The Market is Jittery - What to Watch

We are in a serious downdraft yet the chorus of calls for a rally is increasing. After all, the last two corrections in the Hope Rally ran about this far in time before turning. The mark-to-close airpocket in the last 15 minutes today, however, has made the bulls jittery. They fret over Asian markets opening down, even though that is typically a reaction to US markets, not a harbinger of tomorrow; and they may panic when they see how strongly futures are down in the after-market - Dow below 10K, S&P down below 1060 - even though they tend to mislead more than predict the next day's market open. Are we about to crush through Dow10K and stay below?

Comments to my prior post give a good range of orthodox wave theory expectations, and I recommend taking a look at them. Neely expects a sideways move with sharp ups/downs - a triangle (of course). EWI has been calling things pretty well since April 26, but interesting the STU tonight is on the cusp:

1. Friday's opening low could have ended a wave 1 down, and today could have ended a wave 2, setting up a powerful drop .. with the caveat that normally waves 2 retrace more than this has
2. Friday could have ended a minor wave iii within wave 1, and we would be in a wave iv that may have ended or may float sideways a bit longer (developing into a triangle, albeit a smaller one than Neely's)

EWTrends provides a useful chart to see these two possibilities. They label this as STU Option 2, the wave iv triangle (their blue 4). Simply by making the blue 3 as the end of wave 1, you can see STU Option 1, and also see how the retrace off Friday's low has not been very impressive. It would normally go back above the gap noted on the chart around Sp1110:

 

EvilSpeculator has a similar view, that we are on the cusp of either a normal wave 2 rebound at least to Sp1110 if not Sp1135; or a deep drop that should run below Dow9K and Sp1K - and stay below the magic Dow10K level. (If you feel jittery, you might subscribe to his service to see his more detailed analysis and target levels.) 

The STU advises to watch the strength of any decline tomorrow. Under Option 1, if wave 2 has ended short, downside volume & breadth should accelerate with a drop. Under Option 2, if wave iv has ended, the drop is a wave v and given the vigor of wave iii, should fall on modest volume and diminishing breadth, signaling distribution towards a bounce. Of course in both cases waves 2 or iv may break in a complex way instead, and we go up tomorrow. Even the STU's advice seems to jitter a bit. 

One way to try to parse through these jittery wave recommendations is to apply a little Bifurcation Theory. Given some time tomorrow I may put up a pencast describing how Bifurcation would apply to the Hope Rally. If you look at the past four days and stretch the chart, as in the next chart from Kevin's Elliott Waves, you can see how the market has been in a box for the past three trading days:

In Bifurcation terms, this defines a "plateau" after a sharp thrust down. The core wave or fractal of Bifurcation Theory is a thrust and a plateau, and plateaus tend to break on a triple top or bottom. This one is defined with a top along Sp1090 (ignore the false break to Sp1095) and a bottom along Sp1070 (again, ignore the false break to 1055). 

What to watch is a break out of the box, either above or below, that stays above. After the false break above and another one below, the next break will be defining. Hence:

• A break below 1070 means to follow the advice of the STU above, to look at volume to determine how deep the drop will be
• A break above 1090 points to STU Option 1 as well, in this case meaning a wave 2 retracement at least to close the gap above Sp1110 before the deep drop
• A continuation inside the box points to STU Option 2, a wave iv breaking sideways and then a relatively anemic drop followed by a strong wave 2 rebound up towards Sp1035 or higher

Comments

[Hockthefarm]

The Prechter bashing on the board seems to have subsided of late.

Here is why I follow Prechter. I call it slow motion Prechter. Given time, his long term views of the world seem to pan out. I think there is a lot of value in that:

http://tinyurl.com/23rkecq

On the other hand, you have the jello that run this country and believe debt is something in Peter Pan's pocket.

Hock

[Roger D.]

ES down -26 half way to the limit move. Will the PPT come in at 4:00 est?

[Roger D.]

German DAX opens -150 right on support. I doubt it holds the session.

http://www.screencast.com/users/parisgnome/folders/Default/media/296bee1a-8e61-4621-bac3-8444b44b4799

[Roger D.]

The ES tonight. That is one butt ugly chart and looks to drop towards down -40+

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/50e7659a-5c0b-4ba6-8458-267d5a3873c1

[Roger D.]

Good night and sometimes you can get lucky...

could be the biggest bull trap in history.

