle band break could stall the bull or worse. The weekly shows a hanging man flanked by two spinning tops stalled at the 50% retrace of the '08 high to '09 low.
That's a bit sticky, yet if it were to break this resistance it'd be a bullish statement, hurry up and wait.

[MHD]

Yelnick.... there are many bearish signs out there, but one of the important ones I look at is copper. It usually turns down before economic numbers do and so far has shown very little price weakness. What gives? Is China still buying, causing the price to hold up?

[Miguel]

Not only copper, the dax seems to me to need one last small wave down and one up.

[KRG]

Miguel : I think time is ripe for a delinking of Gold with Euro/Dollar & Equities. Neely's updates also seem to favour this scenario

HAGO

[Miguel]

Hago: thanks , i did not know Neely favoured this scenario.But the action of yesterday may have opened the door and would be helped by seasonal factors supporting gold.
Now what would this mean fundamentally speaking?

[chartman]

I like the spx chart using the trendlines ( especially the one connecting the march o7 lows with the two lows in early 08). My work points to a slightly different result for the Primary B high: spx 110ish by late sept.
see chart in the link.
http://www.picvault.info/images/537092634_spx%20trendlines.jpg

[greed and stupidity]

>My primary count has the SPX in wave 3 off the March reversal, that's a bull market.

Mike McQuaid,

no one argues that this has been a huge rally. whether a bull market or bear market rally, it is about time to change the diction. isn't it stupid to rally at "better than expected" huge losses, and kept ignoring lagging indicators for months and months?

when do you think fund managers' greed will stop?

why do you think this rally will continue?

[McLaren]

Forkoholic Serge

I read McLaren's daily updates for several months now. Although I was impressed by his calls some time ago, McLauren did not have clear idea these days. He is generally pessimistic about all the reasons behind the rally.

[Hank Wernicki]

A Parent Fractal Top for the NDX is developing.

I would expect a big gap down. Stop is 1648 cash.

[Mike McQuaid]

greed & stupidity, I think the rally will continue because of the content in my posts, I always list my reasons, just read them.

[doubtful]

Mike

Not very convinced of your contents in your previous posts.. you just listed multiple indicators - shooting star, elliott wave, moving average, regression, breakout, etc.

Your logic not to trust Precther of elliott wave and Neely of neowave, but to trust your wave count does not seem logical either.

Your lack of fundamental explanation adds more doubts.

[Mike McQuaid]

doubtful, I give fundamentals about a 10% weighting in my analysis. Fundamentals for retail investors/traders is a one way ticket to the poor house. If I had a research staff of 100 experts I'd use fundamentals.

[Mike McQuaid]

Ok men glut yourself with doubt, here's what I see. SPX daily "hang ten" view, currently we're stalled at 38% retrace of the '07 top to '09 reversal. Two periods since March reversal of only 25% retrace, that's very bullish, this index does not want to go down. The path of least resistance is up. We're sitting just above 127% of the January to March selloff. Charts don't stop at 127%, 161% is in the bag. That 161% line roughly matches the June high to July low 261% line, a cluster, a doubt weakener and thats showing an affinity for 50% of the largest view I mentioned earlier. Yet this area is the intermediate top forcast.
Given the running correction wave 2 label at July 8 I've mentioned a dozen times this 3 wave is a gangbuster. So the golden mean retrace off the larger view is in sight at 1232.
Using a logarithmic spiral centered on the June high and starting on the July low the fourth ring goes to the same 1232 intersecting the top line on a pitchfork, that's the hang ten view at the top line of the pitchfork, it could jick around on the way to exhausting itself and not work to the top, we'll just have to watch. The lograthmic spiral served me well nabbing the 666 reversal off the first 5 wave decline at the '07 top on a 60 minute chart. The real point is use good stops, let winners run and trading is never easy.

[DG]

Two periods since March reversal of only 25% retrace, that's very bullish, this index does not want to go down.

This is a non sequitur. Another analyst could look at only two 25% retraces in six months and say, "This index is ripe to go down". In other words, this is not valid evidence for your bullish case.

[Mike McQuaid]

DG, you couldn't say it any stronger, for reading charts you couldn't fight your way out of a wet paper sack.

