Bullish Golden Cross to Follow Yesterday's False Break

In Fractal Finance, when a break comes out of a trading range, then reverses back in quickly (relative to the length of the range), it is a False Break. Yesterday the Dollar continued an upwards break, but today fell back into last week's congestion zone. The S&P did the same in reverse. Under wave theory, what looked like the start of five-wave impulses in both indexes turned into three wave zigzag (sharp) corrections, as you can see from this chart by Principal Analysis:

The S&P had done a triple top in the e-mini futures but only a double top in the cash index, so a third retest is underway. If we break above the trading range, under Fractal Finance this is very bullish.

Another bullish indicator is the Golden Cross, which now is inevitable:

According to Traders Narrative, the Dow had the Golden Cross on Oct 1, and the Naz is also about there. We had a Death Cross back in June, and it proved to be of little importance. In general I do not give much credence to these crosses, but they are interesting to the extent they create momentum among traders who do follow them. 

The bears are running out of things to hang on to. It is close to the kickoff of the seasonal strong period (Nov-May) when bears should go into hibernation. The bears can point to the S&P triple top, and to the reversal today not retracing all of the break yesterday. This bearish wave count is best put in this chart from the site which sounds like a Euro luxury car, gi61et:

Here is a chart of same not-quite-all-the-way retrace in the Dollar Index (courtesy Contrarian Advisor): 

For those of you who like to fade Prechter, tonight's STU became short-term bullish, or perhaps more precisely, short-term on the sidelines. They read the false breaks in both the Dollar Index and the Dow/S&P as corrective waves, and therefore expect a final wave to come to retest or even break recent levels (below 76.14 in the DX). It would take another reversal back up above the 78.36 high in the Dollar Index to change this. Yet they remain agog at the bullish extremes in stocks - levels above both the April high and the Oct 2007 high.  Some sort of stock correction is overdue, although it appears it will wait for the Dollar to bottom. 

Those sentiment extremes came a couple of weeks before the actual top. This would suggest any clarity will await both the Nov2 mid-term election results and the Nov3 expected launch of QE2. The Repub's taking back the House seems in the bag, with around 55 seats likely to switch. Another 44 seats are contested ("99 seats on the wall" was the quip by Politico.) If the 44 split evenly, the power reversal will be historic. The Senate seems too close to call, with a gain to 49 seats likely but getting to 51 seats (necessary for control) problematic. As a consequence, uncertainty as to the future political climate remains an issue. The launch of QE2 is pretty well assumed, but the scale and timing are uncertain, and may be influenced by the Q3 GDP report on Oct29.

Neely expects an imminent strong up move in stocks to complete wave 3 of the final five-wave C. Target would be 1200. After that comes the overdue correction, but not an end to the upwards trend. The interesting site TradeYourWayOut has a bullish view which points to a top in March 2011, but first they expect the overdue correction:

Comments

[Wave Rust]

these guys are reading the comments on your blog.

several people have been this bullish for over a year now, including me.

That makes me want to get short! :))

"Neely expects an imminent strong up move in stocks to complete wave 3 of the final five-wave C. Target would be 1200. After that comes the overdue correction, but not an end to the upwards trend. The interesting site TradeYourWayOut has a bullish view which points to a top in March 2011, but first they expect the overdue correction:"

wave rust

[Sherman "long and hangin' on" McCoy]

That was an excellent piece - fair and balanced. The only thing I'd add is that the indexes only look good in US dollars. Bernanke and Co. will achieve their objective of destroying our currency. Even still, maybe we can all be billionaires, in Zims, Lei, Argentine Reals, and USD at least!

[george]

on the above sp500 chart
when the death
cross occured the sp500 was
at 1020 and then rallied to
1120 for a 100 point up
move on the index right
after the crossing occured.
perhaps when the golden cross
occurs the index be at the
extreme top and will pull
back strong to the downside.

[cjmorris]

Yelnick stated, "This would suggest any clarity will await both the Nov2 mid-term election results..."

Republican control of Congress is bearish period. People can debate whether it's the right approach or not, but Boehner's and the Republican view is basically Andrew Mello's declaration after the Crash of 1929: “Liquidate labor, liquidate stocks, liquidate the farmer, liquidate real estate. It will purge the rottenness out of the system. People will work harder, lead a more moral life.”

After Nov. 2 sounds about right though it may take a few months into 2011 before the public realizes the mess we are about to go in (gridlock won't help any).

It's amusing how the stock market has been mostly positive since Obama took over though one would never guess based upon news reporting and the public mood.

[Jacques DeMolay]

Love the Prechter news!!!!!I have a convergence of esoteric cycles tomorrow that cannot be ignored. Just looked at $hui chart and it is already leading the way down. It has dropped hard below its topping range. A nice confirmation that the dollar bottom is in. Plus the Phillies starting pitcher tonight was wearing #56. Also we saw #46 and #37 (my personal number) come in to pitch and #58 warm up (I am assuming he eventually came in). A little 56 flashed in the network promo also.

