Was Last Week a Buying Panic?

The first three days of the month started fast and furious, but this week volume has dropped and we remain in trading range. EWP believes it was a buying panic, and expects a rollover. The low volume plus the VIX dropping below the lower Bollinger Band are sell signals. They note that this is the third such signal this year; the other two happened at the January peak and the April peak:

 

The expected drop may not be right away, but the signs point to a flagging rally. The market has rushed up to the declining trendline from the April top through the August top, and has failed to break through. Walter Murphy comments on this today, noting that a sustained break above (for at least a day) is required to confirm the uptrend. Also, the put/call ratio is nigh on oversold levels:

 

The wave structure is at the 2/3 retracement level - a bit higher than normal but at one of the Fib levels - and also can be counted as a five-wave C leg ie. complete. It would also be reasonable to count the flat trading range of the last few sessions as a wave 4 with a final wave 5 spurt up. The next retracement level is the 70.7% "repetition" level (half the square root of 2), a level not noted in orthodox wave theory but found to be useful in Zoran's work. The S&P rode to that level today (1103). 

The STU tonight had a good discussion of all these points, plus added a counter to the pundits who loosely claim that there are too many bears for a top to be in. It is one of those parenthetical discussions which make the STU useful to cut through the noise of casual blather on market conditions. They note that at real market bottoms, bears overwhelm bulls day after day (they give examples), whereas in this case the days when bulls outnumbered bears has been decidedly more bullish than bearish since last November, when we first hit the levels we are now at (from off the March 2009 bottom). Good stuff. 

Comments

[Bull trade]

There is:
Too much talk of a crash
Too many mutual fund redemptions
Too many 401-Ks have shifted out of equities

AND.......4 year cycle may be only 22 trading days away

We are a long way from a top. I simply do not buy the nonsense Prechter is peddling.

[Perigee]

4-year cycle low not due in my opinion until 2012 -

Yelnick, may be worth revisiting the Presidential and Decennial cycles as both have called the market pretty well this year and both suggest better buying opportunities in the months ahead. A peek at 2011 Decennial suggests a solid first half of the year (2011) so it may just be that the "surge" won't be here until Christmas time.

[EN]

Big rally into year end, following some backing and filling until mid-Oct.

[Edwin]

2 gap-up days last week...looks like another ga up today. We have strong (buy)sentiment by definition.

Human instinctive "Call for Counter-trend*" inhibits the bars to see this emerging (bull) trend. Bears do their "comfortable" thing by shorting. It will empty their pocket again....just like 2003 and 2009.

* this is William Eckhardt's work.

[Bull trade]

4 year cycle bottoms are: 1990, 1994, 1998, 2002, 2006, 2010, and 2014
6 year cycle bottoms are: 1990, 1996, 2002, 2008, and 2014

We are a long ways from 2014 which means the market has plenty of room for a euphoric bull market rally to get everyone out of cash, bonds and gold and back into equities before some kind of bearish slam into 2014.

If both the 4 and 6 year cycles "right-translate" this rally could easily last into 2013.

[JT]

Market surging again this morning.
Biggest EXPORT numbers in TWO YEARS!!!
SPX at 1110.

Perma-Bears and EWI STU blown-up again.
Now EWI has resorted to highlighting Bollinger Bands on the VIX???

That's funny.
Good luck with trying to use the VIX as a consistent PREDICTIVE indicator.

[RT]

The Bull's are loose! Buying panic not over yet!

[molecool]

"Good luck with trying to use the VIX as a consistent PREDICTIVE indicator."

IMNSHO the VIX BB signals have been way more accurate than Hochberg... Funny thing is that Steven acknowledges the sell signals but openly argues against the buy signals. Talking about being biased...

[viagra online]

This is truly a Revolting Development as William Bendix use to say on TV in a different generation or two ago. Maybe three. I'm thinking seriously now about Mac and also about selling my stock.