Hold the Optimism

Headlines: we have another stomach-in-throat drop coming, likely next week. Then a big bounce. The Hope Rally appears done. The air-pocket yesterday wasn't a mistake: only 30M shares traded in the fall, and no one can find a glitch. Fat Finger My Ass! cries ZH. Listen to the traders in the pit. We had already dropped 500 pts and when we fell like a knife there were no buyers. The only glitch was shocked disbelief. 

Fear is such a well-defined state it makes the market patterns clear. Greed too, but then greed is like fear - fear of falling behind. Just not quite as strong. During panics of fear and greed the market becomes easy to track. It has a trend. It is those times in between, when the market is correcting against trend, that markets become exasperating. This should be no surprise, as during corrections the system is in a high state of entropy (in a chaos theory or information theory sense - balanced inputs going in and out), whereas during trends the market has found order. One can look at markets as constantly seeking order, and when they find it, they move surprisingly fast. As we just found out. 

At the low yesterday, we had wiped out 8 months of gains in 3 weeks.  

The Hope Rally was corrective. It kept going up on shrinking volume and a narrower base - essentially, five big financial stocks like Citicorp. It seemed impervious to correction, and yet it meandered up slower and slower after an initial jump off March 2009. This is not how a trending market behaves. The financial press was fooled by the height of the bounce, not comparing it to the depth of the prior drop. In the end the Hope Rally corrected the 2008 drop in the normal range of a 50-62% retrace, and after breaking the 50% retrace, stopped right on cue at 62%. 

Thus it should not be a surprise that there is a large consensus among wave theory sites (Daneric/whose chart is below, Kenny, EWTrends, PUG, EWP, BlankFiend, Shanky/sort-of, among others): 

• the top is in
• we are in a wave 4 trinagle
• a drop below the spike low of yesterday is ahead

The implication (well stated by BlankFiend) is a pop and drop on Monday. The top of the A leg, Sp1138, cannot be broken in the pop, and the top of the C leg, 1129, should not be broken. If leg D is done, leg E would normally go back to touch the upper trendline, which is about halfway to C or 1116. The apex of the triangle points to 1113. It may not be much of a pop.  

 

There are of course a few optimists, such as Carl Futia, and a bunch hedging their predictions. That is to be expected. The bullish argument starts with the curious fact that we ended today spot on the 61.8% retrace of the rise from Feb5 (Sp1145) to Apr23 (1220). If this were a B wave of a zigzag, this is a normal outside distance for a correction, and the final C wave up to new highs should start on Monday. This argument treats the falling knife yesterday as an anomaly. Since no one has confirmed that a glitch occurred, it is better to treat yesterday as real but hard to believe. The buyers simply vanished. 

After such a severe drop, it should be no surprise that a bunch of technical indicators have become oversold, signaling a rally is due. At the same time, during crashes like this, indicators can stay oversold for a while. Catching a falling knife is a dangerous game. 

Give credit to where it is due: the Master got this right. EWI's Sinko-de-Mayo STU predicted a much deeper drop than all the others, including Neely, and we got it. 

Just a couple of weeks ago Prechter had set forth the many technical indicators of a top in his EWT. You can read the key points online today from EvilSpeculator. For all the bashing he gets, his record on the big calls since 2007 is very strong:

• called the 2007 top in June, right before the July top (October wasn't much higher)
• called the 2009 bottom in late Feb, within two weeks of the Hope Rally
• did not call the June top as the end
• prematurely called a top twice after that
• called this top within a week (Apr16 vs Apr23)

Tonight's STU confirms the triangle wave 4 count and predicts the deeper wave 5 ahead to complete the first big thrust down off the top. After that we get a bounce, which could retrace quite a bit of the drop (the summer rally before the Summer of Disillusionment sets in). MarketPulse gives some guidance for where wave 5 could end:

 

If that wave 5 breaks well below the Feb5 lows (Dow9835/Sp1044) and stays below (meaning doesn't pop right back over), this will confirm the end of the Hope Rally. 

The Hope Rally's hopes are hanging on a thin thread right now. 

If we bounce above that level, this signals that a final top is ahead, likely back up to the Sp1250 +/- 25 range. This seems unlikely, given how decisively we broke through the lower trendline of the Hope Rally, even given some alternative ways to count it, such as this large triangle (chart courtesy WaveCharts):

If the pop on Monday breaks through the 1129 and 1138 levels, the triangle may be a larger structure. Neely suggests this could be the start of a wave B triangle before the final rally to new highs. A bit of a dramatic triangle, but a count worth keeping in the back of the mind as we see how Monday turns out. 

The other possibility is that yesterday was an extended fifth wave, and is done at the Sp1066/Dow9870 level. A strong bounce would be expected, but not to new highs. A corrective wave cannot be a simple five-waves down. Typical levels for the bounce would be: 

• 38% bounce to 1125
• 50% bounce to 1143 
• 62% bounce to 1162

The next wave down would follow. If you still want to hang on that thin thread of a hope in the Hope Rally, the next big drop would have to stop above 1044. If this is a dramatic zigzag correction down, after the big bounce, the next wave down would typically go 100% (red pill) or 62% (blue pill) of the first wave. For the slim thread of hope, it would have to take bounce at least 50%, above 1140 at least, and then take the blue pill: 62% of the big drop of 154 pts is 95 pts. If indeed the bounce and drop somehow stays above the Feb5 level, after a few stopped hearts, it would be a great buying opportunity.

