Fractal Finance Suggests the Summer Rally is Over

We have now closed back within the big trading range between 1040 and 1130, and right on the predicted turn window of Sep23. This makes the recent pop to 1148 a False Break if we remain below. This would mean the Summer Rally is over.

It is too early to definitively make this call, but the odds have increased. Molecool over at EvilSpeculator is pimping his Zero indicators, which I must say look pretty impressive. Mole may have created a new and useful indicator. To be watched. Zero is NOT pronouncing the end of the Summer Rally. 

A break below the recent 'plateau' around 1114 would further increase the odds, and below 1090 confirm it (see chart, courtesy EWTrends, which shows the initial thrust off the bottom and the two trading ranges around 1100 then 1120): 

Bob Bronson had predicted a top between the autumnal equinox (now) to the end of the month, and believes it is in today. He also points out that leading indicators are turning over, which makes the recent NBER pronouncement of the end of the recession quite ironic. Their contrarian timing is impeccable! Also, any return to negative growth will be an official double-dip, as we have now come out of the first dip, even thought we never got back up to where we started. In the double-dip of 1980, we came back up then fell down. In the original double-dip in the 1930s, we never got back up before falling again. 

Bronson's double-dip charts are pretty interesting, and include a prediction for the path and timing of the next phase of the Great Recession:

Comments

[Roger D.]

It's fascinating to watch manipulation of the Euro/futures markets tonight. The fed is scared shitless right now,good luck,your going to need it.

[Account Deleted]

S&P 500 futures before opening bell

[Wave Rust]

roger, watch Tepper on cnbc this morning

if you want to make money, then copy him

if you want to learn how to think about making money in the markets, watch it and listen closely, over and over

this knows how to think and he just taught everybody how to think in 30 minutes.

its the ''give a man a fish or teach him to fish'' thing.

wave rust

[George]

Yelnick,

Just to clarify your preferred count. Constant dollar charts fall away from the 2000 high correctively. In constant dollars 1929-1949 is a simple 5 wave triangle with '29-'32 an A wave down; I is the run from 1949 to 1968/66; II bottoms with a deep retrace in 1982; and III ends in 2000. Since II is a long fairly complex zigzag you'd be looking for a simple flat IV (which would/could be over except that the Hope rally was not impulsive. 667 would be a target for the flat IV? Then a simple V wave up (because III extended) to new highs perhaps nominally but likely not in constant dollar terms. Given the time frames, a Supercycle top would be out 15 +/- 5 years or so from now, no? Close?

George

[Mamma Boom Boom]

>OMG JT I'm Back just to say this is as good a place for this market to turn in a big way as ever there was. .... Hard hats are to the left.

Roger D.

Posted by: Roger D. | Thursday, September 23, 2010 at 06:41 PM<

Roger D. Jackson, happy to see you back. But, when you going to learn: you have to wait for Mamma to give you an 'all clear'.

[vipul garg]

really like nasdaq

[Edwin]

I am sure today's tape is making many bear gurus feel stupid...Could it be David Tepper called for either the econ will get better on its own, or the Fed will make sure it is the case.

Don't fight the Fed??

[JT]

"JT,

i don't have to trade every minute. in fact, i don't have to trade at all.

i went short on wednesday and am still short. i hope you are ok with me being short according to my trading plan. if you are not ok with that, well, maybe you will help me see the error of my ways." - Wave Rust

I'm fine with you having gone short on Wednesday.
I'm fine with you being short coming into today, as you claim. The market is the ultimate teacher, and you obviously were not in tune with what it was telling you this week . . .

[Mamma Boom Boom]

>really like nasdaq

Posted by: vipul garg | Friday, September 24, 2010 at 06:58 AM<

vipul, it does seem to have stronger bursts

[Wave Rust]

jt,
after closing yesterday, double stops set at 2850 dec sp +11 pts.

am long from there, stopped 3225 dec sp +12 pts.

i must be doing something wrong, right? help em out guru jt ,,, please.

wave rust

[vipul garg]

mamma,
nasdaq 100 is the bull.

