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« Rate Hike Skewers Options Friday and Starts its Exit Strategy | Main | Market is Looking Bullish »

Thursday, February 18, 2010


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Hank Wernicki



A large decline at the open will be worth a fade , but more important is the close ....still down at the close will indeed signal a sharp decline of 2-3 days next week.
This is the 3rd time in 3 years BeNannKie screws with the options expirey.Put sellers will take it in the pants Friday

Mike McQuaid

Steven737 wave count assumes a downtrend, so here's the headwind for that chart.
SPX trades above a rising 200dma, arrived back to 50dma reversing a dip, RSI(14) is above 50, MACD shows a buy signal. DJI closed above 50dma today, resuming confirmation of the up trend.
Primary wave counts are generally in harmony with the trend so his is most commonly viewed as an alternate count.


Yelnick - I have been following your posts for some time now, and I would be most grateful if you could explain what criteria you would use to determine when you 'V' shaped recovery becomes a 'W' shaped (presumably double dip recession) and recovery. I can see that all the conventional indicators show the path towards a 'V', but as you have so articulately explained, on closer scrutiny much of the data is suspect, so I would have to ask whether or not we are even in a 'V' today? What would be very helpful is if you could provide a list of the key criteria that YOU would perceive as being met that point to a 'V' as of now. and how they would need to fail to progress us to a 'W'. Thank you in advance for your clarification.

bob m

OK so no big decline on the open; gold stalled at 1120 again. So do we zip around all day, then - what - end the day with triple digit loss or gain?

Is this going to be another positive Option expiry Friday, where prices drop late in the day, or next week - once it is out of the way?

You really need to look past the V-recovery, and even past a W-recovery, and see the argument for a small case y-shaped downturn:
A Greater Depression?
A more severe crisis is already "Baked in the Cake"

Mamma Boom Boom

My guess is that, going forward, your going to see much less of what you might call 'market manipulation'. I think the biggest message from the rate hike is the the banks are now re-capitalized and the government is going to try to stand aside to see where we're at. Most likely, when the markets figure this out, stocks, bonds, and gold will perform quite poorly. The headlines will read DEFLATION, again.

17%+ U6 unemployment and the fed has started to tighten. What will happen to this enlarged group of downtrodden people? Will the government invent something to kill them off? I'm thinking: YES. Or will they start to revolt against the establishment? I'm thinking: YES again. Could be fun, buy a gun. Could be fun, buy a gun. Could be fun, buy a gun. Could be fun, buy a gun.


Chabazite, that is a good topic for a major post: when a V becomes a W and are we in a V yet. For now, let me say this:

(1) we are clearly in a V for the past 3 quarters, even if it is partially artificial (Cash4GDP gimmicks)
(2) Q1 is looking pretty good, with an increase in PCE as well as industrial production
(3) Momentum may carry us into Q4 with positive Q1 Q2 Q3
(4) Not clear if the V shape continues, meaning each quarter shows stronger annualized growth
(5) Q4 likely to be revised down a bit (current estimate is 25 bp) making an up Q1 more likely

For a W to occur, we need a drop back down to negative, not just a slump or flattening of growth QoQ. More likely in 2011 than 2010 due to tax increase and further disappearance of Stimulus (lower Stimulus spending GROWTH per quarter drags GDP down even as more Stimulus is spent).


Stocks are "on profile" (aviation lingo), mimicking perfectly the small-degree ending diagonal and aftermath correction in early 2007. The small degree of the diagonal was a hint that it wasn't the end of a larger pattern. Feb. 2010's correction was remarkably similar in form and ended with the same relationship to the moving averages as in 2007. Cycles are pointed up. No trouble!


Thank you Yelnick. I will inwardly digest. Need to get my thinking cap on.
Thank you Dr. Bubb. I read the post with great interest several days ago, and much of it concurs with my views. I guess that you are in the UK along with me. What a shocker we have had in terms of news this week - yet the government sails on regardless as if there isn't a cloud on the horizon.

Mamma Boom Boom

>we are clearly in a V for the past 3 quarters<

Personally, I have trouble with that assumption. If my father loaned me a thousand dollars to get me through a tough spot, how have I bettered myself?


FYI all, Neely putting out a short rec. Sees the potential for a sharp decline in the coming weeks...Stops are basically at the old highs...Pretty far away for most I would gather.


DG, Taz,

I just put on a DIA position short a few minutes ago, at 3 p.m. ny time. I was looking at the DJI 60 minute and determined that the 11/27 low to the Jan high reads as a complete, measurable swing. Before I looked at it just as a choppy mess. I'm curious what you think about this from a wave theory perspective.

Because I treated it as a swing, I looked for alpha (start of move) and omega (end of move) of the next ensuing trend. The Feb 5 low is clearly in a fib time relationship to this prior swing. So that counts as my alpha. I apply a different technique to find omega.
Today's high locks 3 ways--in time, price and diagonally. That is very harmonious, so I went in. But I can also have a tight stop if it moves to the next mark before turning down. But in any case, this set up says to me the market is looking for its next turn.