MCD's kiss goobye to the lower trendline. Looks like we finished a 1 down this morning and completed broadening top formations. This rally is only for short term traders as the collapse wave down will follow. A historic panic will take place after this "sucker" rally runs it's course.

Beware!

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/c4016b4a-579e-4aa9-9735-71c6996216a0

[min]

"Here is why I follow Prechter. I call it slow motion Prechter. Given time, his long term views of the world seem to pan out. I think there is a lot of value in that:

Hock"

DOW 400 WILL NEVER HAPPEN NOT EVEN IN A 100 YEAR PRECHTERIAN TIME FRAME. YOU CAN "HOCK THE FARM" ON THAT PREDICTION. (UNFULLFILLED FOR 23 YEARS AND COUNTING)

GOLD SUB $200/oz UNFULLFILLED FOR 30 YEARS --WILL NEVER HAPPEN IN ANY USEFUL TIMEFRAME.

REAL ESTATE WILL GO TO 10 CENTS ON THE DOLLAR (FROM 2001 PRICES PER AN EWT CIRCA OCT. 2001)--WILL NEVER HAPPEN. SO FAR PRICES ARE STILL AT ABOUT DOUBLE 2001 PRICES IN SOME AREAS. SEVERELY CORRECTED AREAS ARE MAYBE AT 2001 PRICES. --PREDICTION UNFULLFILLED FOR 9 YEARS AND COUNTING.

I could go on but I've made my point.

As long as you use Prechter as a Contrary Indicator or are not a trader, Prechter can be an amusing side-show of some small value. Other than that be careful.

Think I'm exaggerating?

Take an unbiased look at his record at this link:

http://www.cxoadvisory.com/individual-gurus/robert-prechter/

He's in the bottom 2%. Even his calls during the 2000-2002 Tech-Wreck had some serious flaws if you were attempting to trade based on his calls.

[roger z]

If all markets are closed for days or weeks due to crises, Prechter's prediction of sub 400 will be correct.It has happened before.

[bob m]

Why is oil still dropping like a rock? The talking heads on TV (which I watch with the SOUND OFF generally) describe this as more "risk reduction" (which they WROTE in an alert box).

What do you guys make of this? To me it says that someone somewhere thinks industrial production is coming to a standstill.

[bob m]

Hey Mamma, do you think gold is de-coupling? It is looking pretty strong against pretty weak stock?

[?]

Bob,

Try this:

http://www.businessweek.com/news/2010-05-23/hedge-funds-sell-crude-fastest-in-eight-months-energy-markets.html

[bob m]

Thanks "?". Yeah that tells THAT there is a sell off and WHO is selling, but I think the WHY is still missing. Sure there is apparently excess supply, but what are the larger implications of this. I think it helps with the bearish scenario because it seems like the price of oil forecasts direction of production.

[min]

"If all markets are closed for days or weeks due to crises, Prechter's prediction of sub 400 will be correct.It has happened before.

Posted by: roger z"

Somewhere in time it is probably possible.

Will Prechter you or I live to see it though?

If not, is it that relevant?

Is it a useful prediction in such case?

[marketman]

So much "wiggle" room in all of these EWT forecasts that you could drive a Mack truck through them . . . How anyone genuinely trades off this stuff is absolutely beyond me. You'd be much better off as an active trader looking at support and resistance levels in conjunction with some fib retracements and a few significant moving averages, with a top down approach applied to Weekly, to Daily, to Hourly charts.

[Mamma Boom Boom]

You've just gotta love the looks of the SPY Chart.

----------------

bob m , gold just doesn't seem to be able to get out of it's own way. The world is coming apart and it can't get going.

[Steven_737]

"How anyone genuinely trades off this stuff is absolutely beyond me"

How do you trade off the other stuff?

cheers :)

[Roger D.]

Micky D's supercycle wave V EDT

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/25147620-1f9a-4d60-b7c0-116ad8cabcd0

[Hockthefarm]

min wrote:

DOW 400 WILL NEVER HAPPEN NOT EVEN IN A 100 YEAR PRECHTERIAN TIME FRAME. YOU CAN "HOCK THE FARM" ON THAT PREDICTION. (UNFULLFILLED FOR 23 YEARS AND COUNTING)

Well, I'd be inclined to agree with you on the 400 Dow mark. But if it is 2000 to 4000 in the next 6 years, does it really make any difference? I don't think it does. He will have essentially saved the gommy gocks their retirement savings. Now if it turns out that we hit 40,000 on the Dow before we hit 2000 to 4000, well hats off to you. Following Prechter will have been bad news.

