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SPX Corrective Move - UPDATE
I certainly didn't expect such a sharp selloff this morning. The double zigzag count has been violated. If the correction is over, it was relatively shallow and short lived. If there is any correction left it would be a flat. Regardless, the rest of February is poised to drop more than from the January 2010 highs.
SPX Corrective Move
So far a zigzag fron the recent lows has completed (wave a of 2). Today was choppy down, then sideways. I'm looking for a drop at the opening bell tomorrow, or a gradual selloff (complete wave b of 2), followed by a rally into positive territory (start of wave c of 2). I'm looking at a double zigzag as the best count.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=spx&time=&freq=
Markets are short term oversold. The ralliees should be corrective. The INDU already make a fibonacci 38% retracement. This has taken very little time, so I think the markets have a good week of sideways movement ahead.
APPL e-waves Choppy
The move from the top in AAPL is choppy and difficult to count. There are some technical indicators that should be useful. The lower channel of the multi-month rally has been broken. So has the 50 day moving average. Volume has spiked. The relative strength indicator made lower highs as the price went up, also known as a negative divergence which is signalling a major trend reversal in the making.
Markets Still Consolidating
Last week was choppy to the downside compared to the narrow channel of the previous week's selloff. I think a flat began on Thursday, and today will be wave c. SPX target maybe 1100?
The fundamentals and technicals are synched up, so the underlying trend is down.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=spx&time=&freq=
Investor Intelligence Survey
This week's II survey shows a strong decrease in bulls /increase in bears. The survey has been at extremes for the last 2 months. This kind of change indicate multiweek decline.
http://www.schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx
10 Yr Tsy Yield Broke Upper Trend Channel
The stochastics are giving a "buy yield" signal.
The MACD histogram started up a few days ago.
It looks like the yield will begin a multi week/month rise.
http://stockcharts.com/h-sc/ui?s=$tnx&p=D&yr=0&mn=6&dy=0&id=p75635173805
SPX e-wave Update
Last night the corrective pattern I labeled as a possible double zigzag has to be rejected since the futures dipped below yesterday's low. The triangle turned into another zigzag. There is still a clear pattern, a flat. Even though the futures are down this morning, wave c should rally into positive territory. The upside target of 1110 is less likely.
SPX Futures e-Wave
Since January 19, 2010, a very clear e-wave has unfolded in the March 10 SPX futures. Today was part of a correction. The charts show a triangle after a zigzag, so another zigzag should trace out overnight, and tomorrow. Target about 1110. The consolidation could take more time though.
http://charts.barchart.com/chart.asp?sym=sph0&data=Z60&date=051406&den=HIGH&divd=Y&evnt=ADV&grid=Y&jav=ADV&size=D&sky=Y&sly=N&vol=Y&late=Y&ch1=011&arga=&argb=&argc=&ov1=&argd=&arge=&argf=&ch2=&argg=&argh=&argi=&ov2=&argj=&argk=&argl=&code=BSTKIC&org=stk
TREND1 - Buy The Dip? Nah
The VIX trended from March '09 to October '09 in a fairly narrow channel. Since then it has become very wild. I've noticed that charts get volatile before and after major turns. The November '09 to present counts as either an ending diagonal or triangle+terminal wave. If there is any more to the upside, it should be short lived.
VIX UP BIGTIME
The VIX went up 30% from extreme lows a week and a half ago. Today the VIX was up 19% alone. The VIX also broke above the upper trendline. The bear market has arrived.
http://stockcharts.com/h-sc/ui?s=$vix&p=D&yr=0&mn=6&dy=0&id=p75635173805
Ditto for the 10 Yr Bond
http://stockcharts.com/h-sc/ui?s=$ust&p=D&yr=1&mn=4&dy=0&id=p36439853542
30 yr US Bond Price E-Wave
The 30 yr US Bond price chart shows a double-double zigzag unfolding.
Wave A double zigzag December '08 high to June '09 low
Wave B Triangle or Complex correction June '09 low to November '09 high
Wave C double zigzag starts, wave a of first zigzag complete, wave b well under way
The trend of the next 6+ months should be down at least $20.
http://stockcharts.com/h-sc/ui?s=$USB&p=D&yr=1&mn=4&dy=0&id=p36439853542
Anyone Use Kalman Filtering?
