Patient Market, Impatient Pundits

I see lots of pundits trying to pick the top. Fool's errand. Better to watch for a bifurcation off the top before betting on a change of trend; otherwise ride it up. The recent bifurcation carried down into a trading plateau, but not below, meaning no break of trend. We would need a sharp drop below 1275 that stays below to confirm a change.

The market is in a channel and is touching the top trendline. The recent trading range was right on the mid-channel between the upper and lower trendlines. A bounce off the midline confirms a continuation of trend. You can see this in the following chart comparing the Dow with the Trannies (courtesy EWTrends). The Dow remains in the upper half of the channel while the Trannies have broken down, a divergence in Dow Theory, which would require a reversal back up in the Trannies to support a continued bull market:

Typically a trend ends with a false break, which in this case would be a thrust above that quickly (relative to the length of the trend) falls back below. Right now the trendline is above where we are, both on a closing and intraday basis, at 1328 Wednesday and climbing 1.5 pts/day. The STU is doing a good job of watching this closely and positing potential turn levels. 

I see a lot of the pundit-sphere pointing to a 78% retrace level (of the drop from Oct 2007 to Mar 2009) as the next key level. The exact 78.6% level depends on counting from intraday highs/lows or daily, or (for more precision) bifurcation points, but a reasonable level to use is 1375. Before we get there, we have another typical turn level ahead, 1352, where the recent wave C from the July 2010 low to now gets around 61.8% of the prior wave A from March 2009 to April 2010. A typical relationship in a sharp or "zigzag" correction is for waves A and C either to be equal or to relate by 61.8%. 

If this is a wave 2, the 78% level is really the point of no return. Theoretically a wave 2 can go 99%, but the odds say once past 78% then almost always this was not a wave 2. I can make a stronger case that once a wave 2 goes much past 62%, it is unlikely to be a wave 2, and statistically once past the repetition level of 70.7%, it rarely is a wave 2. The prime exception is a wave 2 that retraces a really sharp drop of the sort we had back in 2008 (call it a "crash"). The role or psychology of a wave 2 is to make the vast majority of market participants believe the sharp drop was an anomaly and the market is back to the prior trend. The sharper the fall, the further the comeback. 

Psychology may also come into play on the two-year anniversary of the Mar 6 low. Interesting is that we bottomed intraday at 667, and are close to the double, at 1334. Whether enough astrology or Gann traders are still out there, this might cause a stutter. 

Finally a lot of pundits have been comparing this market to April 2010, where the market went into a three-week trading range with a couple of sharp drops that were recovered before we bifurcated down. The high was in the middle of this range, and the eventual bifurcation down that led to the Flash Crash occurred about a week after the top. The implication is we have begin a three week or so plateau punctuated by a final high (1330? 1334?) that will be followed by another sharp and deep drop. One of the best discussions of this comes from AllAboutTrends: 

While a slight pop to say 1330 may mark the end, or a stutter around 1334, more likely we bump along the upper trendline up to 1350-1375 before a serious pause occurs. Given the trend slope of 1.5 pts a day, this points to a turn around 20 or more trading days out, or around the vernal equinox. We might test the midline again before then, but don't get too excited. 

Comments

[Chabazite]

Good post Yelnick - However, if I have seen one 'misjudged' forecast over the past six months I have seen a thousand. Its almost as if the market is adopting the mantra "We know there is no REAL recovery. We know that the fundamentals like employment, borrowing etc. are rubbish. We know the bond vigilantes are sharpening their knives. But the (US) government and the FED is pretending things are OK, and is putting a positive spin on lots of statistics which we know have all been falsified to their favour. So whilst THEY pretend its OK for us to continue pretending the recovery IS real. Go long." Personally I see it as a very dangerous situation. Choose, if you will, one of the following:
i - There really IS a jobless, moneyless recovery in which case an awful lot of very clever, but sceptical people have got it completely wrong. I somehow doubt this.
ii - There is some sort of conspiracy amongst the Governments, Central Banks, Primary Dealers and Banks to keep the markets are high. Notice the plural. I also doubt this since the phenomenon is global.
iii - Said institutions are genuinely misguided in their wildly bullish readings of the market. Possible, but can so many people be so wrong so much of the time? Surely there must be some dissenters, or are their voices all drowned out by all the hype?
iv - Everyone knows the score, but are playing the biggest game of 'chicken' humanity has ever conceived.
I think the final option is my favourite, and wouldn't like to be the one caught out in this game. Largely in cash but with a couple of shorts on the indexes CURRENTLY being hedged by a couple of longs.

