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Friday, November 06, 2009


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vipul garg

you emphasize a lot on the trend and rightly so.

what is the trend identification and trend following system that you use or have found to be of value consistently ?

i am surprised that you would have subscribed to neely /other ewavers uptill now, given your experience of trading for last 29 years and outright dismissal of wave theory.
still looking for the holy grail ?


Excellent write-up.

The 960 level you refer to is more like 957.50 and would be just above the top of Intermediate A back on June 11th. I think that stopping point would be consistent with what I refer to a pink (iii) of green (iii), ie. the 3rd of a 3rd. It is possible that level is reached in late November/early December, which would coincide with:

Robert McHugh's December 2 phi-mate turn date;
Tim Wood's trading cycle low of late November/early December; and
Carl Swenlin's 20-week cycle low of late November.

If that unfolded it would certainly put a damper on Thanksgiving and Black Friday!


Any rally in February 2010 would likely start after wave 1 down concludes; ie. pink (v) of green (i).


i am surprised that you would have subscribed to neely /other ewavers uptill now, given your experience of trading for last 29 years and outright dismissal of wave theory.

I was also surprised that he made a judgment about NeoWave so quickly. Anyone who has been running a trading P&L for 29 years should know that probabilities alone give you a good chance of having 6 consecutive losing months or even a losing year.


"what is the trend identification and trend following system that you use or have found to be of value consistently?"

Vipul, my system uses a number of moving averages on a monthly, weekly, daily, and hourly time frame that also uses first and second derivatives to confirm the trend. It is something that I developed with a friend of mine over a number of years. It is also highly quantifiable as well, producing actual statistical data on signals.

As for Neely, I was not looking for the "Holy Grail" as you imply. I was simply checking it out for a friend of mine who was wondering if it had any viable application to trading.

vipul garg

and what time frame trader are you predominantly?


I would like to be more convinced that the top is in, especially since I said to myself that it was, but the rebound has me worried, quite frankly. Not only do I not think that the pattern on the way up ended at exactly the high, but even if it did, the move down took 9 days and the rebound so far has taken 4. If we end the pattern where I ended it, it's 6 and 4. In NeoWave, the time relationship between A and B usually requires wave B be longer in time than wave A. Then, the initial move down was not an Impulse, so it's doubtful that we're in a Zigzag, and we're almost certainly not in a wave i of 3. I also think there's a good chance that we ended the move down at a higher low, which also implies market strength.

I'd love to see us go down, but as of close of business yesterday, the bounce, while it may have some weak characteristics on the volume and breadth side, is actually stronger than what I would have preferred to see on the price and time side, which is where I focus most of my analysis.

One thing I did like on Friday is that the Russell 2000 was a serious laggard on the rebound off the morning's retest of the opening low.

Stats Man/Also Ran

Puzzled. If the Russell 2000 was a serious laggard, that would portend a major move upward, no? Doesn't a lagging small-cap index tend to mean strength, new highs, etc.?

Also, we are entering the second week of November, which, when accompanied by a previous 10 day period that involved at least two 2% intradaily moves or greater in the Dow Jones Industrial 30 Average is ALWAYS dramatically bullish over the following 2 years.

Stats Man/Also Ran

One more thing: This may seem silly or irrelevant to many of you, but how have Prechter's bowel movements been? I am not trying to be gross or shocking or humorous. I am trying to correlate the relative softness of his stool with the VIX. I cannot establish cause and effect, of course, but it would be interesting to see whether there are patterns.


Puzzled. If the Russell 2000 was a serious laggard, that would portend a major move upward, no? Doesn't a lagging small-cap index tend to mean strength, new highs, etc.?

Not sure where you'd get that idea from. All things being equal, you'd want the index with the highest beta to lead the move upward, if you're a bull. If you're a bear, and looking for some bright spot in the move upward, the Russell's underperformance relative to the S&P 500 is one.