There's a small firm which uses Kalman filtering to track the markets. The predictive accuracy is reported to fade about 3 months out. This is the foecasting ability I read about in a Federal Reserve white paper 10 years ago. (Darn, I lost it).
So the last couple of weeks I have begun trying the Kalmann filter technical analysis approach. My initial studies involved trying to track a combination of 3 sinusoids. Hurst theory clearly proves the market is a collection of cycles, and I've verified using classical signal procwssing techiques, so a small collection of sinusoids is reasonable. The results for the initial studies were extremely promising. As long the period was more than 8 samples, the target was tracked accurately.
When I used data from the Dow Jones Industrial Average, the predictive ability goes down the drain. This is most likely due to a noisy signal.
Any thoughts?
Many Counts = Sit it out
Unless I see a clear count, and I don't, my money stays on the sideline.
OIL
The move off the December '09 lows looks like a double zigzag. The overall bear market e-wave count is open for debate: Triangle, double zigzag, or more complex correction. The strength of the December rally also looks a little weaker than the rally off the October '09 lows. Stochastics have been overbought for a few days. A couple more days of choppy rally to a new bear market bounce high before the top is in.
http://stockcharts.com/h-sc/ui?s=$wtic&p=D&yr=0&mn=6&dy=0&id=p75635173805
VIX -Ending Diagonal
Since the early November '09 hi, the VIX has made 2 lower lows. Each move lower was a zigzag. The next best wave count is a wave 4 triangle followed by wave 5, which should be very short lived.
http://stockcharts.com/h-sc/ui?s=$vix&p=D&yr=0&mn=6&dy=0&id=p75635173805
Oil Bear Rally Continues
The October '09 hi to December '09 lo was a zigzag.
The bear market rally off the December '08 lo is still corrective. Looking for one more zigzag or choppy advance to finish the rally in the next 1 month.
http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&yr=1&mn=3&dy=0&id=p66207535178
Yield and Dollar Update
This week the dollar accelerated and has been in an exponential rise since late November '09. With such exponential behavior early on in the uptrend, many wave 1-2 at multiple degrees unfolding, a huge gap up / explosion is about to happen.
http://stockcharts.com/h-sc/ui?s=$usd&p=D&yr=0&mn=6&dy=0&id=p75635173805
The 10 yr Treasury yield still is in an uptrend, but the wave 1-2 combinations of multiple dgrees are not as many as in the USD.
http://stockcharts.com/h-sc/ui?s=$TNX&p=D&yr=1&mn=0&dy=0&id=p01010764051
Thursday's and Friday's action makes the late November- early December TNX/USD rally looking like a zigzag and not a motive wave. The falling ratio tells us the dollar is rallying faster than the TNX yield. The triangle count from June '09 I made in my last post needs to changed to a zigzag with a long triangle separating zig from zag. Over the next 4 weeks, the dollar rallies faster than the TNX yield. Then the yield rallies faster. Both should still remain in rally mode. The rallies should last 6+ months.
http://stockcharts.com/h-sc/ui?s=$TNX:$USD&p=D&yr=1&mn=3&dy=0&id=p29698879625
The Yield and Dollar
The markets have signalled a dollar rally by breaking the upper trendline from June '09 to December '09. The next test is the 200 day moving average.
http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=1&mn=4&dy=0&id=p96619673669
The yield on 10 yr Treasuries are range bound. Let's see if a different view reveals a stringer signal. Take the $tnx to $usd ratio:
http://stockcharts.com/h-sc/ui?s=$TNX:$USD&p=D&yr=3&mn=0&dy=0&id=p38151300267
As you can see, there is a textbook triangle from June '09 to December '09. This clearly signals a rally in the yield relative to the dollar. Since the dollar is going UP, then the yield will go UP proportionately faster. This will be a strong move because the consolidation has taken a long time.
Oh, bbbut doesn't a rising yield mean fear of inflation or default? NO! Dollar UP- Yield UP means deleveraging is taking place. It won't be long before the equities markets join in the deleveraging borrowers are engaging to pay off debt.
SPX Bear Rally E-waves
The bear market rally out of the March '09 lows is more of a WxY than an ABC. WxY is more complex, where ABC is a textbook case such as flats, triangles, zigzags, and double zigzags. SO here goes...
Wave W was march low to June hi.
Wave X was a zigzag correction into the July lows.
