The Slope Of Hope's Monica Moment

Tim Knight at SlopeofHope got his wish today - Mother Market has set up one Sugar Daddy of a Bull Trap. He knows it, and yet he decries his excessive bearishness through the Obama Hope Rally. He calls it his Monica Moment - no matter how well he does from here on, that miss will dog him. 

Methinks he protests too much. If he plays the short tomorrow, he could make more than he lost on the way up. You can see from his Monica Chart how fast and far the market has come back since the fall (this is on a log scale), and how miniscule in comparison the recent drop has been. He wished on Friday for the Bull Trap Bounce today, and he got it. 

Yet Tim is a bit anxious. Monica Moments can throw you off your game. We bounced up about as far as we can for this to remain a wave (iv) with (v) down to come. The key levels to watch are Dow9666 / Sp1048 / Naz2094, the wave (i) bottoms. If we break those, then Scenario (2) is on. The drop from Sep23 to Oct2 will count as an X wave and we should expect a final zigzag ABC pattern to head over Dow10K and towards at least Sp1121 (50% retrace) if not Sp1228 (62% retrace). Tim will not like that, a second Monica Moment! Quite a bimbo eruption. And not deserved. Ah the travails of a trader!

But I think Tim can ease off his Wall of Worry. We should expect a top to become spiky, as this one has. The more troubling issue is that this pattern since Sp1080 is messy. Usually impulses down are more defined, and corrections messy, defined as over-lapping waves. Let me sort this out. 

I share a chart from Daneric to show the wave action in detail. He has adjusted his prior count of the drop off Sp1080 to get rid of an oddball ABABC pattern (a 3-3-3 is not orthodox) and replaced it with a flat (3-3-5), which starts at the right place, but I think he should have ended it and wave (ii) at Sp1070. In any event, his chart shows that the end of wave (i) down is Sp1048. This is my target to watch for, not Sp1046 as I have seen in comments to the last post. 

Two SP points should not make much of a difference tomorrow, but for you anxious shorts it may be huge. Tomorrow should gap down, especially because we closed right around a former support level which now is resistance (Sp1041), but the wave today may embolden enough latter-day bulls (day traders other than the likes of Tim, who is really good at what he does) to put in buy orders overnight, creating a pop at the open. So tomorrow may be a battle of optimistic day traders vs. skeptical institutions that plays havoc around the Sp1045-48 level. You cannot fool Mother Market, but she can sure fool you.

Looking at the chart, you can see how the wave pattern from Sep24 to Sep30 is complex and overlapping, and hard to count well. But don't be fooled by that. Here is my guidance:

• the two impulsive waves are easy to spot: the sharp drop off the Sep23 top, and the sharp drop on Oct1 (which started near the close on Sep30 and ended at the open on Oct2)
• the correction is also then clear: the messy annoying overlapping period in between is the wave (ii) correction, and is typical of a flat 

As a methodology, look for the clear patterns and ignore the messy transitions. Fill their count in after. 

It is critical to know when a clear pattern ends, especially if followed by a flat correction, since flats can have a B wave that goes farther than the prior end point, fooling chartists. Take a look at the period marked by Daneric as black v leading to the end of pink (i) down - it would be difficult to peg the endpoint any further out. The bounce after overlaps prior waves, which makes it corrective. In human terms, when the impulsive behavior abates, the wave wave has ended and something else started. When the pattern gets fuzzy, it has ended. 

This means that we will know if Tim got his bull trap tomorrow (or Wed) when the market impulses down.

Another possibility bandied about is the ending diagonal (ED) count. The final chart is from Tony Caldero and is his alt count for the Dow, not his prime count. It shows a possible ED forming since Aug17. An ED is a 3-3-3-3-3 structure with overlapping waves, and seems to violate a cardinal rule of Elliott Waves, that wave 4 cannot overlap 1. They only happen in final waves and are great news to traders like Tim, since he can take a contrary position with high confidence. They are rare, but we saw a couple last year just before two major interventions (Bear Stearns and AIG), suggesting they are creatures of intervention, much as fifth waves in triangles are often a spike caused momentarily by a news event. EDs can occur in fifth waves of impulses or in corrections as the final C wave. 

I respect Tony but think his ED is a stretch. It is expanding (see his blue trendlines) while an ED contracts as a wedge. The STU dismisses the ED in no uncertain terms: "none of the tenets of an ending diagonal are present (or were for that matter)." 

So let's drop that and fall back on two possibilities:

1. Scenario (3) or (4) is still on: wave (iv) is about to end and wave (v) is about to impulse down. Watch a break of Dow92523/Sp992 to confirm this scenario.
2. Scenario (2) is on: an X wave ended Friday and we are beginning a final zigzag up. Watch a break of Dow9666/Sp1048 to confirm this scenario. 