Comments

[chomen]

Consensus = bounce on Monday. But what if it's straight back down to 1060 before any bounce back to 1145 breakdown levels?

[Wave Rust]

To the people who want to know "WHY":

Having seen a few of the "market mechanical snafu's" in my years of hacking away at the markets, I have learned that these things echo into the future. They find their way from frontal lobe back to long term memory, but still have long term effects on markets because these events have effects on market players.

After you trade through a few, overcoming the doubts about "how to trade this pig" is faster and easier.

In 1987, the markets settled into a sideways trading range within 3 days after Oct 19th, and stayed in it until early December and took off.

I have found that price always does things for a reason (not machanical or technical) and always does it differently ,,,, and that's what is interesting.

Let me point to just a small detail and one of the first things I learned as a trader. The markets move like you would imagine a stream of consciousness would move - continuously and seamless. That stream hates interruptions and voids. As the saying goes, "markets abhor a vacuum." And, any market will try to fill that vacuum - eventually.

From the February low, every vacuum, or interruption in the consciousness stream has been filled. The most important stream is the Dow. All Dow opening gaps were covered by the "mystery crash". But the Naz and S&P's still have gaps at the Feb lows.

Now, the important question is this: Do you know what is coming next and what comes after that? Some feeble retest and then rally? Plunge off the cliff into the abyss? Sideways until you are bored to distraction?

And what do you do, if you have a good idea of what is coming?

That's why I said yesterday, that you just have to move forward because this is not 1987 or 1929-32. It's different days and the different ways to paint the tape.

Just stand aside for now if you are confused. Wait for the new trend. All trends will now be shortened in duration for the next year or more. This isn't FX, it's a commodity market of stocks.

Last thing, the "why" it crashed is almost irrelevant in my view. Who cares anyway. It happens. Markets are for risk takers. Do you stay at home for months after a 12-car pile up on the freeway because "it just ain't safe out there!"

Hey, even Najarian lost money yesterday, and they have some serious technology too.

So, what's next?

Oh yeah, and never fade the Fed. :))

wave rust

P.S.
Self-styled Gurus who called for a crash for weeks and months while it rallied, will usually fail at predicting the next crash. That crash will be a crash up and they will condemn it again- all the way to new highs.

Giving credit here to Hank for calling it at an appropriate time interval.

It's a trader's market. Investors beware. Down crashes are bullish, eventually ,,,, and usually quite soon.

[Chico]

I think the events of the last couple of days prove that anyone applying wave theory to short-term market movements, for example, hourly, is wasting his time. There is no way those fluctuations are a reflection of mass psychology, which is what the theory is based on.

[DG]

There is no way those fluctuations are a reflection of mass psychology, which is what the theory is based on.

What are they a reflection of, then?

[Chico]

High Frequency Trading programs in a market with no liquidity because of trading halts on the NYSE. You can't tell me stocks going from $40 a share to a penny and back to $40 in a matter of minutes is the result of HUMAN mass psychology. That was an exaggerated example (ACN), but NASDAQ canceled trades on 296 stocks. Those canceled trades greatly affected index values. And then we have wave analysts looking for fibonacci relationships in those index prices that were based on fictitious prices. What a waste of time.

[DG]

High Frequency Trading programs in a market with no liquidity because of trading halts on the NYSE.

The computers only do what humans, reacting to and anticipating mass psychology, program them to do. Basically all they do is speed up the manifestation of mass psychology on the charts.

In the hours leading up to the huge dump, there was clearly a Running Correction to the downside, which started at the end of the decline from 120.67 SPY to 117.64 SPY on 5-3 and 5-4. At first, I thought the lack of continuation of that decline meant that the market was going to do what it had done so often and consolidate after a sharp decline and then thrust higher. After the rally from 115.97 to 117.8 failed to continue and we began to drop again, the Running Correction became the best alternative, which meant that something significant was likely to happen to the downside.

Obviously, it's more clear in retrospect and I had no way of anticipating the exact severity of the drop, but the chart actually does have a valid wave pattern on it. Taleb would say that I'm being "fooled by randomness", of course.

[Tom]

The 1000 point drop, imho, was designed/manufactured to steal money from clients. Can you imagine how many accounts got wiped out in 30 minutes, with follow up margin call as a result of this drop?

This happens quite often in FX market to kill the stop loss positions before big move afterward.

If anyone is still keen to swim with the sharks, I would suggest they open 2 separate accounts with their broker, one is for funding and the other is for trading.

If possible, do not trade on margin and avoid futures all together.

[TraderQ]

Prechters 33 day cycle hits next week (thought it may be a high but appears to be a low)

Read more on Prechters 33 day cycle:
http://yelnick.typepad.com/yelnick/2010/03/sell-in-may.html

And from Raj's Cycles...

5/11/10 is now clustering in a big big way, it is the next Major Time and Cycle Cluster Low:

1. The next Solar CIT is on 5/11.
2. The triple Geometric CIT is on 5/11.
3. The Apex of the NDX triangle is on 5/11.
4. The next Symmetry Point Cycle CIT is on 5/11.
5. The Master Cycle has a 5/12 Low.
6. The next 120 TD Cycle is on 5/11.
7. The next NDX 66/132 wk cycle is due on the 5/11 wk (see previous post)
8. The 18 TD and 456 hourly correction cycles has a 5/11 Low.
9. WBOE = Wednesday/Week before Option Expiration 5/11 wk
10. Double Hourly CITs are due on 5/10
11. Mercury goes Direct is on 5/11 and Jupiter squares the Galatic centre on 5/12
12. New Moon -2 (associated with past panics) = 5/11/10

http://timeandcycles.blogspot.com

PS: Time and Cycles blog is written by a guy named Ian not Raj, and he does not own the corner gas station :-)

[William]

Yelnick: Naive comment? But seems obvious.
Spin, that the "fat finger" was the cause was put out to console the people?

