Weekend Bits

When the market bumps along a trading range, it frustrates bull and bear alike. I think we are about to sprint up in the Summer Rally. First, let's look past the news, which is mixed at best: 

• ECRI below 10% signals double-dip but UK showed surprising GDP strength avoiding double dip
• Some banks failing EuroZone stress test, but Euro remains bumping up near $1.30, further depressing Euro recovery
• Bernanke seeming to back off monetary stimulus in favor of fiscal, which has huge implications for the double-dip. 

For ECRI fans, here is a good chart by Doug Short which shows we have entered recession territory, accompanied by analysis of what this has signaled in the past, which I can summarize as: the Fed bailed us out of negative ECRI indications previously by lowering rates, but they cannot go any lower this time

 

Unemployment shows we are still in a jobless recovery, and it may be structural since we rely so much on production overseas rather than filling our factories. As David Rosenberg opines, the bad news is good for bonds, and can be good for stocks in the short run. How good? 

We may now be in the proverbial Summer Rally, and it may be short but sweet. Consider this chart from EWP:

It says we remain in the Big Tease, and the market is about to run up fairly strongly into the turn of the month towards Sp1150. The Big Tease has us still in a wave 2 corrective mode since the Flash Crash, an "expanded flat" where the B wave breaches to a lower low but reverses: the bounce up to Sp1131 was wave A, the drop to Sp1011 was wave B, and we remain in wave C. Given waves (I) and (II) as shown above, we would now be in wave iii of (III) of C, and should now run fast. To support that view, EWP notes how we have been rising in 5 wave moves and declining in 3 wave moves, indicating the direction is up. This would be the happy Summer Rally.

Of the major pundits, Neely thinks we are in the middle of the his wave B and hence the least predictable part. He has wave A being the run from Feb5 (1045) to Apr26 (1220), and the Flash Crash and its aftermath as a wave B triangle. Leg A down was the Flash Crash, leg B was the bounce to 1131, and we remain inside leg C.

Prechter's service had a high-odds count earlier this week that got blown up yesterday. Tough business being a pundit. Their special STU yesterday held to Sp1100 as a barrier, but we breached it today. Their alt count allowed for that, and today they posited their continued view of a nested 1-2 i-ii. The inside wave ii has gone 78%. Theoretically it could go back 99% and go really close to 1131, but practically it shouldn't be much beyond 78%. Hence they may have to fall back on their other alt count, which is similar to the Big Tease, albeit they expect the final wave to end around the June high at 1131. 

Curiously, if it does push to 1131 level and then drops, rather than setting up the dreaded 3 of 3 down, it might instead signal an inverted head & shoulders with an upside target of 1250. The head & shoulders is often seen and seldom realized. A number of bloggers today also anticipate a leading diagonal, again a rare pattern which some pundits (Neely) do not recognize. Here is the inverted h&s chart at Slopeof Hope:

 

I am working on a posting a discussion of 1937, which seems to match the current economic climate better than 1929, 1987, or a plethora of other analogies that fly around the blogosphere. A good summer rally and then a terrible plunge match the market pattern in 1937. 

Comments

[Trader 123]

How many ALTERNATE counts must EWI go through before they are correct on what is actually occurring in the market?

The last 12 months for EWI has been utterly ridiculous.

And for those of you that continue to be short and HOPE and pray for a "double-dip" and the deflationary collapse that EWI has been calling for . . . you must not have seen Copper trade up at $3.20 this week!

[DG]

I think the set-up leans more bullish than bearish right now.

http://yfrog.com/59spxdailyjuly5p

Posted by: DG | Tuesday, July 20, 2010 at 06:35 PM

OK, so the break out above the wave-a high from July 13th implied by that chart has happened, it's still anyone's guess where we go from here (with one exception: WE ARE NOT ABOUT TO HAVE A WAVE 3 DOWN).

Almost anything other than that is feasible and, if that wave structure I've plotted is correct, it will go higher.

[Biased]

this rally will last until August 26th.

p.s. - really enjoy your summaries and collection of ew analysis from around the internets, but I think elliott wave is voodoo.

cheers

[Biased]

oh, and "jobless recovery" is an oxymoron.

cheers

[Roger D.]

The magnificent wave 1 and wave 2 chart of the ETF JNK.

finally finished??

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/b1c6b544-b573-4b25-b15f-c01dd2a2ea2b

[Roger D.]

JNK 5 minute

http://www.screencast.com/users/parisgnome/fold...

JNK 1 minute

http://www.screencast.com/users/parisgnome/fold...

