The Market is Due for a Bounce

Summer doldrums, very low volume, and no conviction - except among the punditry, which expect a short term bounce. The pattern under Fractal Finance is pretty clear: we had a rise in July into a trading range, bifurcated out of the range & have stayed below, indicating a change of trend, and settled into a new trading range. The market was range bound for the past few days, but spiked below and came back above today - a false break. This suggests a break to the upside, to be followed by a drop. 

 

This chart from EWP is pretty consistent with all the major ewave sites today, including Daneric, Kenny and MarketThoughts, whose chart for the past five months I recommend. The bifurcation out of the range around Sp1110 and 1128 is pretty clear, and it had now fallen in a five-wave pattern with a strong third wave down. This is also how the STU counts it today. Typically a minor wave 2 bounce goes 50-62%, which suggests an outside level of Sp1106 (Dow10525). The gaps at Sp1189 and Dow 10380 shoud be filled on the way back. 

The economic news has trended towards poor, so it is being watched closely. The next two days have reports which could jink and jive the market. The bounce today off the false break (labeled wave 5 above) is not itself compelling as a start of a wave 2 bounce, so the STU warns of a possible retest or drop lower. The Fractal Finance model says otherwise - the false break is done for now. We shall see which one gives better guidance over the next two days. 

Comments

[Wave]

Volume today was running 50-60% less than the average daily volume seen over the past three months. Trading was literally done by "appointment" only. For most parts of the country, this is the last week that parents have off with their kids before college starts.

[joe pacheco]

I do not know who Shaw is - but I think he is about right - by my count.

Be short November or December futures - not now.

This is going to bounce I think.

God help you in November if you are long.

Joe

[joe pacheco]

Yelnik -

You are still wrong to think that the war that FDR lead us thru is somehow seperate from his pre-war financial policies - he knew that war was coming for a long time.

Every action he did - was related to that war he knew we had to win - and we almost lost it - we went in later then we should have.

Really,

Joe

[Stanley]

Joe, how do you know? Are you just guessing or are their documents that support this? Thanks,

[OracleLurker]

Consensus among the punditry does generally provide an excellent guide as to what is NOT going to occur.

[yelnick]

Joe, I don't think FDR began linking his economic activities to war preparation until 1939, or perhaps late 1938. Is that the time frame you are referring to?

Here is what I have read:
1) It was not until after the 1937-1938 "second depression" that FDR began moderating his most meddlesome policies & backing off his demonizing of business leaders
2) To some extent this was in preparation for war - he needed business support after trashing them and trying to regulate them since 1933
3) At first it was a modest backing off, not a wholesale change
4) It was around 1939 that he began really preparing
5) The preparations began in earnest when Hitler invaded Poland in Sep '39
5) Even then he was a bit slow off the mark, perhaps due to Repub isolationism leading into the 1940 election

Have you read the history differently?

[joe pacheco]

Guess I have a somewhat different reading of the war - and I know you mean well Yelnik, really.

The P-51 was already on the drawing board by 38 - let alone the 38s and 47s - he knew it was coming - and that it would be an air war. He knew. That he could persuade the public he was anit-war - when he knew damn well he was going to make sure England would not fall apart - that could be criticized - maybe rightly. But in fact, every thing he did from 35 on was in fact to make sure we could win that war that he knew was coming. And it was close in the end.

I don't really agree with his financial policies - until I look at them within the context of the bigger picture.

We could have lost the war man - honest to god - he cut it really close.

Joe

[Daniel - Taz]

Here in OZ, if Wave-C has kicked off we should see the July 2009 lows tested inside a month.

If any test takes more than a month, it will be a tell to buy the market since it will have been only an X wave with one last correction higher to complete wave-B. In which case one would want to be heavily long the market in Nov.

Cycles wise we are looking at late Sep early oct for a bottom.

I think we can bounce a little more from here but the conviction is clearly to the downside (especially here in OZ).

[joe pacheco]

I was a business school student - I have degrees in accounting and administration - and my dad was 324th - and my "honorary" uncles were 324th - I just listened to them.

And then I got older - and I went to the military academy to study how war works - and then it all clicked to me.

It is hard to do that - B school to that arts program - but it can be done - I did it.

I'd read Thucidies on war - if I were you. I knew those guys - I know goddamn well what they said and meant.

Joe

[joe pacheco]

Documents? - are you kidding - hell, I have this book out those bastards would love to sell you - I never intended to sell it you know. They intended to make a profit out of it - I just wanted it out - it wasn't my story anyway. I gave every single royalty dime to the vets - every one.

I have no axe to grind - in fact, I wish every one of you luck in this - I really do.

Joe

[Stanley]

Is this the book?

http://www.amazon.com/First-Nuyoricans-Sailing-Sanibel/dp/0972174109/ref=sr_1_1?s=books&ie=UTF8&qid=1282011235&sr=1-1

[joe pacheco]

I wrote On a Wing and Prayer - meant every single word - that publisher - sold my words with no values, so they may burn in hell to me.

Joe

[joe pacheco]

Man -

I think you are a decent guy - we will run into eacb other one comdex or another.

You write good stuff - I don't have to agree with your outlook to see that. I like that we see things a little different anyway.

Best to you

[da bear]

I posted a link to the 10 day chart of the DJIA and referred to that same wave pattern on my message board too.

So perhaps lower highs into Labor Day and then the long, extended crash.

da bear

[joe pacheco]

I am sorry you see it this way man -

Let me ask you - if there is no 38, 47, 51 fighters in mind -there can be no no strategic Douhey type campagin - how long do you think our republic really lasts??

If he doesn't do that - we are so dead. I can pick the guy apart but - that war, we should have lost - and that we did not - is to his total credit, and the rest - does not even count.

I will not tolerate any more crap about FDR -=

We could have lost that war - how's your German??

Joe

[El Coro]

Can't find your book. :(

[-Anikitos]

About ww2, I think it was much more complicated than the good vs evil - USA vs Nazis. It was a 4 way Mexican stand off, where no one really wanted to make a decisive move first. No one trusted each other USA and USSR making deals with Nazis, while Nazis assimilating Europe. Both USSR and USA are ideological opposites, and yet paradoxically, USA and USSR were ideological opposites to 3rd Reich too. Everyone was aware of the secret deals and was afraid of the enemy of my enemy is my friend scenario. Hence FDR waited, and waited while Europe burned. Stalin was a giant douche, yet he had an ability to put an end to the war and possibly expand westward by 1000km permanently. IF FDR and Stalin made a deal, the war would be over in 42.

[Sherman "Double Long" McCoy]

nice call on the bounce. I put everything into Potash a few weeks back to express that exact view. How'd you guys make out?