Once is was spun it sticks in our minds, and later corrections are of no avail!

[R. Lau]

Tom O'Brien suggested a sizable bounce on the Russ2k from 650 to 690 is quite possible on Monday/Tuesday. Maurice Walker "The Chart Pattern Trader" also sees a "powerful" bounce.

Opinions aside, the major "bounce" indicators (from T2108 to NYMO to CPCE) are all suggesting that some sort of reversal is imminent. My plan is to go long ES and CL Sunday night in the absence of any gap lower.

[Wave Rust]

Chico said:
"High Frequency Trading programs in a market with no liquidity because of trading halts on the NYSE. You can't tell me stocks going from $40 a share to a penny and back to $40 in a matter of minutes is the result of HUMAN mass psychology. That was an exaggerated example (ACN), but NASDAQ canceled trades on 296 stocks. Those canceled trades greatly affected index values. And then we have wave analysts looking for fibonacci relationships in those index prices that were based on fictitious prices. What a waste of time."

HFT is a constant volume factor in the markets today. It is estimated to account for 70% of liquidity volume. When a 'market order' is sent into the system and there is no bid, I would bid a penny too. That's how the programs are written.

The human psychology or emotional state of market players is evident though. It is not the price of 1 cent though. It's the no bid somewhere off of the NYSE floor ,,,, in the electronic market - likely to be seen often on ARCA.

'No bid' is indeed a telling of market psyche at that moment.

HFT did not cause the crashette but it did profit from it. When CME and CBOE were undisturbed by the few minutes of chaos and NYSE floor was "pausing", the electronic market for individual stocks was essentially the only active player.

If anything needs to be done, it has to be better integration of the continuity between exchanges for trading of individual stocks, both electronic and manual (like NASDAQ vs. NYSE).

I assume we will soon hear renewed calls for tighter controls and the uptick rule ,,,, and other blather.

wave rust

[Wave Rust]

DG,
I missed recognizing the runner correction completely. My bad. Got stopped out but then couldn't get back in on the way back up.

Two basic choices now ,,,, if up on Mon. through Wed. morning then the retest of the lows comes after that. If down or sideways Mon-Wed. then a big buy.

wave rust

[Wave Rust]

A final thought

I heard and understood what Santelli was repeating all morning about the dollar/yen. The same thing happened in Feb of '07. The carry trade was getting dropped by the 'long dollar' asian holders. It was different this time ( ha!). It was faster and in daylight!

I just didn't act on it.

wave rust

[Michael]

"HFT did not cause the crashette but it did profit from it. When CME and CBOE were undisturbed by the few minutes of chaos and NYSE floor was "pausing", the electronic market for individual stocks was essentially the only active player.

If anything needs to be done, it has to be better integration of the continuity between exchanges for trading of individual stocks, both electronic and manual (like NASDAQ vs. NYSE)." - Wave Rust

Wave, you pretty much summed up what I posted the other day after the "Crashette", and I pretty much agree with you on ALL counts. The "LRP" rules on the NYSE allows the market to catch its breathe, but the Nasdaq continues to allow race cars to drive 230 MPH through a Hospital Zone. This is quite similar to the lack of synchronization and uniformity that occured back in 1987 when the stock-index markets of Chicago were not synchronized with the actual stock market in New York. You would have thought that the SEC would have learned from that event, and how critical UNIFORMITY is to the marketplace, but they obviously have their plate full with the likes of Madoff, Stanford Financial, Goldman Sachs, and catching up on all that porn they've been watching.

As for the HFT algos, that is the only place where I might disagree with you. They might not have caused the "Crashette", but they certainly acted as an ACCELERANT much as the same thing occured with the Leland, Obrien, Rubenstein (LOR) "Portfolio Insurance Strategy" that used stock-index futures trading during the "Crash of 1987" at various collar points.

Furthermore, I would not simply assume that they were profitable during this decline, given that the majority of HFT algos are either arbitrage strategies, or market-making ones. When all of those low "prints" got busted in the likes of Accenture and others ( 60% ruling ), these market participants were subjected to tremendous risk. The massive "bounce" from the "low" tells you that market players were scrambling to cover trades that would undoubtedly be "busted".

Enjoy your weekend!
:)

[Waver]

If the likes of Kenny, Daneric, Shankey, etc. are totally convinced that this is the beginning of P3, I would say that this consensus is one helluva CONTRARY indicator - - - especially given the fact that these guys have been so totally WRONG for so very long.

Warning Will Robinson!
Warning!!!

[grand]

great post Yelnick. indeed a very critical point in the market.

i'm still looking for 5 waves down before confirming anything. i don't deny the implications are there that a much larger correction may be at hand but until i see that confirmation we'll see.

anyone talking about this trendline anymore?

http://4.bp.blogspot.com/_SRSTWZ5iCVs/S-WIwGw0I7I/AAAAAAAACwA/2mNdiRia0pI/s1600/grand-weeklyTRENDLINE.png

i'm still focusing on that potential reversal hammer. this week will be key.