Roger D.

[Roger D.]

JNK 5 minute

http://www.screencast.com/users/parisgnome/folders/Default/media/ec2b696d-797f-4376-84d0-946d28006bb4

JNK 1 minute

http://www.screencast.com/users/parisgnome/folders/Default/media/ee20552c-24e7-4627-b899-890b31d89725

Roger D.

[DG]

Can you say you pocketed $11,600 today....from yesterdays
close will can ya big guy!

Posted by: Roger D | Friday, July 16, 2010 at 09:38 PM

By my reckoning, you're now out at least $11,600 from last Friday's close.

I also recall you saying that you weren't a "day trader", yet you're posting 1-minute charts.

I also recall you saying that if the wave down that started last Friday didn't turn into a 5-wave move, you'd quit Elliott Wave and that last Thursday's high was "the most historic top in all of US history".

More lies, terrible market calls and BS from the guy who can't trade his way out of a wet paper bag.

[Cary Lloyd]

Stop the nonsense dg. You are simply outclassed here andthe facts arenot on your side. Roger is entitled to a bad day or two. Would that my track record were as good!

[Chabazite]

I wouldn't read too much into the UK GDP figures, Yelnick. According to the BBC 'There was a big contribution from the construction industry, which grew at its fastest pace since 1963, in part because bad weather at the start of the year meant builders were catching up on work that should have taken place then.' Also some suggestion that the previous administration's 'spend, spend, spend' policies had an inevitable effect on the numbers. A couple of views here:
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/07/risk_politics_and_gdp.html
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/07/a_pleasant_surprise_on_growth.html
Will await the monthly revisions with interest.

[Bird]

Some few of you will recall my post re a "time code" theory that, among other patterns, linked the two World Trade Center bombings with Pearl Harbor.

I think that very same pattern is in play NOW. I think it means that the conflict with North Korea is going to get ugly soon.

The "surprise attack" period involve the U.S. surprise attacks was around 3118-3119 days. One period up from Pearl Harbor is 17 June 1950--about 8 days prior to the invasion by North Korea across the 38th parallel.

3118 days from the 9/11 attack was another surprise attack: on 26 March 2010, North Korea appears to have sunk the South Korean ship. This is a precise link.

Since surprise attacks in the U.S. are the basis of this link across time, the conflict transcends a local skirmish. I think it means war. 27 July, 6 Aug and 9 Aug are coincidental dates to watch in particular (give or take a day).

[MARK HOLSCHER]

DG DG DG YOU ARE TALKING FROM A WEAK POSITION.....
PROOF: YOUR BEHAVIOR!
WITHIN THE BOUNDRIES OF THE MARKET PLACE ARE BUYERS AND SELLERS, EXPECTATIONS OF PRICES GOING UP OR DOWN. THE PLAYERS ARE SAYING THIS OR THAT IS THE MAJORITY. THE MINORITY SPENDS THERE TIME CRITICAL OF OTHERS(BACK BITING)THIS IS A WASTE OF TIME AND UNPROFITABLE FOR THE EDIFICATION OF ONES BROTHER. BUT BY FREEWILL EVERYONE HAS THE SAME RIGHTS TO EXPRESS THEMSELVES.

THE KEY: THE RATIO OF THE TRUTH, TO THE LIE WITHIN ONES OWN MIND IS THE DIFFERENCE BETWEEN PROFIT AND LOSS, THE LOVE OF ONES BROTHER IS PROFITABLE, THE LIE OR THE HATRED OF ONES BROTHER IS UNPROFITABLE OR THE DELUSION. YOU ARE THE CRITICAL MINORITY, OR ONE WHO BELIEVES THE DELUSION IS REAL, OR BELIEVES THE LIE MORE THAN THE TRUTH, OR BELIEVES THE CREATURE MORE THAN THE CREATOR, OR BELIEVES IN THEMSELVES MORE THAN ANYONE ELSE, OR BELIEVES THEMSELVES TO BE THERE OWN GOD. THERE IS A PLACE FOR DG AND HIS FRIENDS IN THE MARKET PLACE.
http://knol.google.com/k/mark-holscher/the-enemy-is-on-the-horizon/13nmdnwfdknux/1#

[DG]

Would that my track record were as good!

Posted by: Cary Lloyd | Friday, July 23, 2010 at 07:36 PM

I know you are joking around, because I've seen your past posts.

