The market topped on my turn date, August 4, but after the poor employment report, had a sharp drop that was not made up by the close today. Technical indicators are waning, such as declining volume during the up move from the past month and the lagging of more speculative indexes (Nasdaq, S&P small cap) to the major indexes (S&P and Dow). A very clear head & shoulders has formed between the January shoulder, the April head and now the August right shoulder. Interesting is how evenly spaced it is - the time from the right shoulder to head, and head to next shoulder, is almost identical. Most telling - and all over the blogosphere - is the wedge pattern in the recent market rise, an ending diagonal, which I showed several days ago. Even the STU now accepts the ending diagonal pattern. All of this increases the odds that a top is in.
I have been on the theme that Mother Market will take the path that fools the most market positions. The STU was reluctant to accept the ending diagonal because it was so widely touted in the financial punditry and blogitry - if too many market participants take positions based on that belief, Mother Market may still find one more twist, to trap bulls and bears alike:
- Bear Trap: The Big Tease may have minor waves 4 and 5 to go. The last two days fit that wave 4, which if so should continue sideways for a week or more before a final thrust up towards Sp1150. This is a potential bear trap: the sideways move increases confidence in shorts, and the thrust up causes them to scramble to cover
- Bull Trap: EDs often have a false break above the converging trendlines followed by a sharp drop below - a "throw-over" discussed in some detail in the STU tonight. This is a potential bull trap: the sharp thrust causes bulls to pile onto what looks like a bullish breakaway up that then reverses sharply down
Supporting the case for a bullish breakaway is the new high in the NYSE cumulative advance/decline line. This case gets dissected in Trader's Narrative: there are a lot of non-operating entities in the NYSE, and the S&P does not show the new peak.
The percent of stocks above their 50 DMA is at a high level (75%), but not at a peak; this is usually bearish as it is hard to sustain - unless the market is in a bullish breakout.
Next week should be interesting. The bulls need the breakaway or their case gets swamped by the increasingly bearish technical indicators, and yet the apparent start of that breakaway may be the false breakout of the ED throw over.
Sitting on a corn flake,
Waiting for the van to come:
http://www.safehaven.com/article/17756/squawk-box-europe
Hock
Posted by: Hockthefarm | Friday, August 06, 2010 at 09:03 PM
Warning,warning,something gotta give here and possibly Monday as the short covering rally today was just that.
TNX
http://www.screencast.com/users/parisgnome/folders/Default/media/0512a0c3-2cad-4aa9-95bd-786831ccad3f
Roger D.
Posted by: Roger D. | Friday, August 06, 2010 at 09:15 PM
Hang Seng Index: Consolidation, followed by break higher
My last post, "Resuming Upwards", called for a move up to the upper channel line. HSI did precisely that, and is now very overbought around 21700. Looking for some consolidation here, before a possible break higher to eventually target 26,400.
http://trendlines618.blogspot.com/2010/08/hang-seng-index-consolidation-followed.html
Posted by: trendlines | Friday, August 06, 2010 at 11:59 PM
Vipul: Thanks for your comment on the yen
Posted by: KRG | Saturday, August 07, 2010 at 01:52 AM
DG : Thanks for your comments
"To a certain extent that does not change the outlook much, since, as in 3rd-wave Extension Impulses, the first and last waves of a Neutral Triangle tend toward equality, meaning more downside for the Yen"
So the upside for Dollar is a strong possibility within this structure.. right?
Regards
Posted by: KRG | Friday, August 06, 2010 at 04:52 AM
KRG,
Yes and for quite a while.
Posted by: DG | Saturday, August 07, 2010 at 05:30 AM
August 30th, the Twist : 1150
http://www.elliottfractals.com/SPX____aug30th_2010.jpg
Posted by: Hank Wernicki | Saturday, August 07, 2010 at 06:12 AM
DG: Thanks..
Posted by: KRG | Saturday, August 07, 2010 at 07:34 AM
"Even the STU now accepts the ending diagonal pattern. All of this increases the odds that a top is in." - Yelnick
Yelnick, did you ever think that the only reason EWI and their STU has now accepted an ending diagonal count is because they HAVE NO OTHER ALTERNATIVES AT THIS TIME???
Follow the bouncing ball, and you can follow EWI and the STU from one count to another until there are no more "alternatives".
Given their pathetic track record over the past 12 months ( Prechter initially went 50% short on August 5th, 2009 at SPX 1000 ), I find it almost comical that you can come to the conclusion that "odds have increaed that a top is in."
I'm surprised that you even give them an ounce of credibility anymore. Why is that?