We have so many comparisons with 1929, 1937 and 1987. Many calls for a crash. Some like Prechter on Tech Ticker calling for a catastrophic crash. Let me reiterate that I respect Prechter's work, and credit should be given that he got the bear in 07 and the rally in Mar 09 right. Back to the comparisons, few have compared with 2003. There are many similarities: the V-shape rally off the lows, negative and skeptical sentiments about the rally, many calling it a bear rally that will revisit or penetrate the previous low, Fed blowing bubbles, etc.

Take a look at the charts to visually see the similarity, refer to the comments on websites, blogs to see the same sentiments and calls for crash. So far, all these have matched what is happening in 03, and the calls for a crash back then and now have only led to consolidations and a further rise in the market.


I believe that if the US hadn't created the weapons of mass destruction nonsense and invaded Irag in 2003 that there would have been another leg down in the bear market, and Prechter would have been right.

The bear market and recession in the eary 1990s ended as a result of the US invading Iraq in the Desert Storm campaign.

I am not suggesting that only another war will get the US out of its funk, but stranger things have happened.

I also believe that the bear market will not end until 2014 at a minimum and it may last until 2018.

There are several problems that remain unresolved and others still developing. To name a few:

1. Alt-A and Option Arm mortgage resets over the next three years will result in increased payments, more forclosures and lower housing prices.
2. Prime mortgages are now becoming a problem.
3. The consumer is becoming single-mindedly focused on paying down debt rather than spending money on things they realize they can't afford anytime soon, viz the $14.9 billion reduction in consumer credit on Friday versus expectations of $9.9 billion.
4. A looming $3.5 trillion commercial mortgage problem. Wilbur Ross was on CNBC earlier this week saying it is a tragedy waiting to happen.
5. An insolvent US financial system. 400 to 500 more banks are likely to fail.
6. The FDIC is already tapping into a $100 billion line of credit from the Treasury, who is bankrupt. More printing presses may be required.
7. An insolvent social security system.
8. An insolvent Medicaid system.
9. etc etc

I read somewhere this week that when the US deficit/debt and points 7 and 8 are taken into consideration, the US is $181 offside.

That does not take into consideration unfunded liabilities in state and federal pension plans.

We may be in a Grand Supercycle decline that will last for years.

I recommend members acquaint themselves with the sign posts of Kondratieff winter because we are getting further and further into it.


I omitted a word in the above post. After $181 the word "trillion" should be added. Not billion, trillion.


Keep an eye on a confirmed Hindenburg Omen. We haven't had one. As a consequence I do not anticipate a crash near-term.

In June 2008 we had a confirmed Hindenburg Omen and had a subsequent crash. We also had a confirmed Hindenburg Omen in 1987. Not positive, but we may have had one in 1998 when we had the brutal correction at the time of the Long-Term Capital Management debacle.


Rob, great posts there. I have been concerned of what you listed as well: mortgage problems, bank failures, debt issues, etc. I am also aware some have defined we are in the winter of the K wave. And as we know the winter of the K wave typically means an economic depression. Other than that, Neil Howe, who wrote the book, The Fourth Turning opines that we are currently on the cusp of a Fourth Turning. Briefly, this is a time of great turmoil, when society's basic institutions are torn down and rebuilt, and seemingly insurmountable problems are addressed. During Fourth Turnings, America engages in a struggle for its very survival and redefines its identity as a nation. Large wars are often a part of this process. The American Revolution, Civil War, Great Depression, and World War II were all features of past Fourth Turnings.

But the bottom line is, and the time bombs you listed also suggest - calls for a crash seems premature, 2010 is a more likely target perhaps.


P.S. As early as 2000, and in 2003, there were calls for the K-Wave Winter, Grand Supercycle declines, etc etc. But the world avoided all of it. Now, we have the same calls, negative, skeptical sentiments. It all seems very similar, as my earlier post says, doesn't it?