[Virginia Jim]

Great post.

**Psychology may also come into play on the two-year anniversary of the Mar 6 low. Interesting is that we bottomed intraday at 667, and are close to the double, at 1334. Whether enough astrology or Gann traders are still out there, this might cause a stutter. **

Try the 2002 low in QQQQs of 19.76 X 3 = 59.28. Bradley Cowan discusses the frequent repetition of key 'vibrations' of price and time intervals in DJIA between the extreme highs and lows of 1929, 1974, 1982 and 1987 (Market Science II Appendix C).

Gann's Law of Vibration. Let's see if 1334 or 59.28 marks a top. If those harmonics work, I'd think the implication is dire as they seem to work at monumental extremes.

Jim

[Account Deleted]

ES Rising wedge: http://niftychartsandpatterns.blogspot.com/2011/02/s-500-futures-before-opening-bell_09.html

[Ray]

The reason we can't compare this to last April is because April '10 marked the end of QE1. The Fed stopped their MBS purchases at that time and like magic what happened? The market rolled over and the economy lurched into what many thought was a double dip. The Fed was so concerned, they wouldn't let a measly $7B/month of MBS mature so they bought Treasury's with these proceeds! This stabilized the market somewhat, but things really didn't stabilize until the Jackson Hole QE2 speech. This market will continue higher until June, or QE2 bond purchases end whichever comes first. If the FED lets the MBS mature from QE1 in June and they actually reverse repo the Treasury's from QE2 after the purchases end in June, look out below because this economy is nothing but smoke & mirrors created by Fed money printing. Ray

[Mamma Boom Boom]

>I see lots of pundits trying to pick the top. Fool's errand.<

Have we ever established what a pundit is?

Anyway, there certainly are lots of technical theories floating around, .....and an equal number of failures. Better to develop your own system and stick with it.

Neo-Mamma

[joe]

It did appear to me that if 1310 was taken out on the SP that the market would run higher - 1350 is surely possible. Trying to pick a top here - is to catch the falling knife.

Another good post Yelnik.

Joe

[joe]

Yelnik - what do you make of the price action lately and today especially in T Notes- the 10 and 30 year?

Joe

[Michael]

Big Break in the COAL and MATERIAL names today.

[Mamma Boom Boom]

Portugal may be the spark.

http://www.screencast.com/users/MammaB/folders/Default/media/235d804a-6275-464d-a936-a79983546ab2

[Hockthefarm]

This note really sheds some light on how completely skrewed up this country has become:

Allan Chernoff, CNN senior correspondent, On Wednesday February 9, 2011, 4:37 pm
Imagine depositing your paycheck at the local bank each week only to have the bank lose your money, but never face any consequences.

That essentially is what Fannie Mae and Freddie Mac enabled banks to do. Since these two government-sponsored housing finance giants bought up the home loans that banks made, lenders were effectively let off the hook for their incompetent, unethical or simply unfortunate lending policies.

While bankers were pushing home loans during the housing boom on virtually anyone with a pulse they had a safety hatch in Fannie and Freddie. Bankers knew they could sell those mortgages - even those that were highly risky - to Fannie Mae and Freddie Mac, which would then have to worry about the bad credits.

"Allowing banks to get off the hook is one of the key problems that caused the financial crisis," argues Peter Wallison, former General Counsel at the Treasury Department and a member of the Financial Crisis Inquiry Commission. "The government should get out of supporting the mortgage market. It's been a disaster for taxpayers."

After a $134-billion taxpayer-funded bailout of Fannie Mae and Freddie Mac in 2008, the White House is now considering Wallison's advice. On Friday the Administration will propose gradually phasing out Fannie Mae and Freddie Mac, according to Administration sources.