Posted by: JT | Saturday, August 07, 2010 at 01:32 PM
Hi Yelnick,
I'd like your thoughts (or anyone else who wants to chime in) on what I think is a most interesting chart. Check out CFSAX going back to at least 1985. This is Columbia Federal Securities Fund, which contains a mix of Treasuries, Agency bonds, etc. - just like the name implies. It plunged in 1987, leaving behind an area that would operate similar to a gap. It made some upward stabs over the years, but fell to a bottom in 2000 when the stock market bear began. It rallied to 2003 where stocks made a bottom, corrected to 2006, rallied a bit, then corrected in 2007 to a higher low above 2006's, thereby providing a non-confirmation of sorts of the new highs that stocks were making. It continues to rally. In 2000 I believe it began the long march to closing the gap, and I have a hunch that it will do that and double top with the 1986 high around the same time that the stock bear is over - or the bear market that follows this bull market is over, if one prefers to see it that way. Thanks for having a look.
Regards,
upstart
Posted by: upstart | Saturday, August 07, 2010 at 02:12 PM
P.S. I picture that fund correcting if stocks continue to a rally top in 2011 (and yields rise for awhile) as Futia expects, then resuming its climb during the ensuing stock bear.
Posted by: upstart | Saturday, August 07, 2010 at 02:19 PM
Just read some of the blather over at Daneric's blog and he's as BEARISH as ever.
We ALL know what that means . . .
NEW HIGHS!
Posted by: JT | Saturday, August 07, 2010 at 03:12 PM
I also noticed that Kenny went on a "rant" bashing Prechter and EWI in a 500 word essay this weekend on his blog and basically calling Bob P. and Steven H. liars...
Kenny must be a "newbie" to Prechter's interpretation of Elliott Wave, cause anyone that was around for Prechter's "Lost Decade" from 1993-2003 already know how flat-out WRONG he can be.
Kenny and Dan are probably working the night shift at the local Walmart. Sssssshhhhhh... don't tell anyone!
LOL!
Posted by: JT | Saturday, August 07, 2010 at 03:51 PM
Back on Wednesday, everyone on the planet was expecting another thrust higher in the rising wedge/ending diagonal(?) including the bears. There were even postings over at Danerics rooting for it. With the actions of the past two days, that sentiment has moderated a bit but I still see bears writing that there needs to be a final throwover of the wedge before wave C can complete. Otherwise I see a lot of dispirited bears frustrated by the late day Friday meltup expecting another ramp up but all in all we ended up with an even more impressive hanging man candle. I haven't seen most of yesterday's comments here yet. It will be interesting to see if bearish exuberance was reignited by that pattern as it had been a few weeks ago. (actually there were two in a row and both red which are the best in producing a reversal according to candlestick pattern expert Steve Nisson) He also likes to see the market open down the next day (which it did on Friday)
Posted by: Mr.Panic | Saturday, August 07, 2010 at 04:33 PM
JT, bad hair day? Of course the STU has other choices. It is just that an ED is plausible. The prime alternative is we have entered a wave 4 with a 5 to go. EDs are rare and shouldn't be so quickly called. They also start like a nested 1-2 formation, which is very bullish, but also rare. Hence they narrow the choices, which should be good for traders.
Posted by: yelnick | Saturday, August 07, 2010 at 05:10 PM
Here's an interesting piece suggesting all does not seem well with the current uptrend.
http://gi61et.blogspot.com/2010/08/1547-bst-spx-and-options-equity-putcall.html
The whole blog seems to be fairly balanced, not biased or way or another, but giving both sides. Very detailed but well worth a look.
Posted by: glory | Sunday, August 08, 2010 at 12:27 AM
I don't get it! The dollar, UUP, has been getting hammered (and the Euro, FXE, sharply rising since June). The 10 year Treasury yield, TNX, just hit a low of 2.82% on Friday (down from a high of 4% just this past April) which isn't too far from the over 45 year (all the data I have) low of just above 2% in Dec. 2008.
The above doesn't make sense. It means dollars are being loaned at a meager interest rate while the dollar itself is sharply declining in value. I understand the concern is deflation. But, the dollar itself is losing relative value, so isn't that dollar inflation? Or is that 2.8% yield a lot of yield compared to the deflation that is looming -- and it's that high because of the weakness of the dollar?
I'm no economist but these seem to be the fundamental factors -- the dollar and US indebtedness, and inflation/deflation. What are the sensible "big picture" investments? Gold, Treasuries or TBT, stocks or short etf's or cash?
