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Friday, April 23, 2010

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john walker

Yelnick, Perhaps we could summarize the various EWT counts this way:

"The market will go down, unless it goes up".

p.s. Prechter actually said that on a hotline update, back in the mid-1980s. I wish I had a tape recorder!!

Chabazite

Yelnick - if I have seen one piece of technical analysis that is wrong over the past six months I have seen a thousand. Please don't misunderstand me, because I am medium / long term bearish as the next, but virtually everything I have seen be it Elliott Wave, or conventional analysis in whatever timescale simply has not given a reliable direction and have been downright damaging so far as short term trading is concerned. About the only reliable tool seems to have been the trend. There seem to be two major forces at play in the markets at the moment, namely earnings and interest rates. As I noted last evening, earnings have generally surprised on the upside but with one or two 'warning signals' that portend dangers that lie ahead. Basically the economy ain't recovering at a pace fast enough to cope with emerging problems of unemployment, and whilst unemployment is generally considered a trailing indicator I think this time it will lead the next downturn. So far as interst rates are concerned, they have only one direction in which to go. So back to equity prices, whilst we may get a short term burst up to 1220 or maybe higher, I don't see prices continuing their indefinite upwards path despite the amount of cash that becomes available. Hell, there is already a wall of cash sitting on the sidelines. Indeed, given that the market DOES move ahead of the economy I suspect we will bump along for a few months and then start to decline as your 'summer of disillusionment' sets in. FWIW, a wave count that fits this scenario is an abcxabc (from the March '09 lows). We are currently in c and will be for a few months more. That in my 'Uriah Heepish' ever so humble opinion is the only value of wave counting. Pick a vision, apply the count then wait to see whether it happens and then revise.

Wags

Kenny does some interesting Elliott Wave work, but I haven't found it very useful in actually making money trading, nor do I find his cadre of "perma-bear" followers to be objective whatsoever.

They have ALL been drinking from the same Bob Prechter "Kool-Aid" since last August, and they have been terribly WRONG in doing so. If they actually traded the way that they posted, they would have blown out their accounts months ago.

marketman

Greece is a joke.
They are only 1.5% of the total GDP of the EU.
Just another "distraction" for the Bears to feed into.

DG

Under 120.91 SPY by 11:14 ET is a short if accompanied by QQQQ under 50.21.

Mamma Boom Boom

Note to E-Wave counters: I suspect your job is going to become easier, and structures more definitive. I think I have spotted a change.

Hockthefarm

Yelmick:

What did you make of all the cycle work in Prechter's latest EWT? His call for 6 years of down market surprised me. Hasn't he been calling for a bottom in 2012?

This incessant need to predict market movements a week or a month out is looking more and more like a Grail Quest with each passing day.

Isn't the real Prechter call that economic activity in the US will put in a new all time low in the next 3 to 5 years?

Hock

Mamma Boom Boom

>His call for 6 years of down market surprised me.<

He must be joining the Japan group. I would think we would drop faster than that. Hmmm?

Chris Johnson

One has to wonder if Elliott Wave really offers any advantage over other forms of analysis. One can spend countless hours coming up with wave counts and revising previous counts, but for what? Sure, it "seems" to work during well-defined trends, but then, almost everything does. The true test is how well a method holds up at other times. Hell, even Neely and Prechter made money during the big drop in 2008. How have they done lately?

DG

Chris,

One of the difficulties is getting accurate statistics across a number of methods over a long enough time. Hulbert is one source, but he doesn't track everyone. Timer's Digest is another.

Yes, Elliott Wave works better at some times than at others. Smoothing out the performance fluctuations in Neely's recommendations has become somewhat of a quest of mine, precisely for that reason.

One data point I have comparing multiple methods over a fairly long period of time under somewhat controlled conditions is this. It was a contest in which each competitor started with $50K and could trade at any point of their own choosing. Yes, it is only one data point, so relying on it too much would be imprudent.