[Wave Rust]

cjmorris

can you quote some examples of Mello-esque things from Boehner and republicans?

btw, presidents have little effect on stock markets, if ever. they don't matter in the short term or long term.

they do have pronounced effect om economic policy and the economy. oblahblah is an excellent example of both facts.

keep on staying negative bro ,,,, we need negative naysayers
I love hearing from guys like you. please post more often, especially how this like the 'grape duhpression' of the 1930's.

stay short bro.

wave rust

[Jacques DeMolay]

Nice Dow number in that chart above: 11113.87 with a high at 11129. It looks like some of my esoteric cycles for tomorrow. 113 calendar days from July 1 low. The playoff game ended 6-5 by the way lol. 10-21-10 tomorrow.

[Jacques DeMolay]

49.62% AAII bulls up a few percent from last week. Really amazing considering the volatility of the past week.

[Roger D.]

Could next week be all down??

http://www.screencast.com/users/parisgnome/folders/Default/media/14e907d3-5b3a-493e-be3d-41b68ff1a162

[Dsquare]

USD's move began Friday so the chart is misleading.

[mo]

Hey losers , short? short? give me your money direct to my acount....

[Account Deleted]

S&P 500: Ascending triangle pattern CLICK HERE

[JT]

Hey Roger,

NEW HIGHS in MCD!!!

How does it feel to be short this name for month after month after month of new highs???

:)

[Whitebear]

One thing for sure. The top caller that came out the day before pounding "I told you so" after the 160 pt plunge, will come out again saying "I told you so" except now DOW is at year-high. Ha ha... I thought we'll see S&P at 1130?

[Oraclelurker]

Crush that bid!!!!

[Mamma Boom Boom]

I want to try one more time: to see if you fudge-packers can answer a simply yes or no question.

DO YOU THINK INFLATION IS IMMINENT ?

[Edwin]

The world bets against the USD. We have a successful back test so far....Hmmm. I like the risk/reward ratio....Bought UUP w/ a tight stop...

Could QE2 is already price in? Could austerity permeate to the land of Joe and Jane Sixpack after the election?

[Ashish]

Mamma,
Not sure if my answer matters- i think inflation is not imminent

[Michael]

The SPX is failing here as the Dollar strengthens. Shorting the coal and energy names here for a trade.

[Roger D.]

JT, how are you doing? probably pretty well.
I have never shorted MCD,never ever I just track that stock,because it's in a fifth wave grand supercycle. Btw it has a nice reversal candle today,shooting star.

Gold is toppy here. The DJR and the banks are topping,this could continue till Monday,but the bull looks like it's finally running out of gas. A new high in certain indexes is possible,but we have 5 wave up on the daily,weekly and monthly on most market leaders.

Roger D.

[PTrainer]

The Bears may want to reconsider their negative outlook on the stock market after reading the following which Mark Minervini posted on his blog recently:

"On October 13, 2010 the percentage of stocks trading above their respective 50-day (10-week) moving averages reached a level above 90%. In the past, this has had bullish implications 3, 6, 9 and 12-months forward."

"Since September of 1970, every time this 90% milestone has been reached, the market went even higher; the S&P 500 Index posted positive returns 3, 6, 9 and 12-months later. This was the case in the 1970s, 1980s & 1990s and as recent as 2003 and 2009."

Perhaps this time will be different but the history of the last 40 years is not on the Bear's side.

[Whitebear]

Notice how the market started to fall when Pretcher turned short-term bullish.

[Roger D.]

I think Monday will be key and it involves BAC's mortgage's. Any trouble with the chain of title and we could see this market fall apart.

Roger D.

btw that 90 pct level on 10 week moving average in a bear market rally is topping action. That would be perfect for a "B" top in a supercycle wave 2.

[Neo Tzu]

have never shorted MCD,never ever I just track that stock,because it's in a fifth wave grand supercycle.

MCD is no where near a supercycle top.

China only has 800 McDonalds so far and may eventually see 15,000.

McDonalds stock is going to the moon.

[Edwin]

neo tzu.. how about the SPY golden cross? $111.98 vrs. $111.41 still in full force...but I am selling my position and buying USD..

[Cal]

Going to the moon is bullish phrase?

[Mamma Boom Boom]

Thanks Ashish. I suppose your the only one smart enough to answer the question. I guess these people all weaved baskets, as children.

[Roger D.]

We are getting close to a turn here.

The DJR

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/7176ff02-c2b4-40e3-8388-b65e185e1217

[K.D.]

Prechter and Yelnick both bullish?
And at the same time?
Where have they been since March 2009?
Anyhow, a clear sell signal.
Time to seek shelter!

[K.D.]

Let me add: while these bears was firmly in the bear
camp all was well. Bull ruled. Since the meltdown, there's
been plenty of bears, some outspoken, some eloquent,
some almost resembling gurus. But they've all been
wrong. That's the meat. They've all been wrong. No
matter what they prescribed, no matter what they
recommended or subscribed to: wrong.
But now, when Major Bears tend to drift towards being
bullish, it gets more complicated.
Bears are politically correct. They follow they main stream
of thoughts. They stick to the rationale. As if the rationale
was ever any guidance to the stock market!
Fat chance.
Bears turning bulls is scary. Almost want a bull turn
bearish. And that's really scary.