[Hockthefarm]

Doug Noland siding with Prechter:

"Liquidationist" Revisited:
John Maynard Keynes dismissed the “austere and puritanical” “liquidationists.” Over the years, Chairman Bernanke has similarly ridiculed the “Bubble poppers” – those in the late 1920’s that believed the Fed needed to tighten policy to rein in out of control securities leveraging, speculation and economic imbalances. Dr. Bernanke has blamed “overzealous” central banking for contributing to the Great Depression.

Andrew Mellon has proved the perfect poster child for those seeking to simplify, distort and discredit so-called “liquidationist” analysis: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate… It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”...

History has not been kind to Andrew Mellon and “liquidationist” thinking. Mr. Mellon could have phrased his views in a more palatable fashion. All the same, there was actually an expansive body of writings and insightful economic analysis during the late-twenties and into the depression that went significantly beyond moral judgments. An impressive group of scholars and statesmen from this period believed that the U.S. Credit system and economy had become grossly distorted from a runaway inflation that had commenced back with the outbreak of the First World War.

Those “old timers” had survived repeated inflationary booms, busts and destabilizing monetary instability going back to the 1860’s. From experience, they understood the perils of rapid Credit expansion and the necessity of reining in excesses early in the cycle. The “anti-inflationists” were convinced that the only way to return to a more even keel was to bring down the inflated price level; to bring down inflated asset values; to bring down inflated incomes; and to stabilize economic output at more sustainable levels.

After a massive inflation, the “old timers” understood that the only way to return balance and monetary order to the system was through quashing speculation, financial excess and economic profligacy. And this view was much more based on the understanding of the inherent instability of Credit inflations than it was a “puritanical” judgment. Sustaining a Bubble was certainly not a viable policy option.

From Dr. Bernanke (extracted from his speech, “Asset-Price ‘Bubbles’ and Monetary Policy”, October 15, 2002): “The correct interpretation of the 1920s, then, is not the popular one--that the stock market got overvalued, crashed, and caused a Great Depression. The true story is that monetary policy tried overzealously to stop the rise in stock prices. But the main effect of the tight monetary policy… was to slow the economy--both domestically and, through the workings of the gold standard, abroad. The slowing economy, together with rising interest rates, was in turn a major factor in precipitating the stock market crash. This interpretation of the events of the late 1920s is shared by the most knowledgeable students of the period, including Keynes, Friedman and Schwartz, and other leading scholars of both the Depression era and today.

…There is little credible evidence of a bubble in the U.S. stock market before March 1928…yet, in part because of the workings of the gold standard, U.S. monetary policy had already turned exceptionally tight by late 1927… Tighter policy earlier would have brought the Depression on all the more quickly and sharply… The Federal Reserve went on to make a number of serious additional mistakes that deepened and extended the Great Depression of the 1930s. Besides trying to pop the stock market bubble, the Fed made little or no effort to protect the banking system from depositor runs and panics. Most seriously, it permitted a severe deflation in the price level, which drove real interest rates sky-high and greatly increased the pressure on debtors. A small compensation for the enormous tragedy of the Great Depression is that we learned some valuable lessons about central banking. It would be a shame if those lessons were to be forgotten.”

Through the teachings of Keynes, Friedman, Bernanke and others we have been taught flawed analysis and educated in the wrong lessons from the terrible experience of the Great Depression. The doctrine of inflating Credit, while disregarding speculation and Bubble dynamics, is fraught with myriad dangers. And, well, we’re now 20 months into Dr. Bernanke’s - and global central bankers’ – experimental “helicopter money” and “government printing press” assault on the Credit crisis. Not for a moment have I expected such overzealous inflationism to do anything other than exacerbate financial and economic fragility.

The financial world would be a safer place today had Trillions of additional dollars (and euros, yen, etc.) of liquidity not been unleashed upon the markets. After all, ultra-loose financial conditions accommodated 20 months of historic deficit spending in Greece, periphery Europe, here at home and all about. Massive government borrowing likely fomented heightened trading activity and speculation in sovereign Credit default swap markets around the world. Clearly, synchronized fiscal and monetary stimulus incited speculative excess throughout global securities markets.

The “inflationists” would argue that fiscal and monetary stimulus was essential for fostering U.S. economic recovery. A “liquidationist” (“anti-inflationist”) would counter with the argument that the cost of Trillions of additional government debt and related marketplace distortions far outweigh what will prove ephemeral benefits. Attempts to avert system adjustment and restructuring – efforts to sustain the previous Bubble economy structure – will prove unsuccessful. This will in large part be because of the enormous amounts of ongoing Credit expansion and monetary profligacy required for such an endeavor. There are a host of issues related to the government throwing Trillions (of new “money”) at a maladjusted economy. I have over the years broadly referred to these types of consequences as “Monetary Disorder.” Some of these effects have made themselves conspicuous of late.

Reflating the stock market has been a key facet of government reflationary measures. Rising stock prices were instrumental in boosting household and business confidence. The revival of “animal spirits” in debt and equities markets was integral to much improved sentiment - and the advancement of a bullish consensus view that economic fundamentals were sound and the recovery on sound footing. And there’s nothing like the cocktail of inflating markets, escalating confidence, and ultra-loose financial conditions to ensure the rapid emergence of speculative excess.

