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« Critical Retest Underway - Market is Threatening to Bifurcate Up | Main | A Tale of Two VC Industries »

Wednesday, September 22, 2010

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Shupra Singh

Tech and Healthcare may be ready to bust out in two bubbles

http://yelnick.typepad.com/.a/6a00d8341c563953ef013486a2cf49970c-320wi

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.

mark

Yelnick, Can you guide me to some good fractal finance sources, so that I could study it.

Daniel  - Taz

While I am in no doubt that we head higher into Xmas, I think there is a decent possibility, we pullback into the second to third week of October to as a higher low before breaking north.

Account Deleted

S&P 500 futures before opening bell

Mamma Boom Boom

>It appears that we're going to close the gap at 1125.

Posted by: Mamma Boom Boom | Wednesday, September 22, 2010 at 08:41 AM<

I assume everyone bought the bottom.

JT

Here is a typical comment by a Perma-Bear from the perma-bear blog called "Trading to Win (Lose)" this morning:

"I am really getting ready to press now." - Osikani

Press what???
The trigger that blows your head off?
LOL!

Wave Rust

taz,

agree. close below spx 1100 before seeing 1175

much higher by january 1st ,,,, probably well above April highs. spx 1385 is the top of wave 1 from march '09 low.

i'm biased short for at least a few days if this is a 4th of 1 from spx 1040 ,,,, if it is a 4th, then 1150 gets the tin hat top ,,,, maybe a deeper correction begins at sept 30 from 1150's.

just a trader casting that line into the market surf.

wave rust

Edwin

Not much pf a reaction so far. Bears must be pretty frustrated. eg. someone like Ron Walker calling for the end of the Recession...and the start of a depression.

yelnick

Mark, there is no bible of fractal finance yet. There have been several books laying out the case that the market is fractal, implying it is a nonlinear chaotic system, but they do not provide guidance on trading or investing. Zoran Gayer melded chaos theory into a trading system based on a combo of orthodox elliott wave, NEoWave and Gann; you can read some of his thinking in my sidebar under Zoran Bifurcation Points and Chaos Theory. Hank Wernicki is pushing forward a variant of Fractal Finance at elliott fractals. He is looking for self-similar patterns and making predictions. I also know of an effort at Stanford to use machine learning to reverse-engineer (so to speak) the fractals of the market. Beyond that it has been some of my own work extending Zoran's thinking. 

Wave Rust

yelnick,
these 2 paragraphs are talkin' my macro view of 'the stage' for whatever develops. and, it really is what political conservatives are probably trying to communicate when they say federal policies can crush or support the prospects of an entrepreneur, whether high or low tech. but high tech serves as a much better example since tech has mystique, romance and the promise of excitement of new discoveries.

Yet, the low tech is where most people live and work and think. so the plumber, the truck driver or housewife entrepreneurs are the ultimate consumer of high tech for low tech applied utility.

Thus those who wnat to generate green jobs should push and fund research into technology that would eventually be adopted by the low tech users of products and services. sadly, the Feds are trying force the jobs side (cash for kawkrz) which is like trying to force the horse to push the cart with its front hooves - rear-hoof drive.

"Tech bubbles follow a different timetable than credit bubbles, and are not driven by cheap money but by fundamental breakthroughs. The main driver of the other tech bubbles has been Moore's Law, the inexorable improvement in processing power at the chip level. The PC bubble came from the microprocessor. The dot-com bubble came from breakthroughs in modems. This proto-bubble is coming from the culmination of Moore's Law, where all the infrastructure to build a consumer web app is available for dirt cheap. Moore's Law has made computers, software, networks and data centers so cheap that value is being created at the top of the stack. The Era of Cheap is drving the explosion of new consumer Internet ventures.

It may seem challenging for a new tech boom to emerge inside of the New Normal economic environment. Yet the PC bubble grew large during the last double-dip, in 1980-82, and faded when the broader market took off. In the New Normal, there is a Global Scramble for Yield: with rates low everywhere, capital rushes into areas that can deliver. And when tech booms run, they deliver remarkable returns, at least to the winners. And they can run even when the other indexes stutter-step. "

from my perspective, tech bubbles are less and less bubbles and more of an adjustment instead of some universal shift that creates drama across social and economic fronts.

