ZZ Top

Among my 2009 predictions posted on Jan 1 was this one: "A Hope Rally to Dow10500 (SP1100) by this summer."  Well, summer has gone but Dow10500 seems to have come - maybe by this Friday's speculative top date. 

Kudos to Tony C as the EWI count has now joined his: the wave action since Jul8 has now broken into 7 waves (see chart, courtesy EWI) which count best as an ABC-X-ABC double zigzag (ZZ). I had expected this - see the discussion of the double ZZ count in this recent post. 

Dow10K is one of those wonderful levels like Dow1K and Dow100 that seem to be hard to put in the rear view mirror. We hit it 10 years ago and lo and behold are still there. That sure makes the buy & hold crowd look stupid. If we match the 1966-1983 experience we won't get past it until 2017. 

To the irrationally exuberant (aka CNBC), new highs are around the corner! Curious that they noted today that we had crossed 10K fifty times since 1999 on a closing basis. Jim Bianco at BiancoResearch counts 1859 times intraday (source: today's STU). 

What this may mean is we hover around here a bit. The next target level is Dow10125 on Friday to hit the upper trendline on the chart, and then Dow10334 to hit the 50% retrace, a common level for a ZZ top. 

If the S&P breaks 1100 it will cover a gap down from last year (Oct3). The hard core TA folk have noted this for a while. Gaps like that *need* to be closed. A different trendline off the Oct07 top and May08 secondary top is right at Sp1121 today, the 50% retrace level. So as the Dow goes towards 10.5K, watch the S&P go towards the 1120 level.  Again, a 50% retrace at Sp1121 is an expected level for a zigzag correction, and a good spot for the fat lady to sing at the ZZ Top.

Comments

[Michael Locker]

I don't think the buy and hold crowd looks stupid. For one thing, many buy and holders essentially entered the market more than ten years ago. For another: Dividends haven't been high but they've been about as good or better than bank accounts.

That said, I look for a crash/market shutdown/hyperinflation/economic catastrophe scenario eventually. Maybe in twenty years or so.

[chartman]

This advance has serious momentum and there are no serious divergences visible in the longer term picture. I would not see surprised to see this baby plough right through the 50% retrace. Something's at work here that I don't think any of really comprehend with the traditional claim that there "has" to be a C wave in the immediate offing.

[chartman]

.. and how many op-ex fridays since march have all the bears been on their knees praying for PRIMARY 2 to end...LOL

[edwardo]

Chartman wrote:

"This advance has serious momentum and there are no serious divergences visible in the longer term picture."

I suppose it depends on how one defines long term, and "serious", but the The Aroon Oscillator is not confirming this new high and we also have a divergence on the weekly PMO as per Decisionpoint. This is not to say that the market can not continue higher. I expect it will, at least for the remainder of the week, but momentum is most assuredly flagging. I will also add that bonds appear to have put in a high earlier this month.

[Account Deleted]

It is a good thing to see bears silenced. I hate it when bears come out in force every time there is a downturn. At the final market top, there won't be too many bears left, as most of them converted to bulls after getting killed financially/emotionally and just capitulated.

Speaking of the market, there is an interesting dilemma. There are a series of momentum divergences but very little breadth divergence, if at all. So what does that mean?

My best guess (for now) is that we will have a nasty correction coming up that will resolve the momentum divergences. But this correction will also weaken the markets so much, that when markets recover to make a new high, serious breadth divergences will finally show up, along with new momentum divergences.

This is the only setup I can think of that will nicely fit into everything we have. If this really plays out, then the final top will probably still be weeks away, if not months away.

Question for my fellow readers: have you ever seen a primary trend reverse without serious breadth divergences (say in A/D)? Thanks for your comments in advance.

[min]

Jing;

If there is a "serious" correction, chances are good it will turn into a swan dive as people still remember what happened last year.

Be on the look out for a sideways or running correction to resolve the momo instead before more upside where you will then see the breadth divergences.