To be sure, Fannie and Freddie will not be disappearing any time soon. Congress would have to approve the plan. And even then, the white paper from the Treasury Department and the Department of Housing and Urban Development will recommend at least three options that would keep the government involved in the mortgage market in the event that Fannie Mae and Freddie Mac are shut down.

One measure would limit Washington's role to current programs at the Federal Housing Administration and the Veterans Administration, while two others would keep the government involved in supporting the secondary mortgage market, either during times of financial stress or all the time, according to administration officials.

Advocates for federal involvement in the mortgage market argue the government-sponsored enterprises allow more Americans to achieve the dream of home ownership by increasing funds available for mortgage loans.

"Now is not the time to abandon our government's long-standing commitment to housing," said Bob Nielsen, a home builder in Reno, Nevada and Chairman of the National Association of Home Builders. "Restoring the health of the housing industry is a crucial first step in bolstering job creation and leading the economy to higher ground."

"The federal government must continue to play a role in the mortgage markets to ensure the steady flow of safe and affordable mortgage funding that middle-class consumers need, and only the government can provide that backing," said National Association of Realtors President Ron Phipps, of Phipps Realty in Warwick, R.I.
//
After this massive government induced disaster, we still have fluckers out there screaming more, more, more. Really hard to believe.

Hock

[joe]

The next leg down in the housing market could be very steep indeed if there is no place to get the loans placed.

[Account Deleted]

S&P 500 Analysis after closing bell: http://niftychartsandpatterns.blogspot.com/2011/02/s-500-analysis-after-closing-bell_10.html

[Hockthefarm]

On Friday the Administration will propose gradually phasing out Fannie Mae and Freddie Mac, according to Administration sources.

This would be a smart move by Obama. 2012 could become a horse race yet and sets up a perfect contrast. Do people want to risk getting another fool in the White House? Dubya basically ran the US economy with a housing bubble and was sound, sound asleep when the cracks started showing up in 2005. We sure don't want to go back there.
H

[yelnick]

Joe, my take on the Treasuries is that QE3 is NOT in the bag. Cracks are showing in the Fed's resolve to continue it. If QE is ended, we are back to Flash Crash scenarios where the bottom falls out This is a liquidity driven set of markets where QE slops liquidity and it runs into commodities, emerging markets (that is ending) and stocks. Bonds have broken first, since sloppy liquidity risks future inflation.

In stocks, Trannies have already cracked. With the Cisco after hours crush, maybe the Naz will crack next.

The bond reversal today is to be watched. If it is believed that QE will taper off, positions will rapidly rotate - back to bonds!

[trendlines]

Hang Seng Index: Break Down!

Last post on the HSI showed why we bounced up from 22,400. After a decent advance, the HSI turned down along with other emerging markets, and broke down through the uptrendline. However, as the index is reaching oversold towards the historical 22,400 support, expect a tiny bounce or back-test here. Further support is at 21,800. I will discuss other supports in the event of a further break below this level.

http://trendlines618.blogspot.com/2011/02/hang-seng-index-break-down.html

[trendlines]

Shanghai & Shenzhen: Break Up!

In contrast to the HSI, Shanghai(+1.6% today) & Shenzhen(+2.9% today) seem to be breaking upwards on decent volume! In my last post, i had suggested that the decline in the SSEC was looking corrective implying a break upwards is possible. I am very short-term bullish, but still wary of the barrier at 2950 & 1235, on the SSEC & SZSE respectively.

http://trendlines618.blogspot.com/2011/02/shanghai-shenzhen-break-up.html

[Mamma Boom Boom]

If Tuesday was the high in stocks, that means my intermediate timing model missed it by 5%. That's not too good, but it's not all that bad, considering the high-priced boys keep missing it by 100%.

My short term model (actual trigger point) has still not confirmed. And may not, tops are tricky. But I will know when it's safe to go in the water.

January was wasted, as far as technical analysis goes. The market was just too ignored. And if you strip away all the front running, investor volume was practically non-existent.

So, heads up!

Neo-Mamma

[trendlines]

Straits Times Index: In Dire Straits

The Singapore Straits Times Index broke down through range support at 3120 today. Since the break of the long-term uptrendline (blue dotted) - a bearish development - this move down was in the works. Initial support may be provided by the bottom of the parallel channel(pink), followed by good support in the 3040 area.