GOLD SUB $200/oz UNFULLFILLED FOR 30 YEARS --WILL NEVER HAPPEN IN ANY USEFUL TIMEFRAME.

Yes, he has missed his gold calls to date. To me, golds main use is that it is something for some greasy little bastard to rub while he is hunched over in his own feces. Like throwing Monopoly money up in the air in some 3rd world shithole at high noon. I guess I'm willing to give it more time.

REAL ESTATE WILL GO TO 10 CENTS ON THE DOLLAR (FROM 2001 PRICES PER AN EWT CIRCA OCT. 2001)--WILL NEVER HAPPEN. SO FAR PRICES ARE STILL AT ABOUT DOUBLE 2001 PRICES IN SOME AREAS. SEVERELY CORRECTED AREAS ARE MAYBE AT 2001 PRICES. --PREDICTION UNFULLFILLED FOR 9 YEARS AND COUNTING.

Well, where I'm looking in the USA, prices are off 200 to 300 k$. That is in spite of massive, massive, massive gubmint intervention. If we see another 100 to 200k$'s off in the next few years, we will buy. That will cover his subscription costs don't you think? 10 cents on the dollar is hardly the issue.

What Prechter said in 2003 was that we are in for a debt deflation and here is what that means. I've seen nothing since that alters my view of that. I'm getting richer every day by just hanging onto what I have. And that was Prechter's real message.

Hock

[Steven_737]

The drop to 1036.75 has no clean subwaves;
There is divergence on the Hourly and 15 min chart; so a retracement is in order.

Although minimum targets for w5 have been reached, I think that there will be more downside action after GAP players try to close the gap producing ii of w5 and the setup for iii of w5.

Lets see if the setup for iii shapes up

[Roger D.]

The Dow Daily. I expect when this releif rally is over we then break support.

http://www.screencast.com/users/parisgnome/folders/Default/media/89229ac7-822f-40c4-9230-16ae3c6f977a

[Account Deleted]

Yelnick !!

Is Neely still sticking to his B wave Triangle count.Can u throw some light on his recent count.Asking u cos a triangle formation seems a bit too difficult here,although technically Neowave still allows for a larger C wave Horizontal Contracting triangle but how on earth that would give the necesssary thrust to make a new high I fail to understand.

Regards
VB

[Account Deleted]

Yelnick !!

Is Neely still sticking to his B wave Triangle count.Can u throw some light on his recent count.Asking u cos a triangle formation seems a bit too difficult here,although technically Neowave still allows for a larger "c" wave(c wave of Triangle since 11300 that Neely is assuming) Horizontal Contracting triangle but how on earth that would give the necesssary thrust to make a new high I fail to understand.

Regards
VB

[Roger D.]

IIRC Neely had the Euro in a triangle with a turn in the 1.27 range.

There are many triangles in equities at present. MCD is a perfect example, a EDT with a series of drops with a full blown panic to take us back to the March lows,then the 1st real bounce.

Roger D.

[Steven_737]

ES is likely to find its ii top in the range 1062~1069 (Fibonacci retracements).

NQ may retrace for its ii top in the range 1797 +-10

PRELIMINARY Targets for iii are:
ES 1005 +- 15
NQ 1710 +- 24

cheers

[Steven_737]

marketman,

if the retracement starts looking like a rally above the estimated ii top,
then price action will be saying that we should reconsider the expectation of an iii setup
and start thinking that the next leg UP is in the works.

Counting the waves on the assumed ii wave (or the w1 wave of the "rally in the works") would provide hints about the outcome.

Watching your favourite momentum indicator and emas wont hurt either! :)

cheers

what stuff do YOU use to trade?

[Roger D.]

Here's another wedge.

http://www.screencast.com/users/parisgnome/folders/Default/media/9518d59e-2523-409d-a493-44cb9b7a8b64

[Michael]

I'm a BUYER of ACI, BTU, CNX, CLF, NRP, and RIG.

[Steven_737]

"I'm a BUYER of ACI, BTU, CNX, CLF, NRP, and RIG."

Michael
whats your entry signal, your entry price, your stop and your target?

which time frame for guidance
which time frame for triggers and for trade management?

:) :)

[marketman]

"Counting the waves on the assumed ii wave (or the w1 wave of the "rally in the works") would provide hints about the outcome." - Steve

And by the time you have some confidence in coming up with the "correct" count, the high BETA stocks will have already surged nearly 10%.