One of the reasons the market has been more buoyant than expected this year is the positive effects of the 10-year cycle which is now coming to an end, and the newly-rising 6-year cycle. The 30-year trend cycle being in decline is exacerbated by the fact that the 40-year cycle is also in decline. The final "hard down" phase for any cycle, regardless of duration, is roughly the last 10% of the cycle's length. The "hard down" phase of the 40-year cycle is equal to 4 years, ie. 2011, 2012, 2013 and 2014. The last 3 years of the current 30-year cycle, ie. 2012, 2013 and 2014, will encompass its "hard down" phase. The 120-year cycle will complete in 2014. The market will no longer have the benefit of the 10 year cycle beyond this year.
That will mean that the money supply regulators will have only one more major cycle to work with. The Kress 6-year cycle is still in its ascending phase until 2011, until it peaks.

The above references are based on articles Cliff Droke posted on financialsense and safehaven in January and July of this year. Cliff follows the cycles work of Samuel Kress.

Several months ago, Tim Wood stated that he expects the next 4-year cycle low to be in late 2011/early 2012. I haven't read or heard anything that has caused him to change his mind.

I suspect the latter part of 2011 and beyond is when the wheels will truly fall off the stock market and that may be when we see SPX 400 or lower.

In fact, Robert McHugh states that he sees some troubling patterns that suggest that some of the major stock markets could approach ZERO!


Rob, the pattern McHugh sees that suggests major markets going to zero is the H&S formation. He had forecasted a substantial decline when another H&S formation was completed a few months ago, so had many, including the talking heads at CNBC. The market never hit the target for the H&S. Instead, it rallied to new highs. In 2003, McHugh had forecasted the catastrophic crash that he is also forecasting now. From 2003 to 2004, he had called for that crash often, but the market continued to move up till 2007.

Virginia Jim

1929-1987 Spiral Calendar Analog update. The 1929-1987 SC Analog I’ve speculated may be occurring specifies 4 dates based on the 1987 event which mark monuments that may be occurring in 2009. Those four dates are computed based upon Chris Carolan’s incredible study “The Spiral Calendar” and the F25 spiral (an algorithm based on the 25th Fibonacci series number). The computation is simply:

[Ignore the date for the “First Bottom” because Carolan did not find that 1929 predicted the 1987 date for the first bottom.]

If you look at the implied fractal which is aligned on the ‘Final High’ of each year, you have the following fractal comparison:

The first two of the four dates have been accurate to within 1 trading day. Further, the market has declined as much as 7% in 2009 after that ‘Final High’. In 1929 declined 20% after the ‘Final High’ and before the ‘Lower High’. If the first wave of the decline (between the ‘Final High’ and the ‘Secondary High’) is only 7%, I would still consider the Analog in ‘rhythm’ with 1929 and 1987. However, my expectations, ASIDE FROM THE SC ANALOG, are that this first wave will be far deeper than 1987 and comparable to 1929, e.g. 20%. 20% would take the markets to roughly the July 11, 2009 lows. That’s my speculation, not that of the SC Analog.

So, if you look at the above chart, note that after each year’s green ascending trend line (the lower trend line of PERFECTLY formed Edwards and Magee ascending bearish wedges) BREAKS, price falls further before completing the first wave decline. In 1929 that further decline was substantially greater than 1987. I expect (again, not the SC Analog, but me) the decline to manifest in the next 2 trading weeks and then bounce from a V bottom into a secondary high at or near November 23, 2009.

That’s a severe drop in less than two weeks. It is highly improbable but IF 1) we are following the 1929-2987 SC Analog AND 2) it is following more closely the 1929 version, THEN a much bigger drop is warranted IMO. If it is working but prefers the 1987 model, then the 7% decline already achieved maybe that’s all there is for the first wave and the market goes sideways until after November 23 (not my preferred view).