===============================================
FINAL RESULTS
METHODOLOGY SHOWDOWN TRADING CONTEST
1/1/94 - 1/1/97
===============================================

Profits Contestant Methodology

+$138,267..... Greg Meadors ....... Harmonics
+$138,220..... Glenn Neely ........ NeoWave
+$ 11,731..... George Lane ........ Stochastics
+$ 10,219..... Ron Jaenisch ....... Andrews/Babson
+$ 2,584..... Gary Smith ......... Tape Reading
+$ 1,285..... Benjamin Crocker ... Crocker Charts
$ 0..... Andrew Cardwell .... RSI
$ 0..... Bob Veres .......... Fibonacci

Losses Contestant Methodology

-$ 2,582..... Gerald Appel ....... MACD/Time Trend
-$ 15,468..... Phyliss Kahn ....... Gann
-$ 24,407..... Joe Armenio ........ Turning Points
-$ 25,964..... Don Wolanchuk ...... Elliott Wave
-$ 36,531..... Sherman McClellan .. McClellan Oscillator
-$ 42,061..... John Hussman ....... Fundamentals
-$ 42,943..... Peter Eliades ...... Cycles
-$ 44,543..... Mike Drakulich ..... Momentum
-$ 47,074..... Arch Crawford ...... Astrology
-$ 50,000..... Stephen Porter ..... Trading Bands
-$ 50,000..... Harry Schiller ..... Consensus
-$ 50,000..... Doug Sooley ........ Market Profile
-$ 50,000..... Gary Wagner ........ Candlesticks

Hockthefarm

Just the facts please:

NORMAL RECOVERY? DON’T BELIEVE IT
23 April 2010 by TPC 10 Comments
By Comstock Partners:

The “Street” and the financial media are portraying a totally misleading impression that the economy is now undergoing a normal recovery as each new piece of economic data is issued. At the same time the stock market has been in the process of pricing in the so-called great news. Let’s have a look at the actual numbers.

1) March retail sales were up 8.6% from the low a year earlier. However, this was still 3.6% below the peak sales in May 2008, almost two years ago. Moreover, sales are still slightly below the level reached back in December 2006, over three years earlier. Over the last 43 years retail sales had hardly ever gone down at all, even in recessions.

2) March industrial production (IP) was up 6.1% from the June trough, but was still down 9.1% from the top December 2007. At its current level IP is still where it was over 10 years ago in December 1999. Never since the depression in the 1930s has IP failed to exceed a level established 10 years earlier.

3) New orders for durable goods in February were up 12.8% from the low in March 2009, but were still 22% below the peak in late 2006. In fact orders are back at the same level as in the fall of 1997.

4) Initial weekly unemployment claims for the latest reported week are 456,000. Claims declined from a peak of 643,000 for the week ending March 29, 2009 to 477,000 on November 15. Since then, however, the number of claims has flattened out to a range between 439,000 and 490,000 weekly over the five-month period. This is still a recessionary number.

5) March housing starts were up 31% from the low April 2009, but still down 72% from the peak in January 2006. Except for the current recession the number of starts in March was the lowest in any month over the last 51 years.

6) As reported today, existing home sales were 535,000, up 6.8% from the prior month and 19% from the low in late 2008. However, this was still 27% below the peak in late 2005.

7) New vehicle sales in March were at an annual rate of 11.8 million, up 13.5% from the prior month and 28% from the recession low. This is still well below the average of about 16 million vehicles between in the decade ending in 2007.

8) February personal income was up 11.9% from the trough in July 2009, but still 1.5% below the top in May 2008. At the current level personal income is 2% higher than a year earlier after being down for 12 consecutive months. Prior to the current recession personal income had never been down year-over-year in any month going back to 1960, and the current plus 2% is still at recessionary levels.

9) Payroll employment in March increased 162,000 leaving the total 8.3 million jobs below the peak reached in February 2008 and equal to the number of jobs back in October 1999.

10) February consumer credit was down 4% from a year earlier, the biggest decrease on a year-to-year basis since late in World War ll.

