Fallout From The Crash: Stocks

Complacency already? I read a number of bearish bloggers expecting a continuation of the market-that-never-corrects already. I also see a feeling of betrayal in many financial blogs - they must have enjoyed the ride last week! With 'bots already the majority of trades, many investors have stepped to the sidelines and are viewing this as spectators. They wail for a good show! 

They should watch at night. The Vampire Market is back: the action is in Europe and the overnight markets. Much of it is below the waves, as the wolfpack of shorts try to submarine the Euro. It was pushed down towards $1.261 again this evening, then bounced. Last night the e-mini was run down almost to 1141 before running up to 1170. Quite a move. It is flat at the moment. 

Spectators indeed: ZH ran a good piece today on how retail investors had fled before the crash. Domestic inflows into equities have been negative this year, and there was a huge withdrawal from mutual funds the week before the crash (maybe they were reading Yelnick? This site was negative on Sinko de Mayo, the day before, and noted the bearish Diamond Formation the week before. Just kidding):

SlopeofHope says it all with one chart, drawing the line in the sand at a level right above where we are (and also right at the 50 DMA). His point is that often retracements test a trendline from below and kiss it goodbye. As a bearish investor, he prays for that kiss. 

 

Today's STU draws a different line, at Sp1182/Dow10965, the wave 1 lows of the fall off Apr26. They see the overall pattern going back to the Jan19 high as a head&shoulders, and we are making the right shoulder; and in a fractal sense it is mimicking the large head&shoulders back to 2000, with the end of this Hope Rally the right shoulder. Both have a similar look: a sharp drop off the head and a sharp retrace to the shoulder. 

The EWT recently laid out the theory behind the head&shoulders pattern (EWI makes it available for free, in case you would like to peruse an EWT on point to today). Edwards & Magee's book says that the first shoulder should rise on heavy volume, but the second shoulder should have "decidedly less volume" than either the head or the first shoulder. We fit that, since the Hope Rally has risen on slack volume. The EWT notes as well that the whole formation should come after an "extensive trend", which we certainly had in the dot-com days. Many purported head&shoulders patterns fail these two tests. 

The weak volume indicates exhaustion of trend and a coming rotation to the other direction. We saw that last week, as volume on the downside ('bots and all) was decidedly much more extreme than it had been on the upside. 

All well and good, but it doesn't say when. The wave pattern can be interpreted to be ready to end - a simple ABC up, and the final throes of the C wave. The level is about right to end, a bit above the preferred 62% retrace, but hovering around the 2/3 and 70.7% levels (that being half the square root 2, a level that emerges more often than it is noted but wave theorists). So far no change from my comments of Monday. 

SlopeofHope gets a twofer today, with an analysis of Mike Paulenoff of MPTrader. He resolves the question of how to deal with the software drop by relying on wetware levels (where the very human specialists in the NYSE put out bids) and dismissing 'bot levels. In the e-mini, he eliminates the plunge from es1113 to es1056 (1065 in the cash S&P). This means the wetware low happened on Friday at es1091. You can see from the chart the whole pattern resolves as normal looking, but as a "3" not a "5" , meaning a rapid correction only, not a change of trend.  

Since this came out, the market went up, supporting the bullish case.  

Comments

[Roger D.]

Still in the grand supercycle wedge.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/ea98334b-ed8d-4cb8-90b3-02829a55804c

http://www.screencast.com/users/parisgnome/folders/Default/media/a283861b-de25-4e6d-963c-c4e5de7bb1d2

[trendlines]

Korea KOSPI chart updated. Broke out of the channel

http://trendlines618.blogspot.com/2010/05/kospi-200-trendline-watch.html

[New Trader]

I started studying EW late last year, I find it fascinating, together with the world financial situation I am a confirmed bear. However trading has not gone well and I have lost a lot of money. Do I quit and get a real job? Or just place a short position and sit for the next few years? Yelnick thank you so much for your website, and the huge amount of time you spend assisting strangers around the world. Would appreciate any constructive advice.

[Marry]

Why my post are getting deleted

You crazy ass yelnick! Step son of Bob

[Mamma Boom Boom]

Speaking of head & shoulders, couple of weeks ago I pointed the the right shoulder being established in the CRB. Of course I caught a lot of crap from amateurs. Anybody want to argue with me now?

[DG]

New Trader,

I would stop trading real capital and start paper-trading. Do at least 100 paper trades using your EW methods. When those 100 trades are done, take the average gain per trade and divide it by the standard deviation per trade. If the number you get is not larger than .25, you probably don't have a viable method. Alternatively, you could calculate your trading "expectancy" (the formula for doing so is available on many trading sites) and if the number is not positive, you don't have a viable method. 100 trades SHOULD smooth out the random fluctuations. If you don't have the patience to simply do 100 paper trades without putting real capital at-risk, take a small segment of your capital and trade it in real-time along with the paper-trades.

If you do have a viable method after 100 paper trades, figure out your optimal position size per trade (i.e. the position size which maximizes the growth of your equity curve while minimizing the risk of ruin) and go back to real trading. If you find yourself in a losing streak again, go back to paper-trading to see if your method has lost its edge for whatever reason or if it's just the laws of probability catching up to you.