[Whitebear]

Well. Even though Pretcher turned bullish, the market is still up today. There goes the theory that the market will drop when Pretcher turns bullish.

[JT]

"Prechter and Yelnick both bullish?
And at the same time?
Where have they been since March 2009?
Anyhow, a clear sell signal.
Time to seek shelter!" - KD

You took the words right out of my mouth KD!

And by the way, don't forget Neely.
He's also bullish to SPX 1200.
Looks like we got a Trifecta!

:)

[Account Deleted]

S&P 500 Analysis after closing bell: CLICK HERE

[DG]

This past weekend, I worked out a wave count that has us topping in the range of 1195.26 (absolute minimum) to ~1220. "The" top? "A" top? Dunno and don't really care.

I think we're ending the pattern whose beginning I saw in August (lest I be accused of being a "perma-bear" always calling tops):

http://img98.imageshack.us/img98/5985/spxdailyaugust3.png

Trees don't grow to the sky and all that.

[Hank Wernicki]

Just curious, did Gann or Livermore engage in forecasting ?

Or did the simpy trade the market ?

Thanks

[DG]

Livermore said he traded when he thought he was going to be on the right side of the market, so he must have been forecasting to believe he knew which way the market was going to go and wanted to go with it.

He would often use the appearance of some bit of news like a dividend announcement or a share issuance as a trade trigger because he believed that the institutions making the announcement made it at that moment for a specific reason and the reason implied a specific posture on the market.

Certainly, he also said that price was its own evidence and one shouldn't always look for reasons behind price movements, but even there he would determine in advance what price levels meant, so that if price crossed above one of his specified levels, it meant he should take a bullish trade and if it dipped below one of his levels, take a bearish trade.

In the chapter where he details his biggest trading mistake, his big loss in cotton, he had a specific forecast for the cotton market, but let himself get talked out of it by someone else who knew the market very well and he ended up taking a huge hit. In fact, probably my favorite line of the whole book describes how big the hit was, when he says, "After that trade, I had fewer hundreds of thousands of dollars than I had millions of dollars before it". Ouch.

[Gary M.]

Neo Tsu,

"MCD is no where near a supercycle top.

China only has 800 McDonalds so far and may eventually see 15,000.

McDonalds stock is going to the moon."

You are right sad to SAY it will be followed by a gigantic increase in obesity,heart disease,diabetes,
cancer and everything associated with fast food.
Big Macs and Greasy fries will be the new Chinese Cuisine is that correct? 15,000 greezy spoons is not good for your country......I wouldn't be bullish for the demise of generations in your country.The plague is upon us in this country and the west and will be the end of us one day.

[Greg]

Mamma Boom, about inflation: First lets assume some of us (5 or even 10) give you an answer. How this would change your life. Do you know anything about those 5 or 10 to assign any credibility to the answers? What would a small sample of answers tell you? To short bonds? To buy TIPS? to short stocks? Nothing, absolutely nothing(I hope so). So....you are smarter than that, move on.

[Greg]

"Well. Even though Pretcher turned bullish, the market is still up today. There goes the theory that the market will drop when Pretcher turns bullish."

I tell you, finally Mr. P got smart. He realized he is probably the most reliable contrary indicator out there and since he also begs God day and night for months now the have the market go down he, at last, did the obvious. After the "double short" more than 10+% below current levels now he is "short term" bullish. I wonder, why on earth would someone bother to forecast "short term" when he misses >10% moves and, equally important, why would ANYONE listens to him? Well, enough time spent on gurus, I will revisit Neely another time.

[MT]

http://i366.photobucket.com/albums/oo106/mtcharts/indu.jpg

[OracleLurker]

MT - that's exactly how I see it. Don't have a problem with a 1300+ target just the idea that we are going to maintain the current trajectory in getting there...

[Ashish]

Mamma,
Let me add- your sense of trend has been spectacular and has really helped .. Thanks again for those views.

[Account Deleted]

S&P 500 Before opening bell : CLICK HERE

[MT]

First posting wasn't the right chart.

http://i366.photobucket.com/albums/oo106/mtcharts/ind.jpg

[Mamma Boom Boom]

Greg, Ashish, ....... check!

[?]

Mama,

Inflation...... Personally I do not think that it will happen in the USA (and all the countries that were fiscally irresponsible), but it probably will happen in the growth countries (like in Asia where there is growth) because of what Helicopter Ben is doing.

Nevertheless, the upward movement in TIP is telling us that market participants expect inflation to be a problem. Although I may not agree with their assessment, I will respect that assessment until TIP stops going up.

[Sobranie]

A very big divergence between NDX and DJI and SPX. Hmmm.. Is this the early lead by NDX?

[Roger D.]

The final 5th wave of this hybrid bull bear market rally. Just a little bit more to go.

JNK

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/94e0751e-1742-4783-9f3a-1ffebc1cce61

[Cucking Flueless]

Just a little bit more to go.

You've been saying that for the entire year.

[Roger D.]

"You've been saying that for the entire year."

You're right and I have alot of company. Sentiment is lining up perfectly this time along with QE2. Sell the news with gusto.

Roger D.