Virginia Jim

Rob and Free, DOCTOR McHugh, will ultimately be right. But, IN MY OPINION, you may ignore his applications of supposed applications of traditional TA patterns and EW. I say this because he was WRONG about the July 11, 2009 H&S Top and even more recently he was WRONG about his "reverse H&S" with the head at March 9, 2009. I exchanged emails with DOCTOR McHugh and warned him that the latter "reverse H&S" which is based on the Head and Shoulders BOTTOM first identified and codified by Edwards and Magee was WRONG. The volume pattern should have a NOTICEABLY increasing volume to the right of the head per E&M. In contrast, the OPPOSITE is true; volume has declined very noticeably. DOCTOR McHugh informed me that he watched 'thousands' and H&S and that E&M were not the only authority on H&S. That "reverse H&S" had a measurement objective that McHugh touted for months as 1229. Didn't get there did it? At least, not yet. Epistemic arrogance.

His EW is just plain cuckoo too. I do like his Hindenburg and other indicators.



I have sent McHugh e-mails recently that he hasn't acknowledged either. I didn't subscribe to him back in 2003. However, in the summer of 2008 he provided a phi-mate turn date for September and warned of a pending crash. His September phi-mate turn date coincided with the start of the September/October crash/decline to the day.

In this weekend's newsletter he once again provides the math behind November 9th's phi-mate turn date, which coincides with the important Bradley model date.

I like his Hindenburg Omen work, phi-mate turn date calls and comments on the McClellan Oscillator.

I believe the July 2008 H&S pattern might have been activated and can't fault McHugh for the call. If you recall, the market continued to flounder after the July 8th bottom. On July 15th, just before Goldman Sachs earnings release, Meredith Whitney came out with an upgrade on GS and the market gapped up that day and never looked back. Her call is what turned the market around.

God help us if their is a similar call next week, particularly with Wednesday being Veterans' Day and will likely be extremely light volume.

McHugh comments in his weekend newsletter that there was a small move in the McClellan Oscillator on Friday, and there should be a LARGE MOVE in the market on Monday or Tuesday. This call on the MO never seems to fail.

Based on the 60-minute stochastics, he suggest that the SPX and DJIA may decline on Monday. His guidance for NDX and RUT is indecisive.


Daneric comments this weekend that he wouldn't be surprised to see the DJIA hit a new high next, unconfirmed by the transports.

Tim Wood has an update this weekend on Dow Theory on

Watch for a closing high above DJIA 10092.20 set on October 20. This is the key, not the intraday #.

Watch for a closing high above $TRAN 4045.11 set o October 21. This isn't likely to be hit even intraday in my view.


There are also others calling for the market to continue to rally, including Tim Knight over at Slope of Hope.

Schaeffer's warns of short covering and the market to move higher if SPX 1080 is exceeded. They view 1100 and 1120 as being resistance and 1040 as being support.

I have read that a break of 1040 activates the H&S downside projections. Mark Arbeter of S&P states that a break of 1025 measures to S&P 950.

Tim Knight (SOH) is adamant that the market will move higher from here into options expiration and is advising people not to buy put options. He bases his opinion to some extent on 21-day cycles. I have read someone else comment on th 21-day cycle this weekend.

Howver, Andre Gratian, who is a cycles guy, says there should be a cycle low on November 13th.

I think the market will tank into the 13th/16th, rally the week of OPEX and tank into late November/December 2, which are the dates I referred to above (McHugh/Wood/Swenlin).

Roger D.

Shabacker pointed out that in 1928-29 rise that pools were responsible for the dramatic rises in many stocks. The ensuing crash was the worst on record.
Looking at the parabolic advances in most of the market leaders one must think that pools are at work here. One of the interesting tells is that GS has not participated in the rally of the most recent bottom.
Also AAPL has made a historic advance from the march low possibly completeing a massive top. These parabolic advances in so short a time always lead to spectacular declines. These tops resememble commodity charts rather than stock charts.


I agree. Goldman Sachs, particularly, is the canary in the coal mine as is AAPL. Other key stocks to watch are JPM and FCX. I belive AMZN will push higher to $130/131 on Monday and it will come unglued.

Look for the US$ to rally and commodities to tank.

I have a feeling that the gold bugs will be quite disappointed in the near term, but I could be wrong on that one.

There has also been a lot of talk about the low AAII reading at 22% signaling more market upside.