[Wave Rust]

vipul,
nya, sox and xbd are % leaders today.

dow/spx have been underperforming most of the time on the downside for shorting, but are steady and consistently performing on the long side. dow/spx are easy and low worry

i like low worry and easy. :)

I worry when dow/spx get out in front of the tex and financials for more than 2 or 3 days. thats very bad, as in bearish.

wave rust

[Wave Rust]

jt

request permission to move my stops to 3425

wave rust

[Wave Rust]

jt

is 5700 dec sp alright with you for sell stops?

wave rust

[JT]

"jt,

after closing yesterday, double stops set at 2850 dec sp +11 pts. am long from there, stopped 3225 dec sp +12 pts." - Wave Rust

Of course you are!
:)

[Thrill]

Wave Rust, you nailed it! Tepper is moving from bonds to stocks ahead of the herd because things are either gonna improve, or The Fed will accomodate. When the game is rigged, keep your eyes on the referee! But think about that for a minute - your government is propping up markets, either intentionally or as an unintended consequence. My long positions are hoping they are better at that they are at governing.....

[Thrill]

Yelnick, your fractal finance vs my guts & The Fed.... hardly seems like a fair contest but we'll see. I see easy money here shorting bonds and going long equities.

[Wave Rust]

DG, notice that it has been weeks since i have said, "Never fade the Fed."

fwiw,

here's the Tepper interview article

http://www.cnbc.com/id/39341388

the interview video link

the second part of the interview video

the second article

http://www.cnbc.com/id/39330793

[Wave Rust]

yelnick,

sorry about the white space.

here's the second video link

http://www.cnbc.com/id/15840232?video=1598913851&play=1

,,,,
,,,,

jt,

gonna take the profit in the truffle trade, and eat the steak now.

but still holding to the swing position.

also taking the weekend off.

oddee host,

wave rust (machino)

[Wave Rust]

thrill,

he's a true gump thinker - straight and simple. i have never seen him before but knew about the way he moves into everything through Appaloosa.

the way he thinks is the true value of the interview.

wave rust

[bob m]

How would we label/interpret the gap that was created this morning?

[Account Deleted]

Hello DG !!

Can u tell me whether a 5th Wave Extension is possible after a Fourth wave Neutral Triangle.

Thanx in Advance
Regards
VB

[Michael]

Thrill,

Several weeks ago I suggested (here on this blog) that every tactical asset allocator in the world would start lightening-up on Bonds and reallocate towards equities given any indications of economic strength, thus sending the S&P to the moon.

That day has come.
The train is leaving the station.
And this is truly significant since roughly $450 BILLION has moved into Bond Funds over the last 18 months! While the Prechter's of the world cite low mutual fund cash levels, they fail to take into consideration how asset allocators are currently positioned, and where they need to go should the Econnomy show some signs of strength.

And not only are the Asset Allocators just starting to re-allocate towards equities, but plain vanilla mutual funds as well as hedge-funds that have spent the better part of this year "underperforming" . . . as they only have one more quarter left to improve performance on the year.

Granted, the numbers from this morning are only one data-set, but this month is on track to be the best September in 71 years. I think that that is quite telling.

Those that have had a middle of the road approach, respected the trend since 1040 SPX (and have understood what a trading range looks like since February of this year ) and not been stuck in any kind of heavy "perma-bear" bias, looking to play "Pick The Top" at every fib retracement on the way up ( such as the Daneric's of the World ) have done very well with their trading capital.

The charts just don't lie.

And anyone that has been involved in trading the coal, drilling, mining, and basic commodity stocks since July knows what I am talking about.

[Roger D.]

We have a blow of top here,and running on fumes. When the turn comes later today or early next week it will not be gentle. Get out while everybody wants it.

Roger D.

[Alison]

Hmm. I don't view myself as a very informed commenter, but todays numbers look like you called it in your "Critical Retest Underway - Market is Threatening to Bifurcate Up" discussion. I didn't pull out of my SP-based fund invsetment this week because of that post, and today am breathing a sigh of relief. This post (yesterday now)seems like you are second-guessing yourself. Am I not getting something, was it just dumb luck? Ha! I think I've done as well as I have cuz I don't miss the forest for the trees. I'm interested to see what you will post today.

[Alison]

Yelnik,

I see, you said "IF." OK. Now what?

[Chuang Tzu]

We have a blow of top here

Not yet.

SPX may reach 1170 by late next week.

[yelnick]

George, yes, close. Neely expects the coming wave V to extend, which is a whole different discussion.

[vipul garg]

chuang tzu,
spx WILL reach 1170.

[Chuang Tzu]

running on fumes

Not at all. SPX still has a 1/4 tank of gas since yesterday was only the Hurst 5 week low. SPX can now make a strong run for a Hurst 20 week top somewhere in the 1160-1180 range.

Once the 20 week low then bottoms in October, the SPX will have a full tank.

