The Psychology of This Market

Crazy stories of a feeding frenzy in housing are what we should expect to be seeing nearing the top. Imagine: multiple offers, selling in a "blink of an eye", all cash offers - what gives?

After a bubble bursts, the snap-back rally carries with it a snap-back psychology. The irrational behavior at the bubble peak comes back, and often is even more crazy. You can look at market history and see the same psychology in 1930, when the powers-that-be were convinced the recession was over; in 1938, which is the closest analog to today (see chart, courtesy SlopeofHope); in 1974; and on and on.

This is not surprising. If it weren't occurring, something would be wrong, and the Obama Hope Rally would not be nearing an end.

The Bubble Echo psychology should accelerate from here. JP Morgan put out a series of recommendations, which include going into emerging markets - another bubble-era theme which has returned. Sumitomo put out a projection of the Dollar going to 50 on the Dollar Index next year and fading as a reserve currency - weak Dollar being another bubble theme, and this an extreme projection. If you keep your eyes open, you will see these Bubble Echo craziness all around.

Comments

[Virginia Jim]

What I’ve developed below is very elementary because there are well developed perceptions of volume and market movements. But I’m an amateur and I don’t know where to go to get the spot on research. And my problem was somewhat immediate and, possibly unique as I’ll develop below.

The Spiral Calendar speculation I posted September 25 and updated yesterday successfully predicted the significant pre run-up low July 11, 2009, projects that the markets will achieve a highest recovery high October 16, 2009 (tomorrow or Monday), a secondary high November 23, 2009 and the ‘resonance’ of the 1929 and 1987 crashes on December 10, 2009. It’s all numerology without any hint of causality. Take it for what it is. My posts yesterday and September 25 can give you the Spiral Calendar derivations of those four dates and why there are preliminary indications that it is replicating 1929 and 1987 in real time. If tomorrow brings a new recovery high, that will be another small bit of evidence the dates are working. Here’s what the implied fractal looks like when you correlate the “significant low” date for the three years:

http://www.screencast.com/users/Virginia_Jim/folders/Jing/media/88dea3e8-7981-4794-a069-ccce894771d5

For various reasons I believe December 10, 2009, should it occur, will be merely a severe continuation of what will begin in the next 2 weeks; theoretically, Elliott intermediate wave 1 of primary wave 3 of cycle wave c. That’s big enough to produce crashworthiness. In 1929 the first wave before the crash was a leisurely 10% and in 1987 the first wave was 17%. If that is the case, those 4 dates only give modest clues of ‘when.’ One clue is that it will occur after the final recovery highest high, October 16 (tomorrow) and before the secondary high, November 23, 2009. Carolan couldn’t get the Spiral Calendar to do better than that in 1929 vs. 1987.

I have other hunches but here’s one thing that struck me. Paul Tudor Jones’ quants (see the 60 Minutes documentary of PTJ), who were trying to identify the 1987 crash in 1986 were using 1) Elliott Wave, 2) a 1929 analog and 3) volume. [I assume PTJ was successful given that he's a multi billionaire now.] Well, I don’t know any Ellioticians that are bulls. The credible counts, er, the only counts, are counting the final days. Most have already been wrong several times (me included). From an EW perspective, this is the 17th inning of the ball game. And you have an analog above that is positioned based upon a spooky Spiral Calendar projection that has already proven one of the four dates true and is close to proving the second. So what’s left in the PTJ method to narrow in on the date? Volume.

If you take volume for the period from the significant low in 1929, 1987 and 2009 and look at it closely, just before the 1929 and 1987 crashes you’ll see a spike. I’m not talking about a mere 25%, I’m talking bigger. Here’s a small part of my worksheet. Take a look at the volume spikes highlighted in pink:

http://www.screencast.com/users/Virginia_Jim/folders/Jing/media/3297932d-6eba-405e-80d2-f60119371a8f

If I showed the entire spreadsheet, you’d see that I went back to the final ‘significant low’ of that year and computed various measures of the percentage increase or decrease in volume each day, each day divided by the ten day moving average, and a two day moving average divided by the ten day. It mostly works out the same but using a moving average gets rid of some one-day wonders. Yes, there were a couple days that volume increased over the previous day by more than 25% but never as much as 30%. When you look at the two day MA divided by the ten day, those abnormal days became less than 20%. That was not true in the closing days before 1929 and 1987 crashes. In both years, those pink highlights show extreme increased volume. In character, 1929 is different than 1987 because there were several days of ‘crashworthy’ decline proportions. Hence, several more pink boxes. But the point is clear to me. If volume spikes precipitously in the next two weeks, you’d better watch out.