I don't know how this poll is conducted. If they are including people who are unemployed, facing foreclosure or in foreclosure or have left the stock marketk forever, than no wonder the readings are so low. It strikes me that despite that reading there is a lot of complacency right now.


Daneric cautions about a potential upgrade of the financials to spur this market higher in one last gasp.

GE was upgraded on Friday with targets of $18 and $19, respectively, by 2 brokerage firms. Although the company is a bellwether, it is a dog.

Also AAPL was upgraded with a $160 target.

Meredith Whitney's upgrade of GS in July might have saved the market then.

God help us if there is an upgrade of GS as a result of "favorble valuation", when the stock is now in confirmed downtrend.

The BKX is particularly weak and hasn't even had a 21.4% retracement off its lows.

Given 5 more banks failed on Friday and another 400 - 500 may follow suit, how could anyone upgrade the financial sector at this time? Stranger things have happened!


Unfortunately no edit function. I meant AMZN was upgraded on Friday, not AAPL.


WTF does it mean when a stock that was $210 15 days ago is "upgraded" with a target of $160 - a 25% decline from recent highs?

I've got a tip for you - Put yer money on the Yankees for this year's World Series - solid gold, a lock, I'm tellin' ya. Now where did I put my bonus?


"Daneric comments this weekend that he wouldn't be surprised to see the DJIA hit a new high next, unconfirmed by the transports."

"Daneric cautions about a potential upgrade of the financials to spur this market higher in one last gasp."

Rob, I am puzzled as to why you would think that DANERIC has any credibility whatsoever in his ability to interpret Elliott Wave and apply it to trading the markets. The guy has been WRONG for many months now due to his "Perma-Bear" bias. He embraces one "conspiracy" theory after another and spends most of his time FITTING his technical indicators and misguided understanding of elliott wave theory to price behavior.

The guy even e-mailed me once and told me that he doesn't even trade. He admitted to me that he has a full-time job that has nothing to do with trading the markets and that he has NO SKIN IN THE GAME. His blog is simply for fun and a hobby. And now he's turned short-term bullish on the market?

Oh My God.
If that isn't a CONTRARY sentiment indicator then I don't know what is!!! A "Perma-Bear" turned BULLISH. Ding! Ding! Ding!


"Daneric cautions about a potential upgrade of the financials to spur this market higher in one last gasp."

Wow, a PERMA-BEAR that has now turned bullish on the market. If this isn't a CONTRARY signal, I really don't know what is. And all this from a guy that doesn't even trade for a living and has absolutely ZERO skin in the game. How peachy!


"Daneric comments this weekend that he wouldn't be surprised to see the DJIA hit a new high next, unconfirmed by the transports."

Rob, if you've spent any time at all following this young kid, you'd know that he has been subscribing to various "conspiracy" theories and spends a tremendous amount of time FITTING his technical indicators and misguided understanding of Elliott Wave to price behavior. The guy has been calling for crashes and a P3 decline for as long as Prechter has. In fact, some had opined that he is merely a portal for Elliott Wave International.

Lately, he's seen the number of people posting on his blog decline dramatically. I'm not surprised given how completely WRONG he's been week after week after week after week. My guess is that he will throw up a lot of "pretty" charts over the weekend and make some sort of splashy reference to Goldman Sachs being "evil" so that he can generate some web-activity.

The guy once e-mailed me and admitted that Elliott Wave was simply a "hobby" and that he had a full-time job that had nothing to do with trading. In fact, he went on in the e-mail to admit that he didn't trade at all.

And now he's turning BULLISH?

Wow, if that isn't a CONTRARY sentiment indicator, then I don't know what is . . . Someone please ring the bell!

Ding! Ding! Ding! Ding!


Don't get me wrong, I am not backing or endorsing Daneric and have observed that he has suddenly become somewhat bullish over the weekend, particularly with respect to the financials. I have tried to poke holes in some of what he says. The Wilshire 5000 has no hope of reaching the retracement levels he points out given the horrendous technical condition of the Russell 2000 and the BKX. Given the BKX hasn't even retraced 21.4%, he comes up with the theory that it is going to rally and lead the market higher. It strikes me that the BKX is simply a classic negative divergence.