In case of further bearish developments, an eventual target of 2900 will not surprise.

http://trendlines618.blogspot.com/2011/02/straits-times-index-in-dire-straits.html

[Hockthefarm]

Y:

Sy Harding expects us to revisit a print of last May's prices. That is about 1075 to 1200 on the spx. The 200 day might be a good stopping point.

Hock

[JT]

Amateurs in the blogosphere keep playing "Pick The Top".
They've been doing this about as long as Prechter and Hochberg have.
What they don't understand is how sectors in the stock market undergo ROTATION.
This is key . . . and completely missed by most of the people posting.

[Hockthefarm]

I read today that our government is on path to record the highest deficits in our history. At the same time SS is on a weak footing and huge expenses lie ahead to cover boomers in retirement. On average, each of us will spend 2 years of our lives requiring total care as the end approaches. In Canada, those two years are heavily subsidized by government.

Then you stumble on an article like the following. Can the people's expectation of government really be this low? It is mind boggling.

The fans inside Cowboys Stadium for Super Bowl XLV had as good a view of the flyover by four F-18 fighter jets as those watching at home. With the roof closed on Jerry Jones' $1.2 billion stadium, people in attendance were forced to watch the flyover on the massive high-def screens inside.

A Dallas TV reporter estimated that the flyover cost the Navy a total of $450,000. His total includes gas, operational costs and air time for the four F-18s, which traveled from Virginia to Texas for the event. The Navy told CNBC that its official records only tallies the amount spent on gas, which came out to $109,000 for the Super Bowl flights.

Even if we call it somewhere in between, the Navy still spent hundreds of thousands of dollars of taxpayer money for a few seconds of camera time. It's like an old riddle: If four planes fly over a stadium and nobody insides sees, is it worth the cost?
//
Is a 5 year old calling the shots with our tax dollars. Would you even do this if you had run surplusses for the last 10 years?

Hock

[Mamma Boom Boom]

>Is a 5 year old calling the shots with our tax dollars.<

Hock, it's worse than that. The one at the top of the heap has no nationality, no race, no morality, and no loyalty. And the rest have no accountability. There is absolutely no way to save our country.

Washington , D. C ----- HELLO!------
--Are all your calculators broken??
Building Permit Tax
CDL License Tax
Cigarette Tax
Corporate Income Tax
Dog License Tax
Federal Income Tax (Fed)
Federal Unemployment Tax (FU TA)
Fishing License Tax
Food License Tax
Fuel Permit Tax
Gasoline Tax
Hunting License Tax
Inheritance Tax
Inventory Tax
IRS Interest Charges (tax on top of tax)
IRS Penalties(tax on top of tax)
Liquor Tax
Luxury Tax
Marriage License Tax
Medicare Tax
Property Tax
Real Estate Tax
Service charge taxes
Social Security Tax
Road Usage Tax (Truckers)
Sales Taxes
Recreational Vehicle Tax
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone Federal Excise Tax
Telephone Federal Universal Service Fee Tax
Telephone Federal, State and Local Surcharge Tax
Telephone Minimum Usage Surcharge Tax
Telephone Recurring and Non-recurring Charges Tax
Telephone State and Local Tax
Telephone Usage Charge Tax
Utility Tax
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers Compensation Tax
(And to think, we left British Rule to avoid so many taxes)

Not one of these taxes existed 100 years ago.....
And our nation was the most prosperous in the world.
We had absolutely no national debt....
We had the largest middle class in the world.....
And Mom stayed home to raise the kids.

What happened?
Can you spell: 'POLITICIANS!'

And I still have to Press '1' For English.

What the hell happened???

[Hockthefarm]

Mamma:

One nice thing about my job is that I get to look at people fairly closely. It seems to me that the ones that paid attention to the nickels and dimes during the journey are the happiest and as a rule all set for retirement. Many of the opposite expect to work til they are 70 and are still fubar.

Hock

[Mamma Boom Boom]

>the ones that paid attention to the nickels and dimes during the journey are the happiest and as a rule all set for retirement.<

But will it stick? My guess is all their money and all their assets will be ripped away from them, .............before long.