[DG]

Mike,

If you are going to make assertions, you need to bring some evidence. Simply saying, in response to my comment, that it shows I can't read a chart, is another non sequitur. Gonna try for three in a row?

[Mike McQuaid]

Yup DG, figure it any way you like, read your comments and mine in the blog archives back to April and then look at the chart. The evidence is on the table.

[Yeehoo]

Mike McQuaid has been pretty darned right on the money since he starting posting. He's about the only one whose advice has been reliable. Everyone else here has had some trips and falls, sometimes big ones that get you stopped out and stopped out and stopped out.

I don't give a henny-huckle in a pensack what method he uses or cycles he sees but he's damned sure twice the kit-and-kaboodle of my two cents, for what it's worth, and I'm hell-as-sure gonna keep on gittin' my ass in gear with whatever the hellsakes ideas come poppin' outa that boy's head!

Keep 'em coming, Quaid!

[Hooyeah]

By the way, that 161% line Quid talks about does roughly match the June high to July low 261% line in a cluster but if it were a bit weakener and without a hen's hatch worth o'ffinity for 50% then this running correction is sure as heck a wave 2 label at July 8 if ever I saw one.

The golden mean retrace off the larger view may be in sight at 1232 but a transverse, backward anti-wave impulse off the 3rd of 5 logarithmic spiral centered on the June high and starting on the July low the fourth ring goes to the same 1232 intersecting the top line on a pitchfork with a barrel of hay and two candles drippin' shitwax on a round head-and-shoulders upward butthrust. That's my back-o-the-envelope hang ten view at the top line of the pitchfork, and --like McMikey says, we'll just have to watch. The lograthmic spiral served me well nabbing the 666 reversal off the first 5 wave decline at the '07 top on a 60 minute chart.

Tradin' ain't easy, boys, but it sure is greasy. Like a hog in a bucket with a one-legged Injun for a mama. But, hey, I'm preachin' to the choir, ain't I?

[Serious Scholarly Elliott Dude of Science]

What? Can we please get back to talking Elliott in simple terms we can all understand?

Like a iii of 4 of BIG FIVE with a little extended truncated fibonacci flat triangle ABC with an x-y-z extension on the second vernal equinox after a Puetz window failed thrust with a Carolan Solumnar Scorpio configuration pitchfork spiral.

That's my best count, anyway.

[DG]

Mike,

You have been bullish and that's kept you on the right side of the trade. If you want to talk specific trades since the March low, I went long with Neely's recommendation in early March, about 20 points off the lows. Even though I've been more bearish than you and went short on the March 26-30 dump at SPY 79.05, I hedged all the way up to the June highs once we passed 81.08, so my net loss was about 2 SPY points all the way up. That is also in the archives.

Being right for the wrong reasons is just dumb luck. Enjoy it while you can.

[chartman]

LOOOOL!
The golden mean retrace off the larger view may be in sight at 1232 but a transverse, backward anti-wave impulse off the 3rd of 5 logarithmic spiral centered on the June high and starting on the July low the fourth ring goes to the same 1232 intersecting the top line on a pitchfork with a barrel of hay and two candles drippin' shitwax on a round head-and-shoulders upward butthrust. That's my back-o-the-envelope hang ten view at the top line of the pitchfork, and --like McMikey says, we'll just have to watch. The lograthmic spiral served me well nabbing the 666 reversal off the first 5 wave decline at the '07 top on a 60 minute chart.

[Miguel]

Yelnick; It would be nice if your excellent blog could introduce a function that allows forum participants to project their charts. It would make it much more readable.

[AJ]

Mike McQuaid

The thing that should concern you if looking for a wave 3 up is that the cycle analysis if looking to 2003 is likely to have now inverted - i.e. if we were traversing the 2003 cycle we should have seen base building through july august but instead we have seen a strong thrust up. With some medium term cycles rolling over, the risk of calling a wave 3 up is high - however, if the rally can go past the end of September then statistically EWI won't get their wave 3 down and your bullish prognostication might work in some form - EWI won't get their wave 3 down as we are in the up part of Gann's 5-year cycle (2-1-2) and a down move into 3rd quarter next year will set up a big rally into a peak in mid 2011 (wave b or 2 of an ending diagonal c). Given EWI view I am almost convinced we top in the next 1-2 weeks if not already and marginally break March low to have them all beared up and then imagine the surprise when the big rally comes late next year, proving them wrong yet again.