Sorry for any confuson, eventhorizon. I clarified that it was AMZN not AAPL that was upgraded with a target of $160. It was AAPL that traded over $200, not AMZN.


Thanks for this post Michael:

"The guy (Daneric) once e-mailed me and admitted that Elliott Wave was simply a "hobby" and that he had a full-time job that had nothing to do with trading. In fact, he went on in the e-mail to admit that he didn't trade at all."

There's Prechter that suffers from "biasitis-gravis" 90% of the time, then there are those who suffer from "wannabeosis", both good examples of how you render an otherwise good tool essentially worthless.

That (Daneric) is a shame and I'm glad I stopped looking to paid Gurus to intepret what the market is saying.

It's not the tools, it's who's weilding them -yet another clear cut example right here.


IMO both Daneric and Kenny essentially recycle Prechter's view over and over again. Not much value from either of them.


Last chance!!!


back above the trendline.
dollar dipped below 75.
I am losing my patience.


No matter what, you got to respect Prechter for his bravery and audacity. Calling the turn on such short time window takes guts to say the least. He dares to loud his call as much as he can - free week, Bloomberg appearance, Barron's etc. Every blog follower on earth knows his count and in my naivete, I ask myself how such a widely advertised call could manifest itself.

Mike McQuaid

XLF dipped under 50dma at the July 8 wave label spot and then again Nov 2. So the March reversal and subsequent rally features running corrections with wave labels at these dates. Since March this market has only scooted sideways to correct, that's bullish. Invisible support roughly maintained since Aug at 14 & change adds to the evidence this market will wiggle higher.


Guys, The weak dollar and promise of an unending stimulus and 0% rates is all that matters. Period. the sky is the limit.

I know when somebody says this that you should watch out. but this time it will continue past the point of all expectations and reasonablness.


Mike, I agree, true, until...everyone believes it. Moderate weakness is bullish, strengh or increased weakness is bearish. What strikes me is the audacity of a couple of analysts following waves and creating...socioeconomics bla bla bla. Eveyone knows their thesis, it's not rocket science, too much credit, deflation, consumer on his knees etc. In some way they believe they can outsmart all the will of central banks, all the econometric models that see a different story. They ignore the tape and it some way they believe it will turn out the same way like 80 years ago just because two charts look similar!!! Please.


Where were all you bulls in late October?

Geez, even though I'm a bear as of this moment, I said on Friday we are probably going higher. Today's action has not crossed any important boundaries for the idea that the top is in.

I know when somebody says this that you should watch out. but this time it will continue past the point of all expectations and reasonablness.

Can you quantify this? How are you measuring "reasonableness" and whose "expectations" are you benchmarking the market against?

vipul garg

"If There's Anybody Out There Trading... Anybody... Please. You Are [Not] Alone"
-zero hedge.

i simply love this.
makes me feel like seeing the movie again. but since we are living in recessionary/depressionary times!, i ll simply save money and wait for HBO to show it again.


DG, if you are addressing my comment, I didn't mean to stir emotions. I am not chasing the market here either. That's not the point though, what I say is that even if we have a correction it will not be for the reasons "socioeconomanics" advocate. That's all, if you care...



Hey, not trying to single anyone out, really. It just seemed like a little "Monday Morning Quarterbacking" was going on and I'd like to see people be more "real-time" in their market calls. It's fine to confine oneself to bashing wave theory or EWI or Prechter or "perma-bears", but that gets old fast. It's also easy to be bullish when the market gaps up 10 points and doesn't give it all back right away.

I think mass psychology is what moves markets. I guess that makes me at least partially a "socioeconomaniac".


DG, I respect your beliefs. If you think the "Paranormal Activity" success, the timing of its release as it relates to the one of "The Blair Witch Project" and further how all come together as drivers of market gyrations then I dismiss my case.



I focus on markets, not pop culture.

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