There's also news reports that the administration may be considering bailing out those who are underwater on their mortgages to the tune of $800B or so. That's seems preposterous, but we're becoming inured to actions that go against long held values and common sense. In any case, what would that do to Treasuy yields and the value of the dollar? Can the dollar lose value and there still be deflation? If so, what do you hold?
Posted by: rc | Sunday, August 08, 2010 at 08:46 AM
Common sense will never be found in the markets
It's all Chaos !
News and Data are fruitless tools for one to ruin their wealth
Posted by: Hank Wernicki | Sunday, August 08, 2010 at 10:29 AM
rc...in my humble opinion, US dollar, treasurys and commodities action of late represent the confluence or speculation of QE2.
Posted by: Edwin | Sunday, August 08, 2010 at 01:41 PM
RC, good questions re USD and QE2. John Taylor of the Taylor Rule of Treasury rates thinks it would be negative 6% if it could be to get the real rate to sensible levels. QE2 may bend the long end but they cannot do much at the short end. The mortgage reduction is summer silliness - it won't stimulate and it will push the banks further away from commercial lending. At best it is showiness for the mid term elections.
When this sort of idea is touted as serious, you know they have run dry of ideas. If the double dip comes the emperors will be shown to be the bare asses they seem to be.
Posted by: yelnick | Sunday, August 08, 2010 at 02:49 PM
Since the early 80's, the Fed has manipulated rates to stimulate the extraction of cash from homes to spur consumption during recessions. There is no more stimulus from MEW (mortgage equity withdrawal) because of the confluence of falling home prices and previous equity extractions by homeowners. This is the result of a Fed that doesn't know to take away the punch bowl during a recovery/expansion.
Between the loss of nearly 500 billion dollars in annual stimulus from mortgage equity withdrawal and the potential drag of another 200 billion dollars in pension underfunding that's being masked by lax accounting and Obama's aid to states, there's considerable headwind to an economy due to asset bubbles.
Posted by: Les | Sunday, August 08, 2010 at 04:22 PM
rc,
look at the 10 yr then the 5 year and then the 2 year.
enough to make anybody nervous.
but, then look at the 30 year, and then you'll understand that everybody is tightening in toward cash.
people are worried, uncertain and not listening to the chatter about how stupid it is to be in bonds as opposed to be in stocks.
I have a short term sell on bonds. if it's right, just watch, "they" will give rates a huge kick in the butt and slaughter more than a few bond bulls.
if it's wrong, well, i'd be buying cans of beans, sterno, coffee, water, salt, vinegar, tobacco and TP ,,,, lots of TP ,,,,
wave rust
Posted by: Wave Rust | Sunday, August 08, 2010 at 09:08 PM
Count your age with friends but not with years. Good luck to you!!
Posted by: Jordan 8 | Sunday, August 08, 2010 at 11:58 PM
'Count your age with friends but not with years.'
-------------------------------------------------
I have three, which probably isn't very good for a 55 year old but I don't make friends that easy. I somehow prefer Che Guevarra's take on things - 'It's a sad thing not to have friends, but it is even sadder not to have enemies.'
Posted by: Chabazite | Monday, August 09, 2010 at 05:29 AM
Dow Jones futures before opening bell
http://niftychartsandpatterns.blogspot.com/2010/08/dow-jones-futures-before-opening-bell_09.html
Posted by: Account Deleted | Monday, August 09, 2010 at 06:18 AM
Thanks for all the comments. I mentioned the idea of a "mortgage bailout" to a couple people last night, and they both expressed shocked disgust. That's a relief. Sometimes you wonder if you'll get a 1984ish "isn't it wonderful comrade!" response... I suppose in time. ;)
Posted by: rc | Monday, August 09, 2010 at 08:57 AM
mortgage bailout may be sold as "for the people" but it's really to bailout the Fed's bal. sheet.
it's the other end of the barbell the Fed is trying to lift.
another taxpayer screw job.
wave rust
Posted by: Wave Rust | Monday, August 09, 2010 at 09:13 AM
I am looking at a 10 day chart of the DOW and it appears that the 'v' of 5 of 'e' is rounding into form.
Here is the 10 day chart with a great 1 & 2, a good 3, a pull back 4, and the current 5 taking form:
http://bigcharts.marketwatch.com/charts/big.chart?symb=djia&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state=8&sid=1643&style=320&time=18&freq=7&nosettings=1&rand=5752&mocktick=1&rand=2303
da bear
P.S. What do you guys think?
Posted by: da bear | Monday, August 09, 2010 at 09:43 AM
da bear:
You are right on form with Dent.