The financial world would be a safer place today had electronic “frequent trading” not proliferated throughout the government policy-induced stock market reflation. And financial stability was similarly not bolstered by near-zero rates having enticed over $1 TN of money market assets out to inflate global risk markets. The revival of bullish expectations, the revitalization of speculative excess and the unprecedented flow of finance into riskier assets – in the face of latent financial and economic fragility – has set the stage for another round of financial tumult – along with further investor disappointment and disillusionment.

Perhaps “purge the rottenness out of the system” is too strong. But the financial world would be a safer place today had zealous government market intervention not bailed out the crisis-imperiled “leveraged speculating community”. At one point yesterday, the Japanese yen was almost 6% higher against the dollar – and up a stunning 8% against the euro, Swedish krona and some other currencies. Those that had speculated on “carry trades” – say, borrowing in yen to finance leveraged long positions in euro-denominated Portuguese bonds – were crushed yesterday in what was likely a significant unwind of money-loosing trades.

The reemergence of “contagion” definitely makes the financial world an unstable and uncertain place in which to operate. A crisis of confidence in Greek debt led to dislocation in the market for Greece’s Credit default swap (CDS) protection - that jumped to Portugal and then quickly engulfed European CDS and beyond. Dislocation in European bonds and CDS placed significant downward pressure on the euro and upward pressure on the dollar – in the process fostering general currency market instability. Most commodities (not gold!) sank, while the emerging markets came under heavy selling pressure. Global tumult incited a flight into bunds and Treasuries, causing additional havoc for myriad other “carry trades”. Here at home, spreads between Treasury yields and higher-yielding debt instruments (i.e. MBS and corporate bonds) began to “blow out.” In short order yesterday, the yen melted up, Treasuries melted up, risk spreads widened dramatically and 2008-style deleveraging returned in full force.

Throwing Trillions at a highly-speculative and dysfunctional global financial “system” has begun to present itself somewhat as a more conspicuous failure. The Greeks and Europeans are furious. And I doubt the ECB is too impressed right now with the “inflationist” prescription of monetizing euro debt issues. Here at home, confidence is shaken but not yet broken. The dollar is well-bid and yields are low, so things could definitely be worse. There should be, however, little doubt that the sequence of Goldman Sachs testimony, violent Greek riots, the eruption of contagion risk, and a quick 1,000 point market downdraft has reversed momentum away from Greed and firmly in the direction of Fear.

Hock

[yelnick]

William, I do not think the "fat finger" was spin to placate the sheeple. ZH got it right: we are seeing the consequence of a market driven primarily by 'bots. Read the WSJ take on this in the Saturday print edition. When two of the major 'bots shut down from trading, the buyers had left the market. The HFT 'bots still in the game began looking for a bid. You can loisten to the voice in the pits: there were simply no buyers, no bids. This is how Accenture got to 1c: the 'bots ran down in microseconds every 10c lower looking for a bid, until they got to the bottom. No buyers, no bids. The mindless machine did what a human market maker would never do. A person would have realized something odd was up and stopped. When the 'bots hit the bottom, literally, at 1c, they stopped, as any idiot-savant machine would do. When a real (human) bid came in, it was way above the fake HFT attempt to suck all the margin between bid/ask.

You could do a pretty funny treatment on this, when the dust settles. When you turn the market over to HFT 'bots gaming each other, finance results like we saw result. The fault lies not in our machines, but in our rudderless SEC watching porn on their machines rather than doing their job.

[yelnick]

grand, it is one of several interesting trendlines (others include the lower wedge trendlines either off mar09 or nov08).

let me focus you on something else that jumps out from your chart: we are right where we were two years ago at the Lehman Moment. Literally at the same market levels with the first plunge about the same as back then. Back then it did not bounce. It went into freefall.

what should concern the 'bounce' crowd is that there were so few buyers on Thursday. Forget the trading bots, swapping and arbitraging back & forth, sound & fury signifying nothing. Think about real buying pressure from new interest coming into the market. It has been shrinking ever since May 2009. Maybe right now it is on the sidelines, and we go sideways for a bit, just as we did post 1987. Or maybe it is over with, as Bernanke's QE has ended, the commodities bubble echo is bursting, the Chinese real estate bubble is crashing, and Europe is looking very shaky.

[vipul garg]

yelnick,
it is amazing that whoever 'wavecharts' is cannot even label a triangle forget doing wave analysis.
it is really amazing.

[R. Lau]

"Back then it did not bounce. It went into freefall."

We bounced on both 10/13/08 and 10/20/08. Both were Mondays.

[yelnick]

VB, you and DG have had a nice dialog of how to label the Hope Triangle. Neely puts the AB in the same spots, but the CD in the June top/July bottom, with an E around Nov16 (I think). An X wave followed and then a new structure. I like that construct because back then I thought this whole Hope Rally might end with a triangle (a Neely form, not an EWI form). But help us all out here as to why this WaveCharts triangle is not a possible alternative: Neely in MEW allows the C leg of a contracting triangle to be the longest (although he says that is rare).

[yelnick]

R Lau - yes, but briefly! Very briefly! The big bounce crowd thinks we have ended the freefall and will go back up new highs.

[R. Lau]

New highs!?? HELL to the NO! Tim Knight's call for a 5% reversal is already too bullish to me.

Barring a crash in Europe, I'll trade the long side Sunday night and be out by Monday night. That's about how much I trust the market.

[Midas]

Have a new post this weekend.

http://midasfinancialmarkets.blogspot.com/2010/05/weekend-up-bear-is-back-and-hungry.html

Feel free to check it.