I don’t expect there will be much warning if the Spiral Calendar dates are correct; a very big “IF” that might be clarified in the next 2 trading days (see my prior essays). But volume's the only clue I will have if this first wave down (which is equally a big “IF”) occurs. In an ideal world, we’d have a new recovery high tomorrow on elevated panic buying or short squeeze panic fervor with one of the OPEX of old’s reversal down; a 40% increase in volume on an outside down day. That, to me, would be a clear sign that Monday would be a tough day. For entirely independent reasons, I’m looking at October 26.

Regardless, if tomorrow is a new recovery high (implying the 4 dates are working), I’m going to be levered short by the end of the day. For me, the volume will be somewhat academic. But if you’re long and see a spike in volume in the next two weeks, you might want to recall those pre crash volume spikes in pink on the attached spreadsheet.

And best of luck to everyone,

Jim

[psycho_puppies]

This market is a joke http://www.businessinsider.com/high-frequency-trading-hits-the-daily-show-2009-10 ...literally.

[Account Deleted]

Hi, Jim:

You are very brave, and I hope you are right.

This morning the DJIA fell from yesterday's high and spent half the day tracing out a triangle. Then it broke out of it and thrust upward, completing 5 waves up in the thrust before market close. You can see the wave pattern below, by selecting the 5-minute chart:

http://www.google.com/finance?q=INDEXDJX:.DJI

Now there is another way to count this action, by counting a diagonal triangle, which are terminal waves in one larger degree.

Either wave count, if correct, implies a short-term market top tomorrow. It will be interesting to see if this is also THE top called by Jim. :)

[Buddy Glass]

Jim, for what it's worth, Carolan has responded to your crash article, and says we won't have a crash in 2009, but rather in 2023:
http://carolan.org/2009/10/1929-1987/

[min]

>>Well, I don’t know any Ellioticians that are bulls.<<

Jim, for real?

All Ellioticians you know are bears? At all time frames?

Boy that's something.

If complexity = success in effective Market forecasting you've certainly got a shot at being right.

Good luck I will be watching with interest.

P.S. I use Elliott and I've been bullish since March. You don't know me so I don't count but there's got to be more of us out there. Anyone here an Elliottician bull? I'm talking a real bull since at least July. I was hoping to be stopped out soon but if there are really no bulls out there this may not happen...

[min]

Yelnick;

Good article. Brings up some of the things I've been sniffing at. Problem is this kind of frenzy can go on for quite some time. I'm happy to let the market stop me out when it feels like it, this could very well go on till the end of the year...

[Account Deleted]

min,
can you post a wave count since mar /july

[min]

Vipul, for what purpose?

[min]

Disregard my last post. It doesn't matter. Can't post the wave count, but I can describe it.

On NDX:
Reference Point: Late Oct 2007=larger degree wave B top.
March 2009 Low = Truncated wave 5 of 1 of C
June 2009 top = End of A of 2 of C
July 2009 low = End of B of 2 of C
Early Aug09 high= End of wave 1 of c of 2 of C
Early Sep09 low = End of wave 2 of c of 2 of C
Late Sep 09 high= End of wave 3 of c of 2 of C
Early Oct 09 low =End of wave 4 of c of 2 of C
Currently wave 5 is unfolding
Wave c of 2 unfolding in an ending diagonal

[Account Deleted]

min,
just for a possible bullish wave count.
thanks for ndx.
though i dont track ndx, but it is difficult to count july 2009 low as wave B of a zig zag or for that matter wave A as impulsive.so maybe something else is going on there.
{and that the ending diagnol you have marked breaks down at above 2260 on the composite.}

how about spx count?

[Doroteo Arango]

Oct 16 is a cycle date.

[twitter.com/Frac_Man]

Today's Fractal Pair:

3m Parent Top for the SPX today --- it appeared at the close as usual ....