Wave Y is complex
Wave w of Y from July low to September high was a zigzag. The zig was separated from the zag by a flat through most of August.
Wave x of Y from September hi to October low was also a flat, but of a larger degree. Wave c of the flat was an ending diagonal, followed by a sharp rally.
Wave y of Y from the November lows may still be under way.
This wave count nicely handles the overlapping waves from August through October.
http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=0&mn=11&dy=0&id=p09912470752
JLS - XLF E-wave
The selloff from the october '09 highs to early november '09 lows was motive. Since then the bounce has been corrective. There is still a chance for one last push to complete the correction, but the surge in downside volume helps build the case the top is in. As with most of the markets, volume has been decreasing as price rises. This is typical in a distribution rally. The relative strength index has made lower highs as prices made higher highs. Again, this divergence is bearish.
Slick OIL E-waves
Prechter was right about corrections being difficult to count. Oil has been a challenge, though the count has become more certain.
Wave A: From December '08 Low to June '09 High - complex WYZ.
Wave B: From June '09 High to July '09 Low - zigzag
Wave C: From July '09 Low to present - Complex WYZ.
Within Wave C, the pattern was hinting the price would drop below $75 around this time. This means W overlaps Z. I see $85 as an upper limit, and 2-3 weeks of choppy rally before the top is in.
http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&yr=1&mn=2&dy=0&id=p37696077144
HYG E-Waves
I usually don't follow the HYG, high yield corporate bond fund. This evening I read "Leading Indicators to Credit Contraction, Round 2" by Gary Tanashian and the corrective Elliot wave pattern jumped right off the page.
Wave A: From November '08 low to January '09 high - Zigzag
Wave B: From January '09 high to March '09 low - Zigzag
Wave C: From March '09 low to present - a very complex Zigzag
Within the zag of Wave C the pattern has generated many overlaps bounded by converging trendlines. This strongly supports the count of ending diagonal and major trend reversal is near.
Keep an eye on this one because it will move quickly and retest the lows within 6 months.
http://stockcharts.com/h-sc/ui?s=HYG&p=D&yr=1&mn=2&dy=0&id=p65800186582
ABX Mortgage Index Leading Indicator
Despite the equity market's rally out of the early November lows, the ABX.HE.AAA.06-1 mortgage index topped and sold off. The ABX index found some support; however action has been a choppy advance. The ABX index has been a leading indicator for equity markets this year. Take caution.
http://www.markit.com/en/products/data/indices/structured-finance-indices/abx/abx-prices.page?
WMT E-waves
The last time I posted about WMT, the preferred count was a triangle. Obviously something else has developed. The alternate count ending around Thanksgiving is playing out. It looks like the corrective wave is a zigzag or double zigag from the early March '09 lows. A triangle connected the zig to the zag, so this means the rally out of the November '09 lows is the last wave of the March '09 correction.
My forecast is a RED Black Friday, followed by a BLACK Monday.
http://stockcharts.com/h-sc/ui?s=WMT&p=D&yr=1&mn=0&dy=0&id=p23889254947
SPX Ending Diagonal?
Both these charts show a 2-3 day triangle in a wave 4 position. Last Wednesday's high and wave 4 triangle overlap. wave 3 looks like a zigzag. THe sum of these structures indicate 1.) there is one more thrust up tomorrow before the 2 1/2 week rally is over. It may even happen in the overnight futures 2) a potentially longer term wave is finishing.
Volume is showing a huge divergence. Volume increased as the market sold off in October '09. Volume decreased with increasing price this November '09 rally. In fact the November rally has had the lowest average volume of the entire rally starting in March '09. THis is distribution.
The price tagged the upper bollinger bands Monday, which are widening. Since then the price has pulled away. Support to the downside is giving way to anticipated volatility.
The Relative Strength Indicator will have made 3 lower highs as the price made 3 high highs. This is a HUGE divergence.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=spx&time=&freq=
http://charts.barchart.com/chart.asp?sym=$INX&data=Z60&date=051406&den=HIGH&divd=Y&evnt=ADV&grid=Y&jav=ADV&size=D&sky=Y&sly=N&vol=Y&late=Y&ch1=011&arga=&argb=&argc=&ov1=&argd=&arge=&argf=&ch2=&argg=&argh=&argi=&ov2=&argj=&argk=&argl=&code=BSTKIC&org=stk
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=9&dy=0&id=p72393425156
I'm Thinking Towel Too.