The data cited here cover the major indicators of economic activity, and they paint a picture of an economy that has moved up, but only from extremely depressed figures to a point where they are merely less depressed. And keep in mind that this is the result of the most massive monetary and fiscal stimulus ever applied to a major economy. In our view the ability of the economy to undergo a sustained recovery without continued massive help is still questionable, and the data discussed in this comment doesn’t even include the fiscal problems of the states, the deteriorating federal fiscal outlook, sovereign debt problems subject to potential global contagion, the Chinese housing bubble, and the increased threat of “beggar thy neighbor” nationalistic economic policies. At current levels the stock market is substantially overvalued and subject to severe downside risk.

Hock

Chris Johnson

DG,

Neely performed well during that period, but it was a long time ago. Prechter also won a trading contest back in 84, but I certainly wouldn't risk money on his recommendations. Markets change. Maybe their success was because of their methods, then again, maybe it was luck. A consistent long-term track record is the only way to know. My point is, nothing works all the time, and there are methods that take 5 minutes a week that yield better results with the added benefit of not having to invest all that time analyzing the market. I remember spending hours and hours a week staring at charts of the market trying to make sense of the count. I used to take charts with me everywhere. In hindsight, it was a huge waste of time. How many long-term counts stand up over time? And if you did make money based on a count that later needs to be revised, was it luck? I think some people enjoy the "intellectual" challenge of EW, but I simply care about the financial bottom line.

Michael

"I think some people enjoy the "intellectual" challenge of EW, but I simply care about the financial bottom line."

I totally AGREE.
Trading successfully and making money is a lot simpler than most people think. Instead, people tend to make it far too complicated than it has to be.

DG

Chris,

Yes, it was a while back. As I recall, Prechter's contest was only four months long, so I'd put less stock in that than in a 3-year contest, regardless. The point was that there are some data points about how methods rank vs. each other over a common timeframe, which is really how you need to judge these things.

I actually agree that no one approach works all the time. So, then, the question is what "types" of market environments are there and what approaches work best for each type. I would submit that basically there are two types of markets, "trending" and "non-trending", so you need two trading methods, as well as a method for distinguishing between the two types of markets.

yelnick

Hock, for the longest time his target was 2004; when that passed he switched to 2014 with a range out to 2017. His 2011/2012 bottom was of wave 3 down, with waves 4-5 to go.

The original logic for 2004 was in his 1995 book At The Crest. I can simplify it to: the K-Wave at 53 years should have bottomed then (last bottom in 1949/50). I wrote a discussion a while back as to why the 53 yr K-Wave (a regularity which is a bit forced on the data) had moved to a 64 yr cycle - essentially the 40 month inventory cycle had been overwhelmed by the 48 month Presidential Election cycle. Each K-Wave can have 16 business cycles within: 40 months or 3.3 yrs * 16 = 53 yrs. 48 mos or 4 yrs * 16 = 64 yrs. That additional 11 years pushed the 2003-4 bottom out to 2014. BTW actual data says the business cycle is real but varies around 40 or 42 months, so deriving a really regular wave is forced precision.

Another factor has been a very regular 17 yr cycle (+/- one yr) since at least 1932, with major turns at 1949, 1966, 1982 and 2000. That would push the date out to 2017. Hence 2014-2017 was a range to watch.

A third factor was the four-year Presidential cycle, with lows at the mid-term. That fits a 2014 low, but would not have fit 2004.

The latest EWT finds a new 7 yr cycle: going backwards, 2009/2002/1994/1987/1980/1974 are all major lows, the 1994 being the kickoff to the bubble as opposed to a lower level than say 1987. March 2009 + 7 years gets us to 2016, which if it occurs in the summer is also within the 17 yr calculation (more precisely, 16.6-16.9 yrs) since the Dow top in 2000 occurred in Jan - 16.6 years after would be around Aug 2016.