10/14 is the Child Top 1:12 pm

This fractal identification indicates a Market Turn ( Attraction Point )

Note: when the child precedes the parent, the attraction point is very strong

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman.

[min]

Well where exactly did you look Janet(?) Gartman(?)

[min]

Vipul:

Meant to post this earlier but my connection went down.

There are a few other counts I have for NDX none are text book perfect but it's been working to keep me on the right side so can't complain.

SPX is covered pretty thoroughly here. My counts are similar to some of the stuff I've seen and am not totally happy with any of them but in my case it doesn't matter too much.

I use E-Waves to give me an aproximate price projection and structure, then cross check with Gann, Delta, and Cycles — as Doroteo posted, to estimate time.

I don't Day trade unless there is a very fast market (like in 2008). I prefer little bit longer time frames, but 2009 I have been more of an Intermediate to long term trader. I had the perfect year in 2008 and didn't want to tempt fate.

As Gann says:

“Time is more important than price when time is up price will reverse.”

So I've been biding my time here with long NDX contracts and QQQ leaps trying to be patient and shutting out the bear noise as best I can.

Do you trade short-term moves?

If you do, I probably won't be of much use to you until this rally exhausts itself for real. And based on some of the other stuff I use, this trend could end this week or extend all the way to the end of the year and even spill over into 2010 a bit.

A lot of uncertainty right now which is why I'm ok with missing wave 1 down of the next leg down and won't go short other than a nibble here and there until wave 2 has clearly failed to make a new high.

Just too many cross-currents.

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman

[min]

Well, where exactly did you LOOK?

Don't just repeat yourself idiot answer the question

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman

[min]

I can't find evidence of your intelligence FARTMAN.

Where did you look?

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman...

[min]

YOU can't find any evidence because you're a dumb ass.

WHERE DID YOU LOOK?

[min]

So where did you look?

[min]

Yeah just like I thought, A dumbass and a liar as well. You reek of Doroteoitis

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman....

[min]

Too bad for you I don't give a Damn

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman....

I rest my case. liar.

[min]

Jan Diage is Doroteo Arango and he is upset because he got taken advantage of by Neely.

What a looooooooosssssseeeeerrrrrrr.

I think I'll tell your sister about your problem

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman....

I rest my case. liar.

[Virginia Jim]

Update on the 1929-1987 Spiral Calendar analog.

Here's a note about the progress of the analogy. July 11, 2009,the "significant low" was successfully predicted by the SC analog to the day. Well, I didn't notice it but yesterday DJIA and SPX made new recovery highs that qualify, IMO, as evidence that the October 16, 2009 prediction was a "hit." Remember, any projection cannot be more accurate than the measurement interval, namely a day. The analog said October 16 so the "final highest high" before the decline is October 15, October 16 or October 19. We could make a further high today or Monday but after that, any new high invalidates the 'hit' and, likely, the analog.

Here's my chart for the analog updated the last 2 days trading:

http://www.screencast.com/users/Virginia_Jim/folders/Jing/media/07742629-a2d9-4b56-a3e5-83f0d23443c0

Today I received a gracious comment from Chris Carolan who could accept a high at this point but is dubious of a crash in December. I fully agree that December is NOT in character with historic crashes and pointed him to my 'rationalization' of how the crash begins earlier making December a continuation. Anyway here is a link to what Chris posted last night concerning the 192901987 SC analog:

http://carolan.org/

Good luck,

Jim

[min]

Gartman=Jan Diage=Doroteo=Some poor fool too insecure to use his real name sfter losing all his money and blaming everyone other than himself for it.

What a pathetic loser.

[min]

Keep hiding Fartman or you'll get stepped on some more.

[jskeelz]

To Jim (and other interested in cycles),

I attended a CBOE seminar back in July where I heard Allen Reminick speak. He does a lot of work with stock market cycles and forecasting. He was a great speaker and very impressive. He is predicting a turn date at 11/22 which ties in w/ your call of the 23rd. Also, he has a company called Blue Apple Trends, which makes automated trading softward. Right now they have a 90 day free trial going on. The program which trades in the shortest time frames, Trendsetter 3, issued a "sell at the close" order on the SPX for today. Thought you might be interested.