As someone else said a couple of days ago, the market is in a range and has been for the past 2, almost 3 months, and we first hit the levels of Friday's close on the SPX back in November of 2009. So, anyone calling for a huge decline OR a high rally has been wrong.

The way to trade this type of market is to wait for a valid "contrarian" signal and trade it, with the hope that it turns into a trend, but recognizing that the likely reality is that it won't. Bombastic predictions based on specious wave counts are counter-productive.

Look at a Weekly bar chart (really, anyone doing wave counts should plot charts with the Neely method of two data points per time period, the high and the low, in the order they happened) and it's clear that the decline to the new low in early July was a 3-wave pattern and that at the lows the 3rd wave had not yet extended far enough to be a valid Extended wave in an Impulse.

http://yfrog.com/nespyweeklyjuly2p

Now, in early July, none of this had happened yet, so you had to use the shorter-term charts to determine what the future held.

But, even there (and this was the point I made over and over, to no avail for some), the charts DID NOT support the interpretation that the decline from the rally's peak on June 21st was Impulsive.

http://yfrog.com/6zspydailyjuly1p

So, given that context, the higher-probability call was for a continuation of the range, with a likelihood that it would expand a bit, since the move up from May 25th to June 3rd, the decline from June 3rd to June 8th and the rally from June 8th to June 21st had all of the signs of being the first 3 segments of an Irregular Expanding Triangle, meaning that the next wave should make a new low by a moderate margin and then be followed by a rally.

Which is EXACTLY what happened. The pattern is not yet fully validated, of course, because the full validation will only come if the wave we are currently in makes a new high above the June 21st high or comes very close. Even then, there will be some remaining technical questions about what the pattern is exactly and if it's done or not.

I wish this blog had a "search by author" feature because I would point you to exact posts laying out this argument a month ago. I got pushback from the usual "every fast move down is the beginning of wave-iii of 3 down" posters, but I was right and they were wrong. And the reason they were wrong is because of insufficient rigor in their wave observations and wave theory rule application.

[Mamma Boom Boom]

>When the market bumps along a trading range, it frustrates bull and bear alike. I think we are about to sprint up in the Summer Rally.<

OH SHOOT! Just when I was getting confident. Now I have company.

[Wave Rust]

Duncan,
the market rally ending in '37 was the end of a multi-year bull market ,,,, one of the largest and longest ever seen until recent decades.

The economy was nearly as bad in '37 as it was in '30-'32. I think you recently correctly remarked about the lousy economy into the early '40s until the war production scaled up.

So the market ran up but the global economy languished in depression. By the low in '42, the North American coastal cities from TX to ME, from Seattle to San Diego, from Thunder Bay to Montreal were swamped with unemployed becoming employed by the massive war machine. From 1937 to 1942, North America had resurrected itself faster than any enemy could have imagined. Machinists and metal workers of any sort were worth their weight in gold.

I just don't see the same environment, the same or similar economy.

But I do see the remarkable "match" between the '37-'38 crash and the '07-'09 crash. truly remarkable, imo.

I contend that in 30 years the rear view mirror will show that the analogous stock indices to the Dow's '29-'32 dramatic crash occured within the NAZ indices from 2000. Since it took the Dow 25 years to breach the '29 high, I expect that the rear view in 2040 will be much the same. And as for the Dow and S&P's, well, I think the Dow will outperform by alot and that will begin after 2 things/events happen. The Dow has already had its '29 crash while the ingenue indices are just now coming out of their '29 reduxes. The S&P is like the middle child of indexes: it gets the worst and best of both worlds (Dow vs. NAZ). To me, it's an age thing; "bin there, dun that" for the Dow.

Those 2 things/events are: gold crests above $1800-2300 (soon) and crude retraces to 120-130. Both will then retest recent lows, $250 for gold and $10 for crude ,,,, both lows should be oversupply vs. low demand.

i look forward to your take on the similarities of '37 and 2010 economies and markets ,,,, even though, imo, equity markets and economies are only marginally related, most of the time.

wave rust

[philippine fred]

look for a high later next week maybe weds thurs and then a dip followed by a retrace the following monday and then kaboom, oil is lining up nicely and looks like all the big assets are going to go together.

what i find interesting is that 100% of counts for the sp500 i have seen are wrong, it was a straight forward abc with c the minor wave fib relationship to a from march 09.

will follow up with more on thursday/fri as one index should be leading the way by then, if it isnt then the sp wont be heading down on this schedule,

dg's count looks like a seasame street tutorial lolz

interesting stuff bird thanks

[DG]

what i find interesting is that 100% of counts for the sp500 i have seen are wrong, it was a straight forward abc with c the minor wave fib relationship to a from march 09.