The biggest challenge to such cycle-mania is the four year Presidential cycle, which has been reliable since 1932. It says the low is the mid-term year: 1938/1942/1946/1950/ etc up to current times at 1974/1978/1982/1987(shifted a year)/1991(ditto)/1994/1998/2002 but then it comes up a cropper in 2006 and maybe also 2010. So Prechter argues that massive stimulus has changed the cycle. Its historical cause is the new President takes a recession early to blame on the prior guy, putting the bottom in the mid-term; then pumps up into re-election and keeps it going but relaxes near the end, putting the next low a right-shifted one year after the second mid-term (1987 for example).

Whichever it is, remember that cycles come and go but waves run forever.

DG

"Instead, people tend to make it far too complicated than it has to be."

Humans, as a species, are hardwired by our brains to simplify things. To posit that people overcomplicate ANYTHING is to basically argue against everything neuroscientists know about how the mind works.

Mamma Boom Boom

>when that passed he switched to 2014 with a range out to 2017<

So where's he putting the bottom for the S&P?

Michael

"Humans, as a species, are hardwired by our brains to simplify things. To posit that people overcomplicate ANYTHING is to basically argue against everything neuroscientists know about how the mind works." - DG

I strongly disagree.

If anything, humans allow their Ego to get involved in just about everything they do because they are more often than not pre-dispositioned by bias.

It has been my experience that successful traders have no problem turning off their Ego and admitting when they are wrong and getting out, rather than stubbornly fighting a trend like most of the Bearish EWT posters on this blog, and others.

DG, you've mentioned in the past that you feel a need to embrace a "sophisticated" kind of market analysis/theory such as NeoWave because it is the only way to do battle with the professionals who employ quants.

Again, I strongly disagree.

It doesn't take a "rocket" scientist to be able to IDENTIFY and CONFIRM a TREND in the market. In my opinion, you continue to make trading a lot more complicated than it is.

Chabazite

Hockthefarm - very interesting 'just the facts' post. Thank you. Chab

DG

"If anything, humans allow their Ego to get involved in just about everything they do because they are more often than not pre-dispositioned by bias."

What is the "Ego" other than the brain? I don't see how this even addresses the point about the brain's physical architecture and the instruments of perceptions we are ALL bequeathed by EVOLUTION, which unconsciously simplify reality. Your statement posits that it is possible to AVOID simplifying, but science tells us it isn't.

"DG, you've mentioned in the past that you feel a need to embrace a "sophisticated" kind of market analysis/theory such as NeoWave because it is the only way to do battle with the professionals who employ quants.

Again, I strongly disagree."

That's great that you disagree, but you still haven't explained WHY, if trading is so simple, those professionals spend millions of dollars on technology and people to help them win in the marketplace? Occam's Razor would posit that the reason they spend so much money is precisely because trading is difficult and requires talented people utilizing cutting-edge equipment. Also, your theory fails to explain why, if trading is so simple, people with Ph.Ds from MIT would bother wasting their time with it. Wouldn't they get bored? These are not your typical "go along to get along" people. They want challenges of a higher sort than "identifying and confirming a trend", especially if "identifying and confirming a trend" is simple. If trading is so simple, why did LTCM blow up? Probably the greatest collection of intellectual horsepower in the financial world at the time and NONE of them thought to say, "Gee, maybe we're overcomplicating things"? HUH? Hell, I'VE said that in business meetings before and if I, stupid overcomplicator that I am, can see when something is REALLY being overcomplicated, I'm sure a University of Chicago Ph.D. can.

It blows my mind that you can't see these glaring fallacies implicit in your statement that trading is "simple". Can the best traders make it "look" simple? I guess that is a possibility, but that is an entirely different point.

Michael

DG,

I'm sorry, but you really have no idea what you are talking about.

As opposed to you, I have actually traded for an asset-allocator (TSA) as the global financial futures trader and executed orders generated via a quant-model across all global stock-indexes, bonds, and currencies. I also have been employed on an equity-derivatives desk of a large investment bank that dealt in customer order facilitation and stock-index arbitrage; not too mention I still have a dear friend of mine (from my 10 years back in NYC as a commodity floor trader, 1984-1993) who has been trading for Stanley Druckenmiller at Duquesne Capital for the last 10 years, and who also traded for George Soros at the Quantum Fund from 1986-2000.