An area or industry that could really produce a huge social/economic global shift is the energy technology industry. Whether its energy transmission tech, storage, consumption efficiency or cost of production, etc., therein lies the potential for the next mega-tech bubble. (Potable water is another global area that needs tech development and scalability ,,,, but it's hard to monetize water tech globally)

The only problem is the energy industry itself and resistance to losing control of energy sourcing, transmission etc. In effect, it doesn't have the benefit of being a new industry like all things computer-related.

New industries are beds of ideas which foster more ideas and innovation - like what would apple be without incredible tech developments in touch screens.

it's been a long time since i have seen estimates of how much energy is lost over electricity transmission lines both long distance high power corridors or even to the desk lamp from the wall socket. But i do remember it is huge.

energy companies like large electric utilities have given up research on transformational tech, and maybe it's in their interest to not increase their supply by preserving across transmission lines. More supply = lower prices, ultimately. They have no competition in their monopolies means less innovation and development

battery tech coupled with efficient energy generation by the consuming mechanism - e.g., hybrid engines generating and storing more energy than they consume is hopeful but battery powered machines/systems that can generate and store more enrgy than they consume is mo bettah ,,,, now that may be what some Wolfram kid will figure out after he's been poo poo'ed by his elders, ala Jobs and Gates etc.

well, back to my retro cathode ray tube

wave rust

the best movie about trading mentality, that is, the mental game part of trading, is not a movie about trading or markets. you can learn alot about a trading mindset from this movie. :)

If 10-13 spx point trading ranges are boring to you too, then think of this hint: Apple was mentioned in the movie but as 'some fruit company'. LOL

Mamma Boom Boom

Wave Rust

Too much caffeine?

JT

Another "essay" by someone that would rather post on a blog during market hours than trade . . . Hmmmmm...

yelnick

wave, forest gump??

Wave Rust

not enough caffeine in the market

wave rust

JT

For the EW fans out there . . .

If today's 1123.46 SPX low represents the bottom of wave 4 (or x), and wave 5 (or z) equals .382 (typical EW proportion) of the rise from 1040, then wave 5 (or z) projects to 1175, which is an exact Fibonacci .786 retrace of the full drop from 1219.80 to 1010.91.

From Prechter's "Elliott Wave Principle" page 135 --
"A leading diagonal in the wave 1 position is typically followed by a zigzag retracement of 78.6%."

yelnick

wave, good thoughts. my view is that a tech bubble based on fundamentals will spread goodness thruout the economy. but is it enough to reverse macro trends? the big economic mystery is why the middle class is being squeezed. they key metric is real wages per capita, which has been flat to down since 1973 after rising throughout US history. what changed?

some say globalization, but it was not a major force in the '70s and '80s, and we have had 'globalization' before in our history (eg 1880-1914) without the destruction of the middle class.

others say going off the gold standard, which enabled first japan and now china to undermine our industry with mercantilist beggar-thy-neighbor policies. on a gold standard, a persistent trade surplus/deficit between partners is not possible since the movement of gold one way is rapidly stopped by policy changes.

maybe there is a third choice.

whichever it is, the US must restore competitiveness. instead we have been feeding off the wealth created in the past, and patting ourselves on the back as to how great we are.

yelnick

JT, is that another comment by a trader who would rather comment during trading hours? hmmm indeed!

Saxby Fox

Snap!

George

Yelnick,

It would be interesting to see what happened left of that big first starting bar. Charts at the end of this are worth the look: http://tinyurl.com/2daym2c .

Concerns: In the past, every major market top ended and quickly resolved to the downside. Spike up-- spike down; this top does not resolve that way. (We have been 1100 +/- 100 for more than a year. 1100 +/-400 for more than a decade. You must say TTID (dangerous words) to assume a top is in place.

Copper --The metal with a PhD in econ 101 has retraced a lot more than it 'should have' from the total collapse of 08-09. Look at HG over many years; it goes up and then down to where it started -- the rebound here creates grounds for second thought.

China -- China is in the USA position circa 1930/ 1937, imho (on steroids). China might be why HG has rallied so much. China has a totalitarian regime that knows it must achieve growth of 7-9% per year in order to prevent the vagaries of an angry indigenous population to acquiesce to the current paradigm. Chanos is short China. China is key in how this plays out. You have no doubt seen the empty malls/ cities/ apartments/ etc.

As Twain said: History does not repeat itself, but it does rhyme. The rhyme here appears atonal to me.