My bet rides on Dow9666 holding.  

Comments

[george]

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

secret meetings being held to end the use
of the u.s. dollar in oil trading
by saudi arabia and many other u.s.a.
friends.

[george]

http://www.cnbc.com/id/33179408

portfolio manager predicts the
dow will go to 6300 by year end.
he think the bottom will be
4200 on the dow.

[Mike McQuaid]

SPX is poised to continue the powerful rally of 2009. The March reversal coupled to corrections labeled at July 8 and Sept 2 outline the primary wave 3 currently running to continue for some time. The 3rd qt earnings season coupled to the markets obvious appetite for stocks should handily motor this rally higher.

[rc]

The link to the article on the dollar is interesting. How quickly the US seems to be falling.

So... is the dollar going to keep losing value and gold to move up (wasn't there a call today for gold to hit $1500?) or vice versa? EWI, as far as I know, has long been bearish on gold... weren't they bearish when gold was well under $400? Now it's over $1000 and I guess, any day now, it's going to go down?

Should one invest in cash -- and risk the continued loss of currency value and perhaps even a run or collapse? Or, go for Gold? In a few years, the answer will be obvious of course.

[Lazarus]

I have my money on the MMs who have cut their shorting in half.

[Jay]

Get out your binoculars. Nasa is bombing the moon this week. May see a large plume of debris from earth.

http://pottstownherald.com/water-found-on-the-moon-no-joke/1822/

[Doroteo Arango]

Where is Neely's boyfriend?

DG has been very quiet lately... is he having problems with his boyfriend?

Doroteo Arango.

[Genesis]

Too bad that you have not been following nor quoted Dr. McHugh.

He has been spot-on for some time.

He recently stated several times that the recent decline was not The Big One. He said that we have Wave E of B of IV - whatever all that crap means - before The Big Wave C.

He has also been spot-on about gold/silver and the HUI/XAU.

Go, Dr. McHugh!

[Mamma Boom Boom]

Last Friday, I expected a good 'pop' in the market. At this point, all price and time requirements have been met. Choose you spot to get short.

--Ned

[Pro]

Once again, the EW bloggers like Kenny and Daneric are sent back to the drawing board . . . These guys can't be TRADING THEIR OWN MONEY because if they did, they would have been totally Bankrupt since early August!

In my opinion, they DO NOT TRADE at all.
And that's the problem . . . All they are interested in is gaining fame and notoriety for calling the P2 top. They have huge EGOS. They are NOT TRADERS.

In fact, their blogs are huge CONTRARY indicators.
:)

[psycho_puppies]

Ned,
you could be correct. It appears the bears on every blog are freaking out so this could be it.

[former member of the cult in the process of being deprogrammed]

uh oh

what went wrong?

I think the crystal ball got cloudy

[DG]

Doroteo,

I post here less because I've got my own blog and I'm focused on making that a useful place for Neely subscribers. Here is what I said yesterday morning, when the count was less clear to me after Friday's move did not turn out to be an Impulse:

"Pre-market prices have us back at the top of the range that formed after the sharp drop to open Friday's cash session. A breakout above that could set up any number of scenarios, including a move to challenge the old high or make a new high. A breakout below it and perhaps that Reverse Alternation/Impulse wave count is right and we should get a very substantial move down."

I didn't go long, but clearly saw that whichever way the market broke out, it was going to move in that direction for a bit.

This is what I said Friday morning, in response to a question about my view of that morning's big drop after the employment numbers:

"I took about half off here[at 102-ish]. It's been a good week and I really don't want to press my good fortune and I think that one last run is still a very strong possibility for next week."

With the exception of that short position I'm holding (the result of a trade I haven't been able to get out of, but I'm OK with that for now because I'm confident the market is going to turn) I'm standing aside after nice gains last week. In this sort of Corrective slop, the best short term trade is probably to fade price extremes. I don't see new highs coming quite yet and any new lows should give way pretty quickly to bounces back up. As always, my view will change if the market forces me to.

So, say whatever you want about Neely, myself and NeoWave. The proof is in the trading and, as you can see, I'm having very few problems trading this market. Maybe that's because, unlike you, I don't waste my time posting immature messages on blogs, I spend it studying markets and trading set-ups. Just a thought for you.

[former member of the cult in the process of being deprogrammed]

I don't waste my time posting immature messages on blogs either. I spend it studying markets and trading set-ups and other really, really cool stuff that is NOT immature like you, you big babies.

DG and I are serious about this sh-t and if you really want to learn you'll admire us and give us respect because we know what we're talking about we've paid our dues and walked the walk.

So you're little baby blather doesn't bother us. In fact, it reminds us that we're leaders and like all excellent leaders sometimes our authority will be questioned by baby idiots who are uncool and don't know their Elliott from their b-ttholes.