As a result, I think that I have a pretty good knowledge base to refer to when delving into the question as to why Quants are hired by sell-side, as well as buy-side firms.

If you want to continue thinking that you need to adopt/embrace a "sophisticated" wave theory in order to compete with The Street and the quants that they employ, then you go right ahead.

I'm not going to spend any of my valuable time trying to persuade you otherwise. From all of your posts here on Planet Yelnick, it is quite obvious that you have a very large Ego that is "all-knowing" and omnipotent. The manner in which you have gone to continuously defend Glenn Neely is a great example of what I am talking about, let alone the performance results that you recently posted of Neely's that harken all the way back to a period between 1994-1997; as if that has any real significance to what his track record has been during the last 12 months.

Quite frankly, you have a great deal of difficulty admitting when you are wrong. Thus, it really is not worth it for me to try and educate you as to why it is that you are wrong about your claims and assertions regarding "quants" and Wall Street.

I could spend time and effort trying to "teach" and educate you as to why you are wrong. However, for reasons that I have already indicated above it is not worth it for me to do so.

If you were a high school athlete, and I was a college coach, I would label you as not worthy of my time because you are quite frankly, "un-coachable".

Meanwhile, anyone that has kept their trading methodology fairly simple, used various moving averages to identify and confirm the trend, as well as support/resistance price levels on a daily and weekly basis has absolutely "killed" it performance-wise.

Good Luck to You.

Hank Wernicki

Is the Triangle a bust ?

DG

"I'm not going to spend any of my valuable time trying to persuade you otherwise. From all of your posts here on Planet Yelnick, it is quite obvious that you have a very large Ego that is "all-knowing" and omnipotent. "

This is what you do every time I ask you this question. Frankly, it's just evasion and an attempt to put the focus on me rather than on the question: "Why does Wall Street spend so much money on personnel and technology if trading is 'simple'?"

Insulting me isn't answering the question, now, is it? YOUR claims about trading are the ones that don't pass simple common sense tests.

"Quite frankly, you have a great deal of difficulty admitting when you are wrong."

Another load of BS. You have a great deal of difficulty proving to me that I'm wrong, except in your own mind, of course. I don't go around saying I'm wrong when I'm not. So, cite your resume all you want, I'm still not going to believe that a guy who gets his Ph.D. from MIT is going to waste his time doing something "simple" when he could be out discovering cures for cancer. It's mind-bogglingly stupid for you to suggest otherwise. And, for your information, I've worked alongside some of the largest derivatives traders in the world, who hedge about a trillion dollars in global equity index positions across multiple indices and NONE of what they do is "simple". So, if we're going to cite resumes, I'll throw that one out there as a counter-point.

"Meanwhile, anyone that has kept their trading methodology fairly simple, used various moving averages to identify and confirm the trend, as well as support/resistance price levels on a daily and weekly basis has absolutely "killed" it performance-wise."

Then, why did the book "Evidence-based TA", which was all about rigorously testing all kinds of moving average rules to see if any actually beat the market, find that none of them do?

In other words, statistical analysis of your claim about using moving averages to beat the market shows that it is BUNK.

"let alone the performance results that you recently posted of Neely's that harken all the way back to a period between 1994-1997; as if that has any real significance to what his track record has been during the last 12 months."

Man, talk about missing the point of that post. I wasn't "defending" anyone per se, I was posting a data point comparing a variety of methodologies in response to a question about the value of Elliott Wave relative to other forms of analysis. It most certainly wasn't meant to say that Neely's track record over the last 13 months was good. I must have said about a dozen times that, in fact, I was so dissatisfied with Neely's performance that I INVENTED MY OWN FORM OF NEOWAVE, for crying out loud. OBVIOUSLY, that means I was dissatisfied. Satisfied customers don't sit around coming up with entirely new versions of whatever product or service they are satisfied with, do they?