:)

[yelnick]

bob m - read my recent post on the Commodities Bubble Echo.

http://yelnick.typepad.com/yelnick/2010/05/bubble-echo-in-commodities.html

Oil is dropping because the speculative fervor driven by (a) carry trade (b) Bernanke QE (c) nefarious Goldman activity is ending. Goldman being called on the carpet seems to have slowed their backroom trading. Bernanke ended his QE in April. The carry trade has been unwinding since the Flash Crash (risky to hold positions when currency cross rates get volatile). Read these for more:

http://yelnick.typepad.com/yelnick/2010/05/aud-tumble-down-under.html
http://yelnick.typepad.com/yelnick/2010/05/run-from-the-euro.html
http://yelnick.typepad.com/yelnick/2010/05/the-case-against-the-aud.html

[Steven_737]

marketman,

what stuff do YOU use to trade?

[Roger D.]

The Dow 60 minute

http://www.screencast.com/users/parisgnome/folders/Default/media/0871e567-7058-4fd9-9600-ccdf4bca2cf4

[bob m]

Excellent Yelnick - will do

[Steven_737]

setup generation:
setups not confirmed yet

ES, NQ testing OR top at 1051.5 and 1780

If price action bounces, there is a fast trade on the 2 min chart targeting S2 at 1057.5 ES and 1791 NQ.

caution: the setup is countertrend,
it is a wave v trade that may produce a double top at S2

good trigger is a momentum trigger and crossing the flag definition line.

:)

I will not trade counter trend; I do not give speculation/investment advice; dont take this trade
ONLY WATCH IT TAKE PLACE (if the setup confirms).

your turn now

[Steven_737]

what is the flip side?
there was rejection at the S2 level;

it is lunch time and noisy market;

the trigger may be false to hook Longs
and then take the stops at the OR level-1 tick

Higher time frame momentum is DOWN
swimming against the current is not advised.

[Steven_737]

clarification

the levels ES 1051.5 and NQ 1780 are "A up" LEVELS

price action bounced

not triggered yet

[Steven_737]

ES triggered at 1054
NQ triggered at 1785

[Steven_737]

ES using 2 point stop
NQ using 3 point stop

[Steven_737]

stopped out

[Roger D.]

Nice little H&S pattern forming in the Dow. This drop will really be frustrating for the bulls.

[Steven_737]

momentum shift on 15 min and 5 min chart;
it appears that gap traders gave up at lunch time;

GAME PLAN
identify the 1st 5 wave sequence down - i - and then wait for the flag ii to form
trade the flag capturing wave iii

PS. GAME PLAN NOT TRADING ADVICE
etc

cheers

I asked you guys a couple of questions, out of sincere interest,
why not answer?

[Steven_737]

There is still time for another try to retrace to the previously mentioned levels;

in the case of such "bullish" action, a 5 wave sequence to the downside will not be found (on the 5 min chart) and no short trade will set-up.

For counter trend traders; if price action so far has been a-b-c-x then the next move is a 5 wave sequence to complete ii;
the task is to identify when x is done and take the flag trade.

I do not like counter-trend trades on small time frames.

your turn guys....

[Mamma Boom Boom]

>I asked you guys a couple of questions, out of sincere interest,
why not answer?<

I missed it, what was it?

[Steven_737]

hi Boom Boom :) :)

the questions were:

1)
Michael
whats your entry signal, your entry price, your stop and your target?

which time frame for guidance
which time frame for triggers and for trade management?

2)
marketman,

what stuff do YOU use to trade?

[Mamma Boom Boom]

Oh, those.

[Steven_737]

you got clf at the pivot (49.41)
time to lighten up some
and pull the stops in

[Michael]

Steve,

I'm extremely busy trading/scalping/positioning today. I will answer you after the close if I have the time. The Coal and iron ore stocks are surging today and I want to be LONG these names.

[Steven_737]

5 wave sequence up completed;
the 5th wave as an ending diagonal (what else is new?? !)

time to lighten up the longs; pull the stops in on the remainder;

[Michael]

HINT: ACI did not make a new low for the move. CLF did not make a new low for the move. BTU made a nominal new low and came back into the range. There are buyers in these names today... and they will turn faster and harder than you can count waves. I specialize in trading only 1 or 2 sectors, and they are energy related.

[Steven_737]

Game plan says that in the next few minutes price action will retest the 15:50 highs
and probably make some sort of a double top.

[Steven_737]

ok thanks;
I would appreciate some more tacticts that you use
:)