[Ronald Reagan]

So much "Gloom & Doom" . . . whining, bitching, and moaning.

People bitching about the United States of America showcasing it's air superiority during the Super Bowl . . . Really? Some of you people should either shut your pie-hole and stop your whining, or simply move out of the Country.

You people make me sick.
Leave your US citizenship at the door and get the hell out of the Country if you don't like living here!

[Mamma Boom Boom]

Presidential material:

http://www.youtube.com/watch?v=ZSDBswx90Cs&feature=player_embedded

[Mamma Boom Boom]

Ronald Reagan, you should be careful where you display that attitude. Some people would drop you like a bad habit.

[Hockthefarm]

RR:

Fuck you, you complete asshole!

I'd rather see you leave dipshit.

Hock

[Hockthefarm]

Per dent's latest this week:

The USA increased its private sector debt by $22 trillion between 2000 and 2008. Gubmint debt increased from $5 trillion to $10 trillion over the same time frame.

On the bright side we can still join rompin ronnie for a 4 second flyby on tv that burned 108 k$ of fuel. Wow, aren't we sumpun. 27 trillion is birdshit when you can spend tax payer money like that. Debt? Bring it on!!!!!!

[USA STILL ROCKS ASS]

You shit for branes:

The navy bought a bout a billion of dollars of commercial time for 109,000 dollars. That is more than you will ever see in a lifetime of your lame ass trading

Regain is rolling in his grave at how unpatreotic we have become since we put pothead and mustafa obama in charge.

I pity you for living so that decent navy boys are saving your ass while you bitch and wine and bitch and wine.

[twitter.com/Frac_Man]

Gentlemen please keep your discourse to the market
and restrain the personal attacks

We are not in a school yard !

Grow up

[Hockthefarm]

"You shit for branes"

You win. I can't compete with that.

"We are not in a school yard !"

No kidding.

[A Shit For Brains Taxpayer Who Has To Fund It All]

FarmerHock;

Decide what kind of politics you want to represent. It is obvious you are a Democrat with closet Republican leanings.

Least Yelnick and others are obvious about their political bent. So is Pelosi for that matter.

Make a stand man!

Or are you a shit for brains farmer, who votes Republican and then accepts endless dollars for subsidized farming?

No gov't hand outs have ever landed in my house. None.

Well maybe a little ... but not very much.

Well I dunno, what is very much?

But I have a reason to get my subsidies. A good reason. I am sure I do. Like medical needs, for example. Very acute medical needs.

Like ... well I will think of the other reasons soon.

God damn, just about time to do taxes again.

[An Oil Man Wants To Know]

What is going on with OIL Mamma Boom Boom?

http://chart.finance.yahoo.com/z?s=OIL&t=5y&q=l&l=off&z=l&p=s&a=v&p=s&lang=en-US&region=US

Not sure I fully understand the underlying fundamentals of this ETN, that should drive the technicals.

But 'oil' looks to be in trouble.

Is oil going to become BTU per dollar equivalent to natural gas?

Or should I have asked Michael?

Interesting chart imo.

[Mamma Boom Boom]

>What is going on with OIL Mamma Boom Boom?<

Don't know! It's not a specialty. But, looking at the chart it appears to have failed to break out. But, it's such a rigged market I wouldn't put many dollars in it.

[Mamma Boom Boom]

Consumer spending hits record low:

http://www.screencast.com/users/MammaB/folders/Default/media/667f170a-1209-4bcd-b99f-6ff561e9a66e

[bears continue to march into the meat grinder...]

"This bull market has the strongest start of any in history," he said. "When you have a very sharp rise in the first part of the bull market, those tend to be prolonged bull markets."

Lazlo Birinyi, quoted today

Oil is "not a specialty," concedes Mama Boom. Presumably this means we can take her advice on oil without losing our shirts.

[adg]

SP500=1500 by the end of march, so buy and hold is the only strategy! easy FED driven market...

[Hockthefarm]

SFBTP:

Funny you should ask? A few years back there was a test floating around that based on your answers, put you on a political grid map. When I took the test I did not know what a Libertarian was. Turns out that is exactly what I am.