"If you were a high school athlete, and I was a college coach, I would label you as not worthy of my time because you are quite frankly, "un-coachable"."

No, it's just that I can spot a crappy coach a mile away.

Zendo

Michael..... agree and share the same view as well as share similar background as you, still have lots of ties with this business. I would not waste time to lecture Dolce Gabbana, better to ignore him.

Some people in this business like to over emphasis their knowledge as the main contributor of their capability (or success), yet the business we are in is so unpredictable and for years I have been in this game, these people indulge so much in this scientific all-knowing belief that they forget luck is more important than they have been given credit for and the really good quants knows that.

Remember our discussion on GS, looks like the case is a slam dunk for SEC.

http://www.ritholtz.com/blog/2010/04/10-things-you-dont-know-gs-case/

DG

"these people indulge so much in this scientific all-knowing belief that they forget luck is more important than they have been given credit for and the really good quants knows that."

That's an entirely different discussion. We weren't talking about the role of "luck" in trading, we were talking about whether trading can be classified as "simple" and whether or not traders who fail were "overcomplicating" things and if trading were simple WHY do big banks spend so much money on people and technology when they could probably get away with spending very little to make the same amount.

Hockthefarm

Yelnick:

"His 2011/2012 bottom was of wave 3 down, with waves 4-5 to go."

Thanks for the explanation.

Hock

vipul garg

michael,
btw the debates,
whats happening with exas

i can only say that i am highly skilled when i make money and just plain unlucky when i loose some.

Zendo

DG, go get a job in these institution and you can answer your own question better.

DG

"DG, go get a job in these institution and you can answer your own question better."

Zendo, learn NeoWave as well as I have and then you'll better understand why I defend it and my statistical analysis of it.

See how that sort of argument works?

DG

"i can only say that i am highly skilled when i make money and just plain unlucky when i loose some."

Well said, vipul.

I would love to see someone put together an analysis of their trading showing the relative contribution of luck and skill to their WINNING trades only. I don't even know if it would be possible, except to a limited extent.

An example of luck and skill coming together would be having gotten short just ahead of that Goldman Sachs announcement last Friday, due to whatever system you were using flashing a short signal. Then, when the news came out, you got lucky in the sense that the market reacted so negatively.

yelnick

Chab, the ewavers should have realized that a normal retracement is 50-62%. So far nothing unusual is happening. When we got past 50% I sat back and now wait for 62-67%.

I agree with you on earnings, and may post this: Q1 earnings have been very good, but Q! revenues have been disappointing. If earnings returned due to cost cuts, how much more is there? Time for top line growth. Maybe it is all going to AAPL.

As to timing, a number of items come together in August, specifically:
- unemployment goes up as census workers go down
- GDP should be down in Q2 vs Q1
- housing drops as the gimmick ends
- attention will turn to the tax increases in 2011, and people will start selling winners
- el nino should end and a cooler spell comes in, suggesting some agriculture & fuel issues in 2011
- at some point the worse Iceland volcano, Katla, will kick in
- the Greek drama should have played out, Portugal next

Michael

"michael,
btw the debates,
whats happening with exas?"

Vipul, in my opinion the stock acts well and even though GENZ posted a 13D recently regarding 450,000 shares that they had sold over the past 60 days, I believe that the 4.2 million share secondary offering by Robert Baird went well (priced at $4.50).

There was a strong buyer(s) yesterday in the last half-hour of trading, and the stock traded extremely well once again today amidst a 28 point decline in the SPX. I believe that the Funds are just starting to learn of the company's fundamental story.

The company will be having their Q1 conference call on May 6th (announced today), and they will be presenting at the World Endoscopy Conference on May 1st in New Orleans.

Are you long the stock?


Karlheinz Lachmann

Chart S&P, Friday, April 23,2010

Wave four overlaps wave one.
ELLIOTT today, Apr 29,2010

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