Unfortunately, it takes 70 years to work out whether a fund manager (or investor) is good or just lucky. So I will be interested to see how you traverse the next 12-18 months as many people mistook genius for a bull market in the 90's.

[DG]

Unfortunately, it takes 70 years to work out whether a fund manager (or investor) is good or just lucky.

We'll know if Mike's right when the time comes for waves 4 & 5. If they show up, he was right. If they don't, he wasn't.

[stubborn]

>that's very bullish, this index does not want to go down.

That's what it has been since March; things can & do change 180 degree.

The question is what signal/indicator will change your bullish view. My guess is you are as stubborn ...

[valerie]

The way charts are presented is rather ambiguous. In my opinion, the abscissa of August 2009 on the first chart should correspond to that of March 2003 on the second chart, given the correspondence of drops; hence the new highs of May 2003 are yet to come (in about 3 months).

[wave cycles]

45 day wave should peak this week

120 day wave and 90 day wave wont peak until October.

[min]

EWI calling a top adds to a strong case for an upcoming pull back and that we don't have a top yet.

A pullback into Sept/Oct then more upside is more likely.

[george]

it is clear what EWI is
thinking.
perhaps DG,Yelnick or
someone else can state
what neely is thinking?

[Mike McQuaid]

stubborn, one would typically read the chart and use their wave counts, candlesticks, lower pane indicators and divergences, main chart overlays, chart patterns, moving averages or what tools they're confident in to recognize a reversal. There's lots of ways to do it. Some things are more reliable than others. If we were counting wave 5 and got an exhaustion gap that'd be slick yet that may not happen. I won't be anticipating any particular signal, it's just a matter of reading the chart every day and not being stubborn.

[Mike McQuaid]

AJ, thanks for your comments, you made some good points.

[Derek K.]

Sorry, you make some good points, but like many of the bears, your theory is based largely on the lack of volume as the rally has continued.

please, do me a favor, and look at the average S&P volume back in the era you compare this to (2003ish). Notice how the volume even on breakout volume days was not even close to one of the "lackluster" volume days of August?

So, that begs a great question: Is buying slowing down, or are we merely returning to more normal levels of volume now that a huge rally is behind us? You say that large volume signified a big rally coming, well excuse me, but what do you call all the volume from January through March/April? More shares traded in that time period than in 2002-2004 combined man. Then a 50% move up. Is that not "huge volume signifying a coming rally??" lol.

AND, dont forget the 90% + decrease in short positions over the last 3 months. So thats billions upon billions of shares in volume now gone because those positions wont be covered. So sure we might be losing some of the gasoline that fueled the sharp move we had, when short covering would propel us to levels nobody expected. But that doesnt:

A. bring any new sellers into the market
B. Remove any true investors, traders or buyers from the market.
C. Mean the rally is over.

the volume argument totally ignores the vanishing short positions.

[Bird]

Mike McQuaid's comment about a logarithmic spiral comment intrigues me. But I think it is missing the time dimension. Gann squared price and time. Elliott expanded via the fibonacci ratio. These two concepts should be married.

The SPX shows a structure that gives first time to mid-September (and next high just above 1100). But a slightly stronger example uses the daily chart of the $DJI. If properly scaled (price increments of 10 per 100 bars), the low of March squares the July low.

This may be the basis for a logarithmic spiral in time and price, using the golden section to expand the structure. The low in August touches back to the first price expansion of 1.618 up, perhaps confirming the structure.

If this governs the trend to its end, it may imply that, longer term, the current upmove is not yet over (even if a pullback occurs now). Times for the end are mid-September and the beginning of Feb 2010, and/or a Dow price of 10,750. This being said, time can (somewhat rarely) invert, so if we do have a big move down, the Sept. and Feb timeframes remain relevant for the ensuing low.