[yelnick]

R Lau, pop&drop then. Good thinking, be nimble!

[nspolar]

"Some Palin Facebook fans unhappy with endorsement"

http://news.yahoo.com/s/ap/20100508/ap_on_el_se/us_palin_facebook_pushback

A comment on Yahoo .....

"DevinB 22 hours ago Report Abuse Fiorina is a crook and a Nixonite Republican. Palin is no different.
Replies (14)"

I have read Sarah has likely made on the order of $15M from here book deal. Go Sarah.

Yelnick what is going down in the great state of CA with Carla and the local politics?

ns

[yelnick]

ns, we are seeing the end of Fat Government, but it won't go down easily. Look how they riot in Greece! Despite all the kerfuffle over Sarah, she is a brand endorsement of lean government. It does not hurt her brand to endorse Carly unless Carly pulls a fast one (as Arnold did) and strives for that New-Found Respect Award from the MSM. 

Carly & Meg both worked for McCain, and so to lean government folks are a bit suspect already. Carly is one of those lucky ones who was always in the right place at the right time, whereas Meg really did work hard and succeed on her wits and judgement. Carly got pushed out of HP, and her replacement has been doing a bang-up job, which gives grist for the mill of grinding down Carly's reputation - hence the scathing comments on FB by people in the know down here. 

Will it matter? Carly is running against Tom Campbell on the Repub side, a well-respected pol with many years in different elected positions - and that is his weakness. The mood seems to be to throw out any incumbent, given a reasonable alternative. Resume seems unimportant; commitment to lean government is key. After all, our current President got elected on a paper-thin resume without ever being in the arena as Carly was, and he positioned himself as a moderate vs. the hated Bush. 

In one of the many ironies piled on to this election, the lucky Carly had a bought with cancer and wears her stubble hair (lost during chemo) like a badge of honor. She now gets the sympathy vote for being the brave one, not the lucky one! The gods play games with us mortal. 

[DG]

This should be no surprise, as during corrections the system is in a high state of entropy (in a chaos theory or information theory sense - balanced inputs going in and out), whereas during trends the market has found order. One can look at markets as constantly seeking order, and when they find it, they move surprisingly fast. As we just found out.

Some might nitpick with the importation of scientific technology into a market context, but I think this is on target.

I think of it in terms of the likelihood that the price movement direction between time t1 and t2 will be the same as the direction between time t0 and t1. The likelihood is MUCH higher during certain phases of the market than during others. Rigorous analysis of this shows that most talk about "trends" in the market is complete garbage. One of the more popular analyses that get at this point is the "If you were in the market these X-number of days, you could have been out of the market the rest of the year and still outperformed". That "X-number of days" are the days in which the market actually had a "trend" and the rest of the time was just oscillation around a mean with a slight directional bias.

[Chico]

The mindless machine did what a human market maker would never do. A person would have realized something odd was up and stopped.

Exactly. This is certainly not the "Nature's Law" R.N. Elliott had in mind. I bet the algorithms are reworked to account for this type of environment in the future.

[Chico]

If the likes of Kenny, Daneric, Shankey, etc. are totally convinced that this is the beginning of P3, I would say that this consensus is one helluva CONTRARY indicator - - - especially given the fact that these guys have been so totally WRONG for so very long.

On the other hand, Neely thinks we've seen the low for a while, and is even talking about possibly going long next week for the FIRST TIME IN A YEAR! (He did have one very short-term trade for hourly traders only during that time frame.) That might mean a lot more downside to come!

[usdollar]

Can we not just have seen a flat wave X were the sharp before it was W, and Y is still on its way finishing in the beginning of July with a new high. The dollar should consolidate around 86-88 on index.

[Account Deleted]

Yelnick !!

The time taken by C wave is way too much in comparison to the A Wave in WaveRusts triangle.

Regards
VB

[Account Deleted]

Yelnick !!

I have another count in mind.Take it into consideration if possible.

I would like to complete the A leg correction from 2007 as follows.From 26 th Dec07 as a Double Combination Ending with a Triangle.The first combination being 1499(26/12/2007) to 840(10th Oct2008),followed by an X wave.The second Combination starts from 4th Nov2008 as a Triangle with a Large C wave."a" Wave from 1007 to 741,b from 741 to 944(6th Jan2009),c wave 944 to 666,d from 666 to 930(May08,2009),e ending at 869(July08,2009)The Triangle ended on July9 2008.The B Wave actually Starts from July8 2009.

The the Breakout(Thrust) from this triangle achieved near abouts 125 % pattern implication.The widest leg of the triangle C leg measuring around 278 points(347 points being 125 % of 277).347 added to 869 comes to 1216 and this is what we achieved in this rally.

Kindly consider this view.I would like to know your opinion on this.

Regards
VB

[trendlines]

After Shanghai broke through 2700 level, went back to the drawing board and here's the analysis:

http://trendlines618.blogspot.com/2010/05/shanghai-composite-zig-zag-correction.html

Still projecting another wave upwards at the end of this correction.

[DG]

Exactly. This is certainly not the "Nature's Law" R.N. Elliott had in mind.

It seems like an arbitrary distinction to say that because a computer did something, it isn't part of "Nature's Law".

Since humans set the limits of what computers can do, one can make an argument that the "Nature's Law" aspect of it is in the fact that mass psychology was configured such that humans delegated decision-making to computers in the name of efficiency.