Hock
Posted by: Hockthefarm | Monday, August 09, 2010 at 10:37 AM
Wave:
I'm not so sure. This to me is more in line with the democratic party's desire to pick out groups of fluck-ups and preferentially treat them at the tax payers expense.
I think the next one up for Obama will be to decriminalize theft. Catching and processing them doesn't seem to do much good and costs a fortune. Besides, we all know how hard childhood was for most chronic thieves and after all, it really wasn't their fault.
For anyone with an ounce of brains, greener pastures are calling.
Hock
Posted by: Hockthefarm | Monday, August 09, 2010 at 10:45 AM
Rock and Roll :
http://www.elliottfractals.com/ESU10___specialbottom_8_9_10.jpg
Posted by: Hank Wernicki | Monday, August 09, 2010 at 11:41 AM
Bears getting shredded again by yet another RAMP job, but this time it is the "grinding" kind that slowly tortures the Bears... People like "Pezhead" thought CLF was a short on Friday. Ooops!
Posted by: BullandBear | Monday, August 09, 2010 at 12:08 PM
Most of the bears I know are in gold, oil, or commodities. They won't touch the stock market but they're buying other assets with high correlation to equities (for now).
Posted by: Les | Monday, August 09, 2010 at 12:53 PM
The Commies:
Another piece of the puzzle comes from Andy Xie (Caixin via MarketWatch), that the number of vacant apartments in China, the result of speculative warehousing (purchased as an investment but kept vacant) plus new construction languishing unsold is much greater than commonly realized:
How many flats in China are sitting empty? The media recently floated a story — denied by power companies — that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people….
What especially distinguishes China’s property bubble…is an unprecedented amount of living space. This huge stock of empty flats equals the nation’s quantity bubble.
Quantity bubbles are less common than price bubbles, and they don’t last as long…A quantity bubble is sometimes a construction bubble, and it fizzles out when a building cycle turns over, crashing prices as soon as new supply becomes available….
Quantity and price bubbles may grow together. Southeast Asia, for example, experienced a quantity-cum-price bubble that lasted several years in the 1990s. As regional currencies were pegged to the dollar, loose monetary conditions were imported from the United States, fueling a property bubble. Due to few restrictions on urban development, rising prices led to massive increases in supply. Liquidity inflow fueled speculative demand. But when U.S. monetary policy tightened, the market crashed and triggered the Asian Financial Crisis…
One useful figure for analysts is China’s living space per capita….Based on this limited data, however, we can confidently conclude that China does not have a housing shortage. Moreover, its per-capita living space is higher than in Europe and Japan. Indeed, if we adopt Japan’s standard, China already has sufficient urban housing space for every man, woman and child in the country.
Far more important than general data, however, are the housing figures pointing to a huge quantity of empty flats apparently being held only for speculation.
The new, new math I guess,
Hock
Posted by: Hockthefarm | Monday, August 09, 2010 at 03:54 PM
There are no bulls or bears <<< they are simply labels <<<<<<<<<<<<<,
A semantic illusion ......................
map the market , and don't make the market fit a map ..... Hank Wernicki M. A.
Posted by: Hank Wernicki | Monday, August 09, 2010 at 05:32 PM
Big dive tomorrow
EOM
good night
Posted by: Hank Wernicki | Monday, August 09, 2010 at 06:28 PM
Big dive tomorrow
EOM
good night
---------------------------------------
I like concise messages and looking at the charts I certainly believe you. Thanks Hank.
Posted by: Chabazite | Tuesday, August 10, 2010 at 01:57 AM
My Pleasure Chabazite ...
Hank
Posted by: Hank Wernicki | Tuesday, August 10, 2010 at 05:34 AM
Kaboom !
Hank
Posted by: Hank Wernicki | Tuesday, August 10, 2010 at 06:52 AM
I'll post the fractal chart later ...
Buckle up
Posted by: Hank Wernicki | Tuesday, August 10, 2010 at 06:53 AM
Nice call Hank!
Hock
Posted by: Hockthefarm | Tuesday, August 10, 2010 at 07:08 AM
thanks
Posted by: Hank Wernicki | Tuesday, August 10, 2010 at 07:18 AM
http://www.elliottfractals.com/ES__dive_8_10_10.jpg
Posted by: Hank Wernicki | Tuesday, August 10, 2010 at 07:21 AM
Nice one Hank! Many Thanks. Chab.
Posted by: Chabazite | Tuesday, August 10, 2010 at 10:11 AM
Tomorrow :
Gap Down
Posted by: Hank Wernicki | Tuesday, August 10, 2010 at 01:14 PM