[Michael]

Virginia Jim - I worked for Paul Tudor Jones back in 1986. At that time ( leading up to the Crash of '87 ) he had a very small 800 square foot office on lower Broadway across from what was the Merrill Lynch building ( which he moved into later ). There was a receptionist, two gals working on an order desk, an attorney/compliance gal, and a few traders such as myself that he had hired to put into various commodity pits on the trading floor in #4 World Trade Center.

He only had ONE quant.
His name was Peter Borish and he came from a short career stint at the NY Fed. Peter did some number crunching for Paul, but I would suggest that if anything, Paul used a number of skills ( not just EWT or cycles from Peter's research ) to double the $150 million he had under management heading into the Crash of '87.

In fact, PTJ realized what was happening and jumped all over the "flight to quality" by taking a position limit in T-Bond futures that ( at the time were yielding 10% ) and underwent a HUGE RALLY that was extremely profitable to Paul and his Fund.

[Mamma Boom Boom]

Yelnick, Mish put in a plug for you, today. You should see a rise in the traffic count.

[Mamma Boom Boom]

So, Michael, you worked for Paul Tudor Jones. If true, that should have been interesting. What did you learn?

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM

I cannot find any evidence of your false claim.

Gartman....

I rest my case. liar.

Not a single evidence.

[Michael]

Ned - I learned a number of things from PTJ not the least of which is being a "two-way" trader and not falling into the trap of only being able to TRADE from ONE SIDE of the market, but both bull and bear trends. He also taught me a lot about how to size up sentiment in the market place.

Interestingly enough, my having been bullish during this rally ( which reminds me a lot of the move off the March 2003 bottom ) has irked some of the more infamous EWT bloggers on the internet... such as Kenny, Daneric, and Binve. I have been "booted" off their blogs for having pointed out the bullish technical case for the market, as well as their most dangerous "Pick the Top" and "P3 Cheerleading" campaign.

After a couple of months, I finally came to the conclusion that these people are merely "kids" on the Internet who enjoy massaging their elitist ego's in between their "day" job or college classes. They do not TRADE FOR A LIVING, and certainly would have been fired from any trading desk had they continued to be so stubbornly bearish and short for the past 200 SPX points.

It took me awhile to figure out that these "kids" have no idea what they are doing, have a horrible understanding of how some of the most BASIC and classic of technical indicators work, and are continually "fitting" indicators ( like VIX, $BPSPX, RSI, and MACD just to name a few ) to the price action that they HOPE and WISH to see!

Like youngsters that are full of "piss and vinegar" . . . these kids have far too great of an Ego to be successful traders because they are horrible at ADMITTING WHEN THEY ARE WRONG.

As Stevie Cohen points out so well in his "Market Wizards" interview, "My best traders are only right 55% of the time . . ." - - - one needs to be able to admit when they are wrong in order to be successful.

None of the Kenny's or Daneric's or Binve's of the EWT blogosphere have been able to show me that they are able to admit when they're wrong. In fact, they go out of their way to be "stubbornly" wrong because they (and their Ego) are so afraid that if they turn into a Bull they will actually wind-up marking the top in the market. That is how pathetically big these kids EGOS are! They actually believe that if they turn bullish, they will wind-up "creating" the Top!

The bottomline is that to be as WRONG as they have been for the last several months tells me that they DO NOT TRADE for a living. No one could be short for that long of a period and continue "beating the same drum" that they do. It's funny to see how they continue to post pretty charts, but these charts offer no VALUE whatsoever and offer ZERO capability of becoming an ACTIONABLE TRADING PLAN. If you don't believe me, simply add up how many times their "Primary" count has been thrown out the window for an "Alternate" count as the market has marched higher . . . week after week after week.

As a result, I find these "bloggers" and their one-dimensional P3 "cheerleading" cult to be tremendous CONTRARY indicators.

I believe that Paul Tudor Jones would tend to agree with me.
:)

[Doroteo Arango]

Min,

I have been with your mom the whole day...call her and you will see is truth.

Why do you claim that I am Gartman or Jan Diage?