I'm getting the feeling the rally out of the March '09 lows was the bottom of the bear market and a "New Bull" market has begun. The SPX, DJIA, and RUT can be counted as WAVE 4 flat from Y2K to 2009 lows. This latest rally would be WAVE 5. We know fundamentally it is weak; however there are no major breadlines and soup kitchens. The rally may even truncate.
SPX Price-Volume Pattern
Over the last 2 weeks the volume increased to the downside, but decreased through the bounce higher as is typical with distribution at the end of trends. This and E-waves reinforce a top being in or this bounce being the last attempt at a new March rally high. There was a huge divergence with the ABX.HE.AAA.06-1 mortgage index. It dropped another 1.5% as it continues a 2 week selloff, yet the stock markets vaulted higher.
http://stockcharts.com/h-sc/ui?s=$spx&p=D&yr=0&mn=6&dy=0&id=p75635173805
Sideways and choppy stock trading the next couple of days at best. Be prepared to the downside since a huge wave 3 has started.
GS - Long E-wave Count
The lows in 2002 to Highs in 2007, I believe was Wave 5 of larger WAVE 3. The highs of 2007 to the lows of 2008 definitely looks like a zigzag WAVE 4. Since then a WAVE 5 has unfolded, and TRUNCATED.This is where GS's Greater Depression crash technically begins. Yes, there could still be one more little wave up, but the rally out of late 2008 looks structurally complete.
Other techical indicators are supporting the thesis of a top. Volume declined as the price moved up. The stochastics has been overbought for 8 months and have issued a sell signal. The RSI and MACD have rolled over for sell signals as well.
http://stockcharts.com/h-sc/ui?s=GS&p=W&yr=3&mn=0&dy=0&id=p23166203576
The market is saying, "The emperor is wearing no clothes."
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=gs&time=&freq=
Russell 2000 Breaks Down!!!
The ending diagonal scenario (Wave-c of C) played out for all the markets. Today's breaks of the early October low in the RUT and TRAN eliminate a final rally, high into Thanksgiving.
http://stockcharts.com/h-sc/ui?s=$rut&p=D&yr=0&mn=6&dy=0&id=p28560098753
http://stockcharts.com/h-sc/ui?s=$tran&p=D&yr=0&mn=6&dy=0&id=p28560098753
Going forward. Today looked very strong, so I'd say the RUT is in a little wave-3 of a larger 1. By symmetry, I estimate support in the 540 area over the next week. There are some support / resistance points on the way up in that area. The consolidation out of the selloff leads into Tanksgiving.
I'm not as sure of a downside target for the TRAN because today did not drop enough for to be called a wave-3.
Mortgage Index Tops
The e-wave count I have for this is a zigzag from the March '09 lows. Wave-b was a flat.
http://www.markit.com/en/products/data/indices/structured-finance-indices/abx/abx-prices.page?
Bliss -SPX Ewaves
I needed a few more days for the confusing pattern to make some sense. I've got a quite different count going on. I view the rally off the March '09 as corrective (double zigzag). Since the july '09 lows, the Wave-c zigzag has been unfolding. THe July- early august rally was motive. The consolidation was tricky because it was a flat. The rally off the September lows has been very choppy. I suspect this is an ending diagonal. The INDU, SPX, NDX, DAX have this pattern; however, the RUT pattern is very week since the October highs did not break the September highs.
One more rally into Thanxgiving is my call.
WMT E-Waves Update
http://stockcharts.com/h-sc/ui?s=WMT&p=D&yr=1&mn=0&dy=0&id=p60230389145
The initial price target of $51.50 was penetrated, but the the end of the recent 3 week run fell short of the upper trendline of the Wave B triangle that started in February 2009. The time fell short of projections too. In order for the present count (Wave e of Wave B ) to be confirmed as finished, the price needs to fall below $48.75.
Wave-e may still be in play as another 4 zigzags are traced into the corner of the triangle.
A last alternate count would be Wave B from feb 2009 is a double zigzag, and Wave-b is the triangle in wave-e to go, followed by Wave-c double zigzag into the holiday season.
The price is converging and will make a big move either way. Be patient to eliminate these equally likely wave counts.