George

JT

"JT, is that another comment by a trader who would rather comment during trading hours? hmmm indeed!"

Yes, Yelnick it was.

But notice that it was short, sweet, and specific and was not a rambling 1200 word essay. Big difference.


Jeff


"some say globalization, but it was not a major force in the '70s and '80s, and we have had 'globalization' before in our history (eg 1880-1914) without the destruction of the middle class. "

It's the internet.

The internet revolution of the 90s created an instantaneous communications environment that vastly accelerated the move of manufacturing and even many services from high-wage countries to low-wage countries.

The internet created a paradigm shift in globalization that may pay off handsomely in 40 years as China and India create a billion new middle-class consumers for us to sell to but it is inevitable that employment stagnation and low wages will result here for the next several years as this shift takes place.

Their middle class gets created while ours gets greatly squeezed. Sucks for us but then, no one wants to give up the great bargains at Wal-Mart either...

yelnick

George, really good cautionary notes. But I think your history is off. 1966 - down, then 1968 2d top, then down, then 1973 triple top, then whammo down down down. In the end a 16 year trading range with 1000 as the top (nominal). Not an inverted V at the top. 1929, down, then a triangle range until 1949 when we bifurcated out. Sure, big tradable rallies in between. 


I agree on HG and China, with two additional thoughts:
- HG may be bouncing due to USD weakness
- latest story from a guy I respect is China bubble bursting is not until 2012
http://www.creditwritedowns.com/2010/09/xie-chinas-housing-market-is-not-crashing-like-i-expected.html

yelnick

JT, ah, you have to learn to write as fast as you trade, but I ramble ...

yelnick

Jeff, really? the max number of outsourced jobs in India using the Internet is around 1m, while we have lost 7-8m jobs. China is about cheap mfg, not Internet outsourcing

Jeff

I'm not talking about internet-specific outsourcing. I'm talking about the internet making it "easier" to outsource everything including manufacturing, design and customer service. I was CFO of a manufacturing company many years ago.

We never considered outsourcing prior to the internet (and Cytrix) because no one in management wanted to spend a lot of time in Shanghai. I'm no longer with that company but they now have most of their production in China and Mexico and management sits comfortably in their offices here at home texting, emailing, video-conferencing, sharing files and basically communicating just as instantaneously as if the plant was next door.

Outsourcing for cheap labor was occurring long before the internet but the internet and computer networking in general vastly accelerated it and made it palatable to travel-averse managers (which is to say, most managers in every industry). And when your competitors do it, then you have to do it which makes outsourcing a self-feeding mechanism.

I suspect the internet industry lost 7-8m jobs because the bubble burst, but for all the over-exuberance, the internet did indeed change the business world that I used to operate in and it has greatly benefited the developing nations to our own detriment...

Roger D.

Hey JT,

Is it finished yet???

MCD Monthly

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/345e84ef-2c6a-4726-97d8-6cf485fe0841

George

Yelnick,

Thanks for that link, China is a conundrum and key in the overall end-game.
The problem with the 60's/70's comparison is simple; that was a '4'. It is hard to believe that 2000 to now has built/is building a '4' , but the possibility is an open one at this point. Look at the dot com top, 1637 Dutch, 1929 US, etc. and there are no cases where a 5th wave top spent 10 years sideways prior to a total collapse (am I wrong on this -- has there been a high degree 5th wave top that had a sideways component?).
I believe we may be a wave degree higher than EWI is letting on, but that gets into TTID. One can never bet a position on that -- it would be foolish to.

Best,

George

yelnick

Jeff, good point. But China would be eating into our manufacturing even without the Internet. The Internet seems to me to be a net benefit to the US, as lots of jobs stick to the US leaders (Google, et al) and as you point out it affects indirect value chains elsewhere. My reaction to your initial point is that China's method of thinning out our base is not because of the Internet but US policy.

yelnick

George, my big picture count is that we are in a fourth wave: wave 1 started in 1949, wave 2 was the 66-82 period, wave 3 is the run to 2000, and now wave 4. This means we have a pretty big wave 5 to come. This is not the EWI view commonly expressed since Prechter thinks 2000 was the end of a bull market since 1784. But he also discusses his constant-dollar count, which is the same as what I outline above. Also, in the constant-dollar count, wave 2 was not sideways but a deep drop into 82. 

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