I don't see any reasoning behind your distinction other than to say that because the outcome was an extreme outlier, it can't been part of the same processes that had been generating outcomes up until that point, but many market statisticians take it for granted that the distribution of prices which has been observed from the beginning of market history is provisional, and could be exceeded on any subsequent day.

http://en.wikipedia.org/wiki/Hurst_exponent

"Practically, in nature, there is no limit to time, and thus H is non-deterministic as it may only be estimated based on the observed data; e.g., the most dramatic daily move upwards ever seen in a stock market index can always be exceeded during some subsequent day."

On this basis, I don't see any need to throw out the baby with the bathwater.

[Steven_737]

www.zerohedge.com/article/smoking-gun-document-could-terminate-george-papandreous-career

[TraderQ]

Market plunge was 100% Elliott-Gann natural law.

Anyone with a Gann background can prove it was natural law with a simple Gann technique he taught in his courses.

Market did exactly what it had to do.

[Michael]

"High Frequency Trading programs in a market with no liquidity because of trading halts on the NYSE. You can't tell me stocks going from $40 a share to a penny and back to $40 in a matter of minutes is the result of HUMAN mass psychology. That was an exaggerated example (ACN), but NASDAQ canceled trades on 296 stocks. Those canceled trades greatly affected index values. And then we have wave analysts looking for fibonacci relationships in those index prices that were based on fictitious prices. What a waste of time." - Chico

Agreed 100%

There was no HUMAN "mass psychology" that occurred in the 3 minutes of time during which the NYSE "Liquidity Retention Point" rules kicked in, in a number of large-cap companies that make their home and primary market on the NYSE.

Why anyone would infer otherwise ... and/or base their trading methodology on "Intermarket Sweep Orders" (ISO) printing stocks down to pennies on miniscule volume is absolutely beyond all rational comprehension. I would highly suggest that anyone that trades the equity market in an active manner, sit down and take a moment to research just what an ISO order is, and how it prioritizes speed over price.

Pinning human mass psychology as the basis for such an event might fit conveniently with an Elliott Waver's BIAS as to how they view the markets, but to suggest that human's and massive bearish psychological sentiment were actually pulling the trigger and unloading 100 shares of Accenture at $5.34 at 2:27.50 via an ISO is downright laughable - - - especially given the fact that the stock had just traded down from $38.05 to $32.62 on 3,780 shares via ARCA on the NYSE just 7 SECONDS EARLIER!

Two seconds later, a 100-share ISO in Accenture went through at a price of $4.04 and a few moments later a flurry of intermarket sweeps orders went through on the Nasdaq driving the shares down to $1.84

At 2:47.53 PM., a 100-share order traded at 0.01 on the CBOE, along with a couple of other trades at this price.

Far be it from me to actually calculate fib-relationships off of the major market indexes ( from last Thursday ) in order to provide a technical basis to an Elliott Wave Theory going forward ... given that several stocks in the SPX traded at 0.01 cents, while other large-cap names like PG showed a $51 BILLION differential in market-cap between the NYSE price, and that of what traded on the Nasdaq.

Good luck with that kind of analysis, and rationale.
Better luck trading off of it!
:)

[TraderQ]

Here is the Smoking Gun that decline was Natural Law....

http://3.bp.blogspot.com/_OSfvk1xrysQ/S-YsVj5Ir9I/AAAAAAAAERY/yroL5PgD-3g/s1600/1422caldays.GIF

Source: http://csiwallstreet.com

[DG]

"Pinning human mass psychology as the basis for such an event might fit conveniently with an Elliott Waver's BIAS as to how they view the markets, but to suggest that human's and massive bearish psychological sentiment were actually pulling the trigger and unloading 100 shares of Accenture at $5.34 at 2:27.50 via an ISO is downright laughable - - - especially given the fact that the stock had just traded down from $38.05 to $32.62 on 3,780 shares via ARCA on the NYSE just 7 SECONDS EARLIER!"

Accenture is not a determinant of mass psychology. For that, one needs to look at the broad indices.

No wave theorist gives two figs about Accenture's chart pattern. Period.

[TraderQ]

Looking at that 1422 day cycle, it has caused some other interesting drops. Famouse one being the June 1932 panicky 10% slide.

June 1932 was 20 cycles of 1422 ago.

[Chico]

Here is the Smoking Gun that decline was Natural Law....

TraderQ, I'm not questioning whether the market should or shouldn't have dropped that day. I was short going into Thursday, after all. The market was already down sharply before things got out of control. I'm just questioning the magnitude of the drop on the major indexes.

[DG]

"Accenture is not a determinant of mass psychology. For that, one needs to look at the broad indices."

Further to this point, Neely doesn't even think that one should do wave analysis on non-monetary commodities (basically anything but gold), because the weather and natural disasters can influence their chart patterns, which takes them out of the realm of mass psychology. I agree with him on this point and avoid those markets as a result.

The critique of Elliott Wave put forward on the basis of ACN's adventures on Thursday is ludicrously childish and based on a simplistic idea of what wave theory "is". ACN is less than a microscopic ripple in the giant ocean of wave theory.

As for "trading" off that Thursday pattern, I said just before the dump:

"Any .99 SPY point rally that takes less than 28 minutes is a buy.

Posted by: DG | Thursday, May 06, 2010 at 11:44 AM"

So, I had no problem knowing where to buy any rebound and, in fact, identified a good buying price to the penny and the minute. Doesn't get much more explicit than that. And I only use wave theory, although I don't use it "out of the box" and I've customized it to incorporate logical extensions of the theory based on the concept of a "market regime", which itself is a variant on the concept of "mass psychology".