Basically it means look after essential needs: medical, unemployment and everyone should die with dignity. The rest should be pure capitalism.

That one poster got my goat(my bad) because his answer was the worst of all possible answers. He basically wants everyone to sit in the corner sucking their thumb like a retard.

Our military is too big for our needs and consumes too much of our economy. On the other hand it is probably too small for our foreign policy positions. Something will give eventually.

Enough of this.
H

[Michael]

"Not sure I fully understand the underlying fundamentals of this ETN, that should drive the technicals. Or should I have asked Michael?"

I'd be happy to answer your question regarding the chart of the OIL ETN you posted since Mamma Boom Boom is at a loss as to explain why that ETN has collapsed in price, even though Crude Oil has essentially doubled since 2008.

The chart that you posted is of the Barclays Bank iPath S&P Goldman Sachs Commodity Index Crude Oil ETN, symbol (OIL).

First off, "OIL" is an Exchange Traded Note contract rather than an Exchange Traded Fund (ETF). Thus, you are an unsecured creditor of Barcklay's, so you have credit risk overlaid on the risk of the commodity. Post Lehman, this is probably not that big of an issue. But you can monitor the CDS spreads on Barclays to get a better handle on the credit risk.

The reason that the "OIL" ETN has collapsed in price even though crude has roughly doubled since 2008 is because of the concept of CONTANGO ( near month futures contracts trade at a lower price than next month contracts ).

Both the OIL and the USO are based on long positions in West Texas Intermediate crude oil, WTI. Since these vehicles merely represent the FRONT MONTH of the WTI crude oil futures contract ( and the buyer never takes delivery ) their net asset value gets hurt everytime the fund manager who manages the ETN/ETF rolls into the new month futures contract, due to the CONTANGO nature of the futures market.

When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may lead the total return of OIL, USO, or UNG's net asset value to vary significantly.

In the event of a prolonged period of CONTANGO, and absent the impact of rising or falling oil prices, this could have a significant negative impact on the OIL, USO, or UNG net asset value and total return.

It's all in the prospectus.

But most people have no clue about what they are trading in the first place, and how a negative "roll yield" can dramatically impact the NAV and performance of the ETN/ETF that they are long.

Hope this helps.

[Mamma Boom Boom]

>'d be happy to answer your question regarding the chart of the OIL ETN<

Sick'em Odie

[Michael]

"Our military is too big for our needs and consumes too much of our economy. On the other hand it is probably too small for our foreign policy positions. Something will give eventually.
Enough of this." - Hock

Well, the fact of the matter is that there are "fly-bys" all over this great Country of ours . . . and they are ALREADY included in the training budget of the Navy, Air Force, etc.

Is the military too big for our needs?
Perhaps so.

But at least it is where the cutting edge of technological innovation is.
That is most important, in my mind.

[Hockthefarm]

"Well, the fact of the matter is that there are "fly-bys" all over this great Country of ours . . . and they are ALREADY included in the training budget of the Navy, Air Force, etc."

But the fact of the matter is that there are people without medical coverage all over this great country of ours. Hungry ones too. And some of them are kids. Why isn't k-12 education identical where ever you go in this great country? I find the use of the term "budget" insulting. There is no such thing when your company is running a 1.5 trillion deficit and has liabilities they can't even count.

But at least it is where the cutting edge of technological innovation is.
That is most important, in my mind.

I tend to agree with you here.

To study and not think is a waste.
To think and not study is dangerous.
confucius

H

[da bear]

any word on the Paul Tudor Jones rumor that he called the top?
well, I just posted a Report on gold/silver and stocks. Then I checked out a DJIA chart and it looks like five full waves are in off the March 2009 low.
Jones uses Elliott wave sometimes so that may be what he is looking at.

here is a link to my Report: http://dabearworldorder.blogspot.com/2011/02/gold-thoughts-by-da-bear.html

da bear

[Virgil]

Looks like silver's working on the right side of a head & shoulders

[michael]

Coal Stocks going to the MOON once again!
ACI, BTU, CLF, JOYG, MEE, NRP, PCX, and WLT.