Your post implies that you can live for a couple of years without any income, so if that's true, switching to paper-trading won't hurt you and, if your EW skills are not ready for real trading anyway, paper-trading will actually help you because at least you won't be losing real money.

Right now, it's all about building skills while stopping your capital hemorrhage.

[Paul]

I know it's a little off topic, but does anyone know STU's current wave count for gold? When I look at the chart, gold's 2008 decline into 680 does not look like an impulse wave to me. And the current rally from that 680 low is not wave B. It is clearly five waves up.

[Marry]

New trader,

why they all selling service, lol and not trade!

Yelnick is running ponzi affiliate website

[Mamma Boom Boom]

>Yelnick is running ponzi affiliate website
Posted by: Marry | Thursday, May 13, 2010 at 09:40 AM <

What's eat'in you, GI Jane?

[New Trader]

Thank you for your assistance. When I first starting reading EW it looked almost easy to make a fortune! Easy to read waves in advance it seemed, I will practice as suggested. Do many people really make a living using EW?
Cheers
New trader

[Mamma Boom Boom]

>Do many people really make a living using EW?
Cheers
New trader<

NO! Most get crushed. It's very difficult.

[Hank Wernicki]

TODAY'S TRADE TRANSCRIPT :

Thursday May 13th
3:11 pm

Kaboom

1160.26 <<< trading objective achieved today

12 points

2:56 pm

Stay Short with the SPX Puts for tomorrow with the Stop

Lower the Stop a bit

Or if you wish take the 10 points at the close --- @ 1162

Staying short here ........ looks like a top tick short for Friday

Remember the Full Moon ...... 1165.24 now for the SPX

2:14 pm

A Gap and Flat Day

Scanning

1:37 PM

SCANNING

12:15 PM

NEW MOON TODAY ... STAY SHORT

TYPICALLY A SELL OFF

11:58 AM

1165 NOW FOR THE SPX , LOWER THE STOP ON THE TRADE

7 POINT PROFIT <<< TAKE IT IF YOU WISH

OR EXIT AT THE SUGGESTED POINT AT 1162

11:38 AM

SHORT AND HOLDING NOW AT 1168 FOR THE SPX

WITH THE STOP --- 2ND TRADE TODAY

MANAGE THE STOP

11:12 AM

http://mises.org/rothbard/agd/chapter10.asp

11:06 AM

TARGET TO COVER AND EXIT THE TRADE IS NEAR 1162

10 POINT OBJECTIVE

LOWER THE STOP

11:02 AM

1168.02 now for the SPX <<<<< LOWER THE STOP <<<<<<<<<

TO THE SHORT ENTRY POINT AT 1171.94

BREAK EVEN HERE NOW --- RISK FREE

PROTECT PROFITS

10:57 am

I see a double Top for the SPX

Short and Holding with the Stop for the trade

10:55 AM

1171.94 <<<<<<<<< SHORT THE SPX HERE ( PUTS )

2 point stop ... quick and dirty

[Mr. Panic]

A shorter term trading day cycle that has been working since the Jan top (actually beforehand also)(also got the April 23rd top) came into play yesterday and voila we got the turn today. We're headed back to new lows.
McClellan Oscillator reached a ratio-adjusted level of -14 yesterday and it reached -10 ratio/adj.(Nasdaq version) three days after the April 4,2000 minimeltdown or the rebound high before embarking onto new lows. (I normally don't use ratio-adjusted numbers but there are the only version I can find in the historical record---(-14) ratio-adjusted===-60 approx. traditional McOsc. In the ensuing decline, the McClellan Oscillator achieved an even greater negative reading than registered at April 4 mini-meltdown.

[A friend]

My advice to the new trader is not to trade. If you have capital, buy something nice with it like a house or a business, private or public, that you like. Put some in gold and some in cash.

Most importantly, spend your time doing something highly productive, like making shoes or picking up garbage or devising a cheap, clean energy source or writing a novel.

Don't support gobbledygook magic posing as rigor or hard work.

If you trade and you are successful, your method has been luck.

If you trade and you are unsuccessful, your method has been luck.

Twin imposters, the "winning" trade and the "losing" one.

[da bear]

Paul,

I have gold as completing five waves higher in a D wave. Now gold should make a higher low in a wave E down to complete CYCLE II.

CYCLE I ended in spring 2008. Wave A down into Nov. '08 at about $700. B wave up to $1224, a C wave down to about $1,040 or so. D wave top at $1,249.60 showed aspects of a bull move within a cyclical bear. E wave down should go below $1,100 at least.

da bear

[JT]

"Speaking of head & shoulders, couple of weeks ago I pointed the the right shoulder being established in the CRB. Of course I caught a lot of crap from amateurs. Anybody want to argue with me now?" - Mamma

POINTING OUT a right shoulder on the CRB is one thing.
Actually having shorts on and trading is an entirely different matter.
As I recall, you conveniently ignored any question regarding the latter.

Anyone can observe, watch, and point out.
Putting an actual TRADE on is entirely different.

[New Jordans]

Thanks for taking the time to share this, I feel strongly about it and love learning more on this topic. Wish you make a further progress in the future, I will always look through your website.