The "ending diagonal" assessment of price action was wrong.

The updated count shows an expanded wave 3 of y of Y of 2.



" I was looking at the DJI 60 minute and determined that the 11/27 low to the Jan high reads as a complete, measurable swing. Before I looked at it just as a choppy mess. I'm curious what you think about this from a wave theory perspective."

That entire time period is a choppy mess and difficult to count. I don't have the 11/27 low as anything particularly significant, because the wave structure appears to begin at the early November lows and run through January's high. It's hard to say how the two views might relate or confirm or negate each other, though. The IWM gave another short signal on a smaller time frame this morning and the long SPY trade which triggered earlier today on the new high has already been stopped out.


Well at a few minutes before the close I bought back my hedge EUM ($40.26 at 3:46pm).

This is how I rank the wave counts from most likely to least:

1) B wave of wave 4 up since the reversal two weeks ago. After the C down we will get the 5th up to complete primary wave 1 of a new cyclical bull. P2 down should be murderous and retrace most of P1.

2) We are in the 2nd wave of a primary wave down that began on Jan 9th (The wilshire 5000 and the Q's have their highs on the 9th of January).

3) We are in a wave 2 of an ABC flat and will get the 3rd down on Monday in a magnificent crash and burn. Minute wave 1 will take out 1029 handily.

The fact that we did not get an Investors Business Daily follow through day keeps the bearish possibilities alive.

For my EUM position its simple; I have an advanced sell order tied to 40 on the EEM. If we reverse lower it was a good entry point and I will add to EUM as needed.

So far I see an impulse wave down and a light volume up. But I also see wave overlap and gaps filled so I can't give the long term bears the benefit of the doubt anymore.

We'll know allot more by the end of next week.


Hello Duncan;

Rising wedges on SPX and NDX.

The "Triangle Apex" Timer has triggered on both.

The standard reminder: Additional technical evidence is required to support the thesis that wave (2) is finished.



Hello Mike;

"Steven737 wave count assumes a downtrend"
Correct. Based on Fibonacci Retracements it is worthwhile to explore the possibility that the trend changed in January 2010.

"so here's the headwind for that chart. SPX trades above a rising 200dma, arrived back to 50dma reversing a dip, RSI(14) is above 50, MACD shows a buy signal."

That is all correct. If you have a bullish Elliott wave count, I would appreciate your posting it.

Price is at the top line of Keltner Channel(20,1) i.e. DECISION TIME;
either Lift-off or abort the mission.

Thanks for your interaction.



Another up day.
Another up week.
Another move back above the 50 day MA.

And yet the "Perma-Bears" continue to call for yet another end of P2 come Monday, like clock-work.



Gee, I wonder what Hochberg and the STU will say again today???



Steven 737, seems to me the proper choice at times of maximum uncertainty are to wait and let the market clarify for us. We are hovering at a normal retrace level for a wave2, and of course it can breach that level a bit. Besides the Sp1111 level, we have a gap at 1116 and an old retrace point at 1121, but the next critical level is the 78% retrace at 1127. Will we get the Monday Pump? My bet is we have the drop next week that many ewavers thought would happen this week. Breaking the 200 DMA and the prior 1029 low are key points to watch. If we crack below and stay below, then 965 is in sight.


Market back in uptrend what will now be a sharp ,but short decline next the middle of the week ??

Hank Wernicki

Monday : Bullish


"seems to me the proper choice at times of maximum uncertainty are to wait and let the market clarify for us."

Excellent point, Duncan.

For a good measure, here are the complementary bullish counts of the minor waves since mid-January.




I have provided a count which I have been using since the high made in Jan. It has played out very well while most were expecting a wave 3 down.

There is no sign of a V in employment figures yet. Sure, they are a lagging indicator, but clearly Jobs matter more than GDP to most folks.

We have seen most of the right side of a V in stock prices and also in GDP data, but the improvements there are not for the "good" reasons. What we are not seeing is healthy organic growth - of the sort that is sustainable.

GDP is a heavily massaged and manipulated figure. Kirby Daily likes to say that we merely "bought" the improvements in GDP. When the government borrows money and spends it, that obviously adds to GDP, and that is exactly what happened through the Stimulus program, which Duncan rightly calls a "Porcullus" program. Much of the spending was unintelligent, and will do little to improve the long term health of the economy.

Borrowing money, and so adding to the future tax burden is a serious matter. Wasting the money on dying industries, that will have no role in our future is as much as a "crime" as spending it on dog parks, and redundant highways connecting one dying suburb with another. Frankly, it pisses me off to think that my future tax payments will go up to pay for such waste, and I think this angers most taxpayers too, which is why we have a teaparty movement.

Economic leadership has been very poor in the US, and in the UK too. I think many old politicians are going to be blindsided by forthcoming elections. I wish that we were hearing a more articulate debate about how we can begin to build a more efficient economy than is currently being heard from our politicians and within the mainstream media.

I applaud Duncan's efforts in bringing a discussion about this into the public arena through the Yelnick Blog and elsewhere.

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