[DG]

"I'm just questioning the magnitude of the drop on the major indexes."

In any statistical distribution, there are outliers.

[TraderQ]

Chi wrote: "I'm just questioning the magnitude of the drop on the major indexes."

Extreme 3rd wave impulse extensions can reach as far as 4.618 times wave 1. SPX reached for that 4.618 Fib area in an extreme move. Evidently many market makers and computer systems had difficulty with an extreme Fibonacci 4.618

Nature's Law has many more 4.618's in the future and am fairly sure they will cause more human error and more blame.

"Guidelines: Impulse waves
It is difficult to predict the ending of the 3rd wave. It may be equal to first wave or 1.618 times the first wave. In case of extensions it can be also 2.618 or 4.618 times the first wave. Third wave is usually steeper than the first wave, sometimes straight up or down."

Source: http://www.learning-to-invest.com/Elliot-wave---guidelines-for-wave-framework--60.html

[Dsquare]

This week's market crash.

"here is a guy giving a webinar who seems to think that he is on an old screen, until about 1min, 20 seconds when he realizes the screen is live and the market is crashing; he then goes TOTALLY berserk"

http://www.businessinsider.com/guy-goes-crazy-while-giving-a-webinar-during-the-crash-2010-5

[Michael]

"Accenture is not a determinant of mass psychology. For that, one needs to look at the broad indices. No wave theorist gives two figs about Accenture's chart pattern. Period." - DG

Once again, your lack of intelligence is downright shocking.

Accenture was simply used as an example of how "ISO" influenced a number of stocks during the 3-minute "Crashette" last Thursday. My having highlighted Intermarket Sweeps Orders obviously went way over your head.

Your lack of reading comprehension and strong tendency to only "fit" what you want to hear or see with regards to Wave Theory truly trumps all ability to logically reason.

The next thing you will be telling all of us is how such market-cap behemoth's as PG and MMM are not effected by ISO's and have nothing to do with the S&P 500, let alone other common broad market indices that are used by practitioners of Elliott Wave.

LOL!

[DG]

"Your lack of reading comprehension and strong tendency to only "fit" what you want to hear or see with regards to Wave Theory truly trumps all ability to logically reason."

Eh, you don't see me asking you for any advice about wave theory and its application, do you?

Frankly, I find your level of "insight" into wave theory at the level of an infant. I'd no more take advice from you about it than I would from a child fresh out of the womb. In fact, the random babblings of a baby would probably be more coherent in discussing wave theory than anything you've stated.

"The next thing you will be telling all of us is how such market-cap behemoth's as PG and MMM are not effected by ISO's and have nothing to do with the S&P 500, let alone other common broad market indices that are used by practitioners of Elliott Wave."

Again, don't care. Those are a couple of stocks in a 500 stock index, i.e. 1-2% of the total number. At the margin of index value calculation, do they matter? Sure, but for my purposes that's basically irrelevant. If 3M being down shaves a couple of points off the cash index print, 99.9 times out of a hundred that's not going to impact my wave analysis.

Is there a way I can say "don't care" that will make you understand that I don't care? Maybe if I switch over to saying it in Spanish or something? Cuz I'll say it that way. I just would prefer that you get the message that I don't care. Oh, and in case you're wondering, I won't ever care. And by "ever" I mean for pretty much the rest of the time I have the unfortunate experience of seeing your postings here.

Are some of these things starting to penetrate your thick skull yet?

You trade your way and I'll trade mine. You make your assumptions about markets and I'll make mine. You identify the things you think are important and I'll identify mine. All I know is that the real-time trade calls you've made have been pretty crappy, so it's not as if I'm blown away by your ability to translate your knowledge of ISO's into something of trading value. Seems to me that you might make a better historian of the evolution of ISO's than you make a trader. Think about it.

[Michael]

"Again, don't care. Those are a couple of stocks in a 500 stock index, i.e. 1-2% of the total number. At the margin of index value calculation, do they matter? Sure, but for my purposes that's basically irrelevant. If 3M being down shaves a couple of points off the cash index print, 99.9 times out of a hundred that's not going to impact my wave analysis." - DG

DG, your response is quite telling.

Once again, you show yourself to be a total ROOKIE and have no understanding of the market index that you are using to base your "theory" off of.

Contrary to your claim that PG and MMM are merely "a couple of stocks in a 500 stock index, i.e. 1-2% of the total number", you obviously don't understand that the S&P 500 ( that you base the interpretation of your wave theory on ) is a market-capitalization WEIGHTED index.

Most people are fully aware that PG and MMM accounted for 400 points of the Dow Jones drop. Moreover, they are also fully aware that those stocks also had a substantial effect on the S&P 500 because of their market cap. For example, the last time I checked PG had roughly 2.9 BILLION shares outstanding and was ranked as the 5th LARGEST CONSTITUENT in the S&P 500!!!

http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--

If you were actually aware of how the S&P 500 was calculated, you would have never mentioned that PG and MMM were only 1-2% of the index. But you did, and everyone here reading this can see just how naive and ignorant your reply was.

You obviously have absolutely zero clue about how one of the most basic stock market indexes and important benchmarks is calculated - - - - let alone the index that you use to apply your Elliott Wave Theory to!

Congratulations.

The more you post, the more of a naive, ignorant, and pompously arrogant "rookie" you show yourself to be.

:)