[ROLF]

I'm seeing definite signs of distribution. A close below 1134 will confirm.

http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=1&mn=6&dy=0&id=p07002998762

[Michael]

"I'm seeing definite signs of distribution. A close below 1134 will confirm."- ROLF

I hear people say this a lot.
Can you please tell us how you are able to identify DISTRIBUTION???

[ROLF]

Can you please tell us how you are able to identify DISTRIBUTION???
=============
For such an astute trader, I'm surprised you didn't know this. Money flow going opposite price is distibution.

[Chuang Tzu]

If Monday's open has any type of scary panicky selling on the open, it should be bought with both fists since that will complete any Hurst 5 week low remaining.

I say that because chart pattern so far looks like an ABC flat and C wave sell may still be lurking out there but will be over by Monday.

[Rodney Lewis]

Suzie Orman has a variety of financial organizational tools that will round-out any economic forecast, whether bearish or bullish.

http://www.suzeorman.com/igsbase/igstemplate.cfm?SRC=MD002a&SRCN=catalogdetail&ProductID=21&StartRow=1&GnavID=10&SnavID=48&TnavID=

Fractal finance is all well and good but suggest some real-world, common-sense advice like the kind she offers. She is a good supplement to Precther and Kawasaki. I also recommend reading MarketWatch opinions. Never dull.

[ed]

Tepper assumes that the Fed can keep it up. The bond market will decide that. If the bond market decides its done with Bernie, then Mr. Tepper assumptions go right out the window along with lots of his $$$'s ... We take out 1140 today on the big contract and this market will fold like a cheap lawn chair. I'd rather they just get it to 1300 and get it over with though.

[Michael]

"Can you please tell us how you are able to identify DISTRIBUTION???"
=============
"For such an astute trader, I'm surprised you didn't know this. Money flow going opposite price is distibution." - ROLF

Interesting.

I used to follow money flow via Laslo Birinyi back in Greenwich, CT in the Asian Currency Crisis of '97/98 when the S&P got caught in a pretty severe decline. Money Flow was bullish ALL THE WAY DOWN.
It was a worthless indicator.

[Thrill]

Ed, where would the bond funds go? Waaaaay too large a money pool to go to commodities, stocks would have to benefit from a weak bond market wouldn't they?

[Michael]

Correct.

[Mamma Boom Boom]

Today gave BIG-MO a needed goose.

[Michael]

Agreed 100% Mamma.
But I'm sure the Bears will diss this move cause of lack of volume, blah, blah, blah... LOL!

NYSE Advance/Decline: 2590 to 543

[LabelsFools]

Buy the market with both hands. Investors are downplaying this breakout. SPX heading to 1300 in this leg. You heard it here. The market has recaptured an ascending 200 MA. Do you know the statistical significance of this? 90 Forget about labels. simply buy it. LabelsFools said it and he agress with MR Buffet.

Posted by: LabelsFools | Wednesday, September 22, 2010 at 06:54 PM

[DG]

Hello DG !!

Can u tell me whether a 5th Wave Extension is possible after a Fourth wave Neutral Triangle.

Thanx in Advance
Regards
VB

I have not seen Neely address this question directly, but I don't see why it couldn't. Is there a reason you think it could not?

[yelnick]

Alison, I call them as I see them. When we fell back into the trading range (below 1128) it raised the question whether the break above was a false break, but I added the cautionary note that we have to remain below. So it means no change from the prior view but a warning flag. By going back above it removed that flag. I wouldn't add to a position yet but not be surprised by a run to 1174.

BTW the Zero indicator by EvilSpeculator is pretty interesting - you might check that site out and see if it works for you

I will have a post upcoming, if not this afternoon then over the weekend.

[DG]

DG, notice that it has been weeks since i have said, "Never fade the Fed."

I say, "Never fade the chart". The Fed is just a subset of the chart and their agenda is not always the chart's agenda.

[Dsquare]

Martin Armstrong on gold and the gold tax. "We are just doomed."

http://www.martinarmstrong.org/files/Gold%20an%2011%20Year%20High%20for%202010%2009-17-2010.pdf

[Mamma Boom Boom]

Actually, look over my indicators, I see that BIG MO got a bigger goose than I thought.

[Account Deleted]

DG !!

Yes becos Neely often says that as the Name Suggests NEUTRAL TRiangle has very limited Post thrust Effect.So I thought may a 5th extension is not possible if we have a fourth wave Neutral Triangle.For a big rally in the 5 th Wave it should require an explosive pattern in the fourth to give it that kind of a thrust.
What do u think.Is it a correct way of thinking

Regards
VB