No.

[Trader 123]

While all of the "perma-bears" and Roger's of The World were predicting the beginning of "iii of 3" for the umpteenth time, commodity stocks like CLF, FCX, WLT, and X were breaking out for 20% moves on the week!

EWT appears to appeal to those that don't have much "skin" in the game, or any "skin" at all. After reading EWT blogs like this one (and others), I am convinced of this.

First off, they make the rookie mistake of thinking that there is a high correlation between the unemployment rate and the Economy in general, with that of the equity market. They couldn't be more wrong about such a correlation.

Secondly, instead of doing a lot of homework and looking at various stock sectors inside of the S&P 500 for indications of relative strength or weakness, the "Rogers of The World" do nothing more than simply chart the S&P and continue with their BIAS and absurd predictions of Armageddon.

They believe that they have credibility with someone like Bob Prechter and Steven Hochberg in their "camp". Yet, they couldn't be more WRONG!

[DG]

what i find interesting is that 100% of counts for the sp500 i have seen are wrong, it was a straight forward abc with c the minor wave fib relationship to a from march 09.

The reason being that there are no 5-wave moves of valid Impulse construction to form a Zigzag. Plus, even if you were to count the initial rally from March 2009 to June 2009 as wave-a and the decline from June to July as wave-b (which is invalid from a time relationship perspective. Wave-b's are meandering affairs working off the excesses of wave-a's without working them off entirely, price-wise. Basic "mass psychology", which is the foundation of e-wave), and the initial thrust from the July 2009 low to the early August 2009 high as wave-i of c and the decline from the early August 2009 high to the mid/late-August 2009 low as wave-ii of c, the amount of overlap in the Weekly chart from that mid/late-August 2009 low to the late October 2009 high invalidates ANY count that says that was wave-iii of c.

dg's count looks like a seasame street tutorial lolz

Hmmm, let's see.

In February, I said the low looked like the end of a Contracting Triangle, implying market strength. Check.

In April, I said the time rules required a high before April 29th. Check.

After the rally from the "flash crash" low stalled, I said the market couldn't go below the box I've outlined around wave-.G. Check.

After waiting for some clarity to emerge from the wave-.G low, I said an Expanding Triangle or Symmetrical formation was probably forming. Check.

All of those calls were made on this blog. I also shorted a few points off the high in January, although I didn't post that here, only on my personal blog.

"DG's Trading Forum said...

A short trade just triggered. You'd go short here (114.31 SPY) with a stop at 116.14 SPY.

Under 114.12, lower stop to today's high.
January 15, 2010 10:01 AM"

And those are pretty much the only "big-picture" comments I've made on the market during that time. In between those, I trade almost every day, but see no reason to make some grand pronouncement on the state of the wave structure because, and I've said this many times, discernible wave structures of importance only come to an end every few months or so.

And your market calls and real-time trades over the past 7 months were?

[Hank Wernicki]

http://www.elliottfractals.com/

Free week coming soon !

Hank

[philippine fred]

DG- not commenting on your theory just the chart look lolz

the a wave completed at the Jan high and c wave in march.

im flat since april which is rather frustrating though i have made some childish mistakes but hopefully you live and learn and these wont happen again.

i was long gbp yen gbp chf and usdyen on friday.....

[philippine fred]

wll done hank thanks will take a look, hopefully you wont change your count on the first day of the fw like ewi lolz

stress test ok but 7 US banks go belly up instead.....

[trendlines]

Previous posts noted the remarkable similarity between the Bombay SENSEX and the Korea KOSPI indices. Both looking equally bullish, and both poised at crucial junctures. While price could go eitherways here in the short-term, they are both likely to go the same way. Have a look at these maternal twins below.

http://trendlines618.blogspot.com/2010/07/kimchi-curry-anyone.html

[wtf]

Prices appear to be headed for a short-term breakout of the long-term left shoulder induced trend that Roger D has noticed. The Bombay SENSEX reflects the NDQ VIX.

[trendlines]

Since the bounce off the lower parallel channel, HSI went vertical and then consolidated in a 1000-point range. In the last session, price gapped above the congestion, setting up a resumption of the move upwards for the very short-term. Have a look at the closeup of the HSI daily chart.

http://trendlines618.blogspot.com/2010/07/hang-seng-index-very-short-term.html

[Mamma Boom Boom]

>Free week coming soon !

Hank<

Any predictions for the open tomorrow, Hank?