[Trending Cow]

Has anyone done any meaningful insight involving the Baltic Dry Index (maybe you McQuaid?). I can't quite rake the archives of this one.

I love trending stuff and I use renko charting to help me understand some of the big picture. The BDI appears pretty well diverged here and hasn't looked back except for the twitch that started the rally in mid July. The low in the BDI coincides with the November low as well. The BDI should be sideways or slightly up here if we are to believe some sort of good recovery foundation supports this rally. I don't quite see it yet. It could turn tomorrow, but trend is down. Even the 50/200MA's have crossed which leads me to question whether a down leg is coming that will be a bit deeper than some expect. Food for thought as we discuss peaks an whatnot. The SPX rally fuel gauge is running a bit low it seems until a correction of some magnitude fills 'er back up.

[Mamma Boom Boom]

There's a story floating around on the web today, that basically boils down to this:

"Shares of C, FNM, and FRE have been accounting for about 40% of NYSE volume, recently"

(hows that for manipulation)

[Brian]

What's up with the Gold/Silver divergence today? (Monday)

[Edward]

no month-end rally.
we will see whether there is beginning of the month rally tomorrow.

[Mamma Boom Boom]

I am told that, Joe Granville just said on CNBC that market is going up for the next 2 years straight.

That should make the bulls happy!

[Edward]

CNBC
same o same o

[chuan]

Monday, August 31, 2009
Dow Jones Industrial Average (DJI: ^DJI)
Index Value: 9,496.28
Trade Time: 4:04PM ET
Change: Down 47.92 (0.50%)
Prev Close: 9,544.20
Open: 9,542.91
Day's Range: 9,436.13 - 9,543.06

High of 9625 done on Fri 28Aug2009 and low of 9440(lowest 9436) today Mon 31Aug 2009
--------------------------------------------------

Today's close Dow Jones Industrial Average (DJI: ^DJI)
Index Value: 9,580.63
Trade Time: 4:02pm ET
Change: Up 37.11 (0.39%)
Prev Close: 9,543.52
Open: 9,541.63
Day's Range: 9,459.40 - 9,609.72

I expect another 1 or 2 days rally towards Dow9680, challenging Dow9625 n Dow9690(?) set on 04Nov08 and 14Oct08 respectively. It should fail to breach/sustain, retracing to a double-bottoms around Sep1 n Sep7(9440-9450), before launching another upward challenge towards Dow9720-9750 on Sep14-15.

Posted by: chuan | Thursday, August 27, 2009 at 01:26 PM
--------------------------------

I foresee Chinese blessing around Sept 7 with Scripture launching (chuanching?) another fail attempt to broach/breach/approach/sustain fall to 9350.

Posted by: yuen | Thursday, August 27, 2009 at 01:56 PM

[Mike McQuaid]

BDI has a Dec to April lower trendline the bulls will want to see respected along with support at the peak in March. Since Decembers reversal it has a higher high and a higher low. The trendline and March peak support need to maintain for this pattern to endure. It's at a risky spot right now.

[yelnick]

miguel, yes it would be great if the comments could include charts! I do not think that capability has been added to typepad. if anyone knows how to make it work, lease let me know! I would love it too. I get great comments here.

[yelnick]

MHD, copper is a very sensitive leading indicator. My understanding is that its current movements reflect Chinese stockpiling. I will look for a deeper analysis of this and post. Great topic to explore.

[Tom CZ]

yelnick,

if you look more closely to recent relationship between copper and Baltic Dry Index, which is falling since start of June, you see it got broken. Supports stockpiling.

Tom CZ

PS No wonder, why chinese equities falling then.

[Mamma Boom Boom]

Last week I mentioned the possibility of an 'Island Reversal'. All conditions leading to that conclusion, have now been eliminated.

[Miguel]

DECOUPLING DOLLAR GOLD
After the first warning friday afternoon we saw for the second time a decoupling from gold and usd, pushed even more by strong silver and after initial weaker gold and stronger usd.
IS this the moment of truth?

[hey]

Neely says buy Gold

http://www.traders-talk.com/mb2/index.php?act=attach&type=post&id=12983