P.S Walmart isn't waiting for Black Friday to slash prices. This news says they are starting NOW and will continue to slash prices over the next several weeks.
http://finance.yahoo.com/news/WalMart-to-cut-prices-weekly-apf-1848878455.html?x=0&sec=topStories&pos=3&asset=&ccode=
6 SMA vs 6 DMA 4
Today I took a look at the SPX Nazdaq composite, and DJIA. The results were not so good. False trade signals were still 60 to 40 or worse. Over the long run (from October '87), a trader would not have beaten the index.
It's been a good experiment, but I'm going to develop a frequency based approach such as Hurst over the next year. No, I'm not giving up on E-waves or socionomics, just looking for a highly reliable automated system.
SYSTEM 4 Comments
I downloaded SPX, DJIA, NDX, and RUT data since each one began. I worked on only the RUT since it is the smallest data set. Any technique that is worth using should work on any largely traded market.
I only looked at the 6 day moving average vs the 6 day moving avg displayed 4 days. The results from backtesting are very scary yet promising: The indicator was 2x more likely to give a false trade signal, but the loss is so much smaller than the fewer, larger gains that the overall compounding still outperformed the overall RUT index.
Some of the assumptions used are: There are no commission costs. There are no income taxes. The 6 day moving average buy/sell signal is independent of other moving averages. It would be a good idea to check the last assuption since e-waves have multiple degrees of trend acting at once and they are all considered when entering a trade.
More study of the false trade signals may yield very important insight to the method's weaknesses, and reduce risk of losses. Study using different offsets, such as 2 or 3 days, could lead to an optimal value. More study using different time frames, such as 7, 8, 9 or 10 day moving averages could easily be done.
TREND1's Vulnerability.
Thank's for including the link in one the posts after the one I replied to. It took me only 2 minutes to figure out the vulnerability with the 6 DMA vs 6 DMA advanced 4 days. Almost sounds like a hurst cycle and a forward line of demarcation. This method is prone to consecutive losses during the whipsaw of a complex consolidation where each move lasts 3-4 days.
You have inspired me to investingate further. Since this algorithm is simple to write in a spreadsheet, backtesting should take no time.
Every Method Has A Cost:
Yes, I agree.
In the present Keynesian environment the markets are, distortions due to government influence have actually decreased the chances technician will get a favorable outcome. As technicians see an increase in losing trades the cautious thing to do is sit on the sidelines. This will dry up liquidity and increase the chances of a market crash.
E-Wavers generally have 2 or 3 favored counts going for them. If the preferred count is not the right one, then a loss is taken; however, the chances for the alternate count goes way up. The total gain is not as much for a small loss followed by a larger win as just having only wins, but risk is still minimized over the long run.
Hurst analysis has a fundamental problem. The bandwidth of the filters do not reject frequencies which are too close together. For instance: as a 12 day period shifts toward a 6 day period, the 6 day moving average which rejects the 6 day period perfectly will begin to reject the shortening 12 day period more significantly. Phasing will be off too!!!
Bollinger bands give many false signals.
RSI is better for identifying a divergence, and should not be used every time the indicator is at an extreme high or low.
All these technical approaches do have weakesses; it's a matter of finding them and staying on the sidelines until conditions favor a more reliable reading.
I certainly would like to know what TREND1's approach is with the red and green lines. Poking holes at "working things" only makes them stronger.
SPX too distorted for e-waves.
But I would like to point out the divergence between the rising price and falling tops in the Relative Strength Index, The volume is flat to down over this 8 month rally. The stochastics are overbought. The Bollinger bands have opened and are ripe for a reversal. The first half of the rally was very choppy. The second half of the rally has well defined trand channels for every segment. This is a dischord to harmony process. I'm looking for dischord to creep back in.
Party like it's 1999!!! I overheared a consistent theme in the office and the locker room. People are, or want to, daytrade. This is a socionomic topping symptom.
WTIC Update
I have to go with my alternate count. My prefered and prechter's prefered counts were negated by this rally.
Alternate, NOW FAVORED: Bear market rally nearly finished (Wave B, double zigzag) $75 HAS BEEN retested.
Wave a - Feb '09 low to Jun '09 highs
Wave b - Jun '09 highs to July '09 low
Wave c - wave b IS over, wave c LOOKS NEARLY COMPLETE AND it looks like the 4 to 6 week window will hold up.
http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&yr=1&mn=0&dy=0&id=p77311258342