Doroteo Arango

[Mamma Boom Boom]

Michael,

I've never followed Kenny, Daneric, and Binve. As a matter-of-fact, I've only ever seen one's sight Daneric. Nevertheless, I have been a half assed student of EW for probably 25 years. Have read all Prechters stuff and have Neely's Mastering Elliot wave. I used to be a regular poster on a Bulgarian EW sight called: elliott-wave-analysis.com, run by Alex Bezrodny. I ran my own site for years up till last fall, and had several good ellioticians posting there. I have developed several of my own proprietary indicators, non-elliot. And turned bullish right at the March low, only to jump out way too early.

But here's my question to you, as a bull: How can you count this rally as impulsive?

[Michael]

Ned - I don't need to be able to count this rally as "impulsive" in order to make money trading from the LONG SIDE and be a BULL.

I believe that your question is one that is more "academic" than practical when it comes to actually pulling the trigger and trading the equity market.

I've been trading the coal and natural gas producers from the LONG SIDE for quite some time, along with the some of the drillers like DO, RIG, HP, and PTEN.

While Ellioticians were fretting over wave counts and structures this past Summer, I simply concentrated on one sector of the market (energy) and took advantage of the excess liquidity ( and weaker dollar ) that has allowed for very strong uptrends in this sector.

Feel free to take a look at the Daily charts of ACI, BTU, CNX, CLF, or PTEN and let me know if identifying an "impulsive" wave structure in the SPX would have helped you MAKE MONEY in these stocks.

[Account Deleted]

min,
i am looking for a workable bull count .it can start from whenever.
i do trade short term in spx.but its rarely day trade.
i would actually like a long term count maybe on a weekly chart if you have one.

time is important and a neglected component.but it willnot be correct to say that it is more important than price.
its just important.and its really neglected.

[Mamma Boom Boom]

--TODAY IN HISTORY--
-Thursday, October 16, 1930

Editorial by T. Woodlock: Farm problem is not one of traditional farms that work year-round and raise most of their own food, but of the modern “money-croppers” who put all their land into single crops they must sell in markets they have no control over.

AFL Pres. Green predicts serious winter, economic distress in all big cities; calls on city authorities, business and labor groups to prepare to relieve distress.

White House is maintained by staff of 77, at cost of about $135,000 last year; cost of furniture was $5,000, coal $3,575, electricity $215.

Pres. Hoover reported in excellent heath by his doctor; weight stable at 188 pounds, contrary to rumors of recent 15 pound loss.

Market wrap: Stocks opened strong; bulls encouraged by large short position and increases in imports and rail freight loadings. Rally paused at the end of first hour on bad steel news, but was resumed in “vigorous style” about noon. Short covering grew more urgent as rally progressed; recently oversold stocks including Westinghouse and rails were up sharply. Bears made some afternoon efforts, but volume slackened on declines and market maintained good tone. Bond market higher; sharp rally in foreign govts., led by Brazil; US govt. very quiet, steady; corp. bonds rallied, including convertibles and second grade.

[Account Deleted]

Michael,
can you share what made you bullish.

[Mamma Boom Boom]

Michael, now I understand.

[min]

>>Why do you claim that I am Gartman or Jan Diage?

Doroteo Arango<<

Your sister told me plus both of you smell like ass

[jan diage]

>Your sister told me plus both of you smell like ass

vipul garg
Do not expect too much. Michael is right about stupid kids...

>min. i would actually like a long term count maybe on a weekly chart if you have one.

[min]

Vipul:

Understand.

I just haven't traded spx at all in 2009. so don't have anything useful for you at the moment. In countertrend moves I find NDX tends to lead up and often rolls over first as well so I've kept focused on it throughout 2009.

Time permiting, I'll take a look at SPX some more and if I come up with something substantially better I'll let you know. Sorry.

As far as Gann's quote, it keeps ME out of trouble, so it's workable for me to over emphasize it.

[min]

Jan/Doroteo you smell like ass. Go wash up

[jan diage]

>I've been bullish since March. min | Thursday, October 15, 2009 at 11:58 PM
>I just haven't traded spx at all in 2009.

I cannot find any evidence of your false claim.

Gartman....

I rest my case. liar.

Not a single evidence, even NDX.

[min]

Jan/Doroteo/Gartman you smell like ass. Go wash up