[BC]

Speaking of EW followers who don't know Elliott from their b-ttholes . . . this is what Prechter had to say about the amount of people that are out there who are able to use the principles of Elliott Wave to accurately forecast:

Q: How big is the pool of analysts who rely on the Wave Principle?

RP: "I think there are quite a few people who are proficient in applying Elliott to past and present markets, say, perhaps 1% of all technical analysts, which is a pretty good number of people, I suppose. A lot of those are my subscribers, and they learned it through studying the Theorist. However, as far as the number of people proficient at applying the Wave Principle for forecasting market turns, which is significantly more difficult than applying it in real time, I think there are very few."

[DG]

Hey,

I don't make any claim to being someone to be "admired". As long as people's opinions about me don't affect my P&L, those opinions are non-issues. I'll post more real-time stuff as it needs to be posted. People can look at the track record and see if it is the track record of someone who knows what he is doing.

Since Doroteo and others whose sole function seems to be to criticize (we all know people like that in all walks of life. In real-life, we usually have the opportunity to avoid them like the plagues they are, but online we don't always have that luxury) refuse to post what they think is going to happen in the markets, it leaves them in the somewhat enviable position of never being wrong. However, they still have to live with themselves, which is definitely an unenviable position. That's the tradeoff they've chosen to make, though.

[Bird]

EWT is impossibly brilliant.

I have the distinct impression, well ok, half-baked idea (DI WOH-BI) that when Elliott wavers get together ON BLOGS LIKE THIS ONE, they can talk themselves into the mother of all bears, or the mother of all bulls, or even the mother of all volatility-lessness. Of course, they are in COMPETITION WITH "countless" other investors ALSO talking to themselves so as to reinforce themselves just by talking, which is really amazing if you think about it. The gazillion other guys are even better than E-wavers because they can count without using their fingers. The only conclusion possible to reach is that, regrettably, we may all be irretrivably moronic herd instinctive jackasses (IMHIJs).

I remember thinking, years ago, when Prechter first started to blow his forecasts BIG TIME, that the wave theory virtually demanded that he fail, because back in the early 80s Prechter WAS the market. He itched his nose and the market sneezed. The theory demanded that he FALL AND FALL HARD--BRING THAT MAN DOWN! (FAFHBTMD!).

This leads, again, irreversibly to the untestable hypothesis, that the wave theory would work best if someone "punched its lights out", which is to say, after we all go home dejected about how its all such horses--t, SO THAT NOW with no one watching but the guy sitting at his battered desk with a worn chart and a pencil, it can do some proper figuring.

I hope to God one day to take my own advice that when I have a REALLY good trading idea, I keep my *#&%ing mouth shut and not die penniless like poor Ralph.

[former member of the cult in the process of being deprogrammed]

DG and I agree. We have the balls and the brains and the trading record to put you p-ssies to shame! We rock this market and we are not afraid to show a little guts.

If you babies want to keep criticizing, fine. Just watch us make money. Sit back and learn and suck on your stupid big baby lollipopps.

Don't know squat about Elliott, losers.

[DG]

DG and I agree.

No, we don't.

[Hurst Cycles]

Strong rally is "left translating"
out of this Hurst 10 week cycle low.

In other words this rally is eventually Bearish heading into the 40 week lows.

[talent]

DG

Do not waste your talent. Not worth to fight with idiots, e.g. min.

[Upstart]

Hurst Cycles, what's the timing of the 40-week?

[Trader Ace]

DG is really cool at cycles and trading with Neely stuff so be careful who you pick your fights with guys.

I think Neely was wrong but he still has a track record that KICS A**.

[DG]

Pro,

And that's the problem . . . All they are interested in is gaining fame and notoriety for calling the P2 top.

Nice article on the need to be right vs. being profitable.

http://traderfeed.blogspot.com/2009/10/habitual-contrarian-traders-being-right.html

Today's rebound off the mid-day decline upped the odds of new highs, in my mind. I had been looking for specific behavior to signal more downside, but so far the market hasn't exhibited it. Although I am not taking it, a long with a stop at the afternoon's lows is a good risk-reward trade.

[DG]

DG is really cool at cycles and trading with Neely stuff so be careful who you pick your fights with guys.

Anyone can fight with me as much as they want. I might learn something in the process and if they say anything interesting, I'll reply.

[JJ]

It's great fun reading this blog since a few critics have come on board. I come back most days for a great read. Some bear sites are mega boring because everyone agrees the world is about to end. This site is turning into a real zinger. Fight-on guys.

[Wavist]

And there goes that one, as I said at the end of last last week the time to short The Top won't come before the Aussie goes to sleep for the night and sadly it remains up up and away...