No guarantees but higher odds on this.

[Kallidromos]

Shouldn't the B under the W in STU's chart be a C?.
Frustration has strange ways of popping through sometimes.

[Al from Oz]

Remember I said previously that this 'bullish reactionary impulsive rally as part of the overall Bearish corrective rally could continue for another week or two, even a month or two', well on friday 7 August strong performance if the $SPX comes back to "kiss" its previous resistance oscilation at 1002.4 to 1005 level (above 1000 level) then the $SPX could explode to the upside with even more power than we have seen in the last month. This is the "4 bites at the cherry" and "'retrace kiss away" phinominon in concert at a whole 1000 point level which is unprecidented.
Notice we have just gone through 10K on the Dow, it took 4 attempts on the same day. I expect it to oscilate a little at this level. Its a conventional pattern in whole 10 point or 100 point level that we saw between 2003 and 2008 on most Bullish markets. Add to that we are at a very signifigant whole even 1000 point level, not just a unit 10 point or 100 point level but 1000 pointlevel and we could see an extreamly powerfull but short lived rally to the upside $SPX 1045 Points (5% move) or $SPX 1149 Points (15% move)
Bear in mind due to the continuously high volitility readings we are seeing and have constantly seen over the last 2 years there has been no sign of abaiting volitility let alone capitulation so the Major trend which is DOWN is still DOWN as we have not seen these manditory signs. That being said for the moment there is a consolidation of powerfull bullish allignment happening from many different sectors. If I use Joe DiNapoli's DiNapoli Level analysis (because its the quickest "ball park" manual (calculator) based analysis method to use on these minor trend patterns.

The $SPX 9th March '09 Interday Low of @ 665.8 points as Point A
The $SPX 12th Jun '09 High of @ 946 points as Point B,
and the $SPX 10 July '09 higher Low of @ 879 points as Point C,

Then we can project a contracted objective point (COP), an Objective Point(OP) and an Expanded Objective Point (XOP)
COP =.618(B-A)+C which = $SPX 1045 Points
OP = B-A+C which = $SPX 1149 Points
XOP = 1.618(B-A)+C = $SPX 1315 Points

Look at the ludicrous volitility on the day after the SPX closed on SPX 1045. It was huge.
SPX 1149 will be the same.
Dont let any nincompoop tell you we are at the end of the "manic depressive market phase" . http://money.cnn.com/2009/09/28/markets/thebuzz/index.htm
Just watch the stupid increase in volitility again as we get closer to 1149. Heaven help us all if we should get an explosive bloww of tops move after 1149 to 1315. Its a long way from 1315 down to below 665.

For anyone who doubts just go to the home of the Dow Jones log in and scrutinize the historical volitility levels.
Map them on a time base if you want. The volitility hasn't washed out. Theres still lots of silly money that will get wacked.

[yelnick]

Kalidromos - yes, good catch. they have it as C on other charts

[Michael]

One of the "perma-bear" bloggers by the name of KENNY just blacklisted a poster whose last post was the following:

Today 12:46 PM
"Until we get impulsive action and high volume selling, the path of least resistence is still higher...screw targets..."

Aztrader

[teaf]

imo its really irresponsible to label this rally a 2 - as i said before we aren't going negative - the more likely scenario is a B, a D or a I

EWI doesn't even follow their own rules - the March low was a 3 wave move - can't be 5=1

[min]

Michael, where did this take place?

"One of the "perma-bear" bloggers by the name of KENNY just blacklisted a poster whose last post was the following:

Today 12:46 PM
"Until we get impulsive action and high volume selling, the path of least resistence is still higher...screw targets..."

Aztrader"

[twitter.com/Frac_Man]

The SPY already hit the 50 % retrace level

[dt]

Michael,

Please see the compliment & message that i left for you @

Tuesday, October 13, 2009
Dollar Gets to YE$. Fed Gets in a Box