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Regarding that post with the link to Moe's show, I was typing that from the beach on my iPhone. I meant to finish with Steve Hotchberg is the wave analyst for the site and they have been pretty good. So, take his warning seriously. If he's right and we're about to go into a wave 3 down to much lower lows, then we need to be very careful.
You're saying you're basically long those calls straight? If so, I think QCOM is actually pretty stable. It's such a benchmark company that any decline should be muted. So, timing wise, you're probably safe. Just ride it out. But I'd definitely short calls against them to lower your basis.
Be careful! Listen to this....
http://www.marketwrapwithmoe.com/listen-to-the-show/index.php
click on the link from today's date (may 6)
Steve Hothberg
Cramer just said something that I think is very important for those that don't get it need to understand about how the market works. When you have days like this, you NEVER look at them as 'the' day to buy. The FIRST declines are the ones you use to benchmark the NEXT one from. Everyone believes that today was a mistake. Okay,fine. Maybe it was. But nonetheless, you have to assume that the pros need to know for sure if that's true. The only way is to re-test today's low, whether tomorrow or next week, or the week after. In any case, we're going lower. Will 10,200 be the low? 10k? Who knows for sure. But we're going lower.
Also, this is where wave counts come in. Whenever you get major trend breaks, either up or down, it's not done in 1 wave. It's done in a min of 3. Either a new 5 wave move or an ABC. So, be ready.
I was in the middle of a big trade today as I watched Cramer talk to Burnett live. He's been saying for the past two weeks to buy into this decline. But today, he said to get out and that he was wrong. This Greece thing to him is now bigger than he imagined. It was litterally within 5 min of that statement that the market did that cliff dive.
Thank God I was short even into the 200 point decline on those e-minis. I had 10, up about 8 points on them, and then BAMM, the market cratered. I was tempted to go long into the 200, and then it occured to me how many people were most likely going long the SPX e-minis when that happened. If you were long just 1 contract at par when the market fell 700 points from that level, you'd of lost $35k on just that one contract. Most likely the broker would have sold you out for a bigtime loss.
Today doesn't end today, even if the market goes up tomorrow and/or next week. No,no, no. Today is a harbinger. Just watch.
How many got stopped out for losses today? Margin calls hitting tomorrow? The real question to ask is, 'where were the bids?' Is the market so full of crapola (as I've said it is) that any large seller comes in and destroys it in seconds? Was it a large market order that did this assuming the market internally had the strength to absorb it, but didn't, really?
Some sad posts here...
http://messages.finance.yahoo.com/mb/ITMN
Okay, here's the trading plan for the year. Yes, I said year. I see basically two trades: the one we're in now with TZA which we'll let run a bit and then the biggy late summer on the Q's calls. Here's the deal:
Near perfect setup - as I pointed out in the email, there is a monster inverse head and shoulders setting up. What's more impressive is the amount of things that are all aligning up with it. First, look at this daily chart of the Q's:
Notice the break below $48.90 support. This is also a follow through of last week's key reversal candle. Because today pushed through the lower bollinger band, today's low now becomes support and the short level you target to go short below. Now, look at the weekly chart:
See that? Early 08 you see the left shoulder with a tag swing low of about the high $40's. Then a rally back to $50, then the big decline to $25ish and then now rally back to $50, and the expected decline back to between $40.50 to $43 to create the right shoulder.
What's so interesting is the moving averages. Both the 50 and 200 week MAs are around $42, the magic potential right shoulder target. If I'm right, then using GANN Theory and fibonacci time cycles, this decline should be of similar degree as the left shoulder's legs, setting us up for a 12 week or so 45 degree angle decent to about Sep for our low.
At that level, we'll evaluate what the market looks like then. But the beautiful thing about this is the perfection of which it's taking shape. What I mean is that if we find a low around the low $40s, then EVERY large Street firm is going to see the same setup here. That means they'll all go long bigtime and the stock (Q's) will surely run to at least the neckline of $50ish. But because the setup is so pronounced, the confidence level of going long into it and breaking it will mean it will most surely break. That would mean a six month run possibly to well over $55, with a final projection around $70 to $75, if you can believe.
Now, there is a big game going on here. Everyone expects inflation. With inflation, EVERYTHING goes up, regardless of value. But banks are lending. That means that most money that will be spent will be money people have, not borrowed like the last 20 years. I think the fed is doing this on purpose to prevent inflation from roaring out of control. Keep loans only going to responsible, credit worthy people and out of the hands of irresponsible gamblers and you could very well hold back inflation expectations. That scenario would cap the upside in the market.
So, we'll see. But because the market has a clear benchmark now at $50 on the Q's if it falls to a right shoulder level of the low $40s, we can very simply buy LEAPS on the Q's for $49 or $50 for pennies and watch them turn into dollars. For example, right now, the Jan 2011 $56 calls are $.98. With the stock currently at $48.35, that's $7 out of the money, which I suspect we'd be buying when the stock gets to $42ish (target $50).
Get it?
Okay, SPX 1168 is the magic number. A break below that should confirm a new larger down wave count. Will it be an ABC beginning of a 50% retracement that projects to about SPX 940 around Sep? Or, will it be a complete new wave count down to new lows as Charles Nenner suggests along with Prechter?
Who knows.
I'm still standing by my setup that the market via the Q's is in a inverse head and shoulders setup with $42ish being the pullback level and then a monster shot up through $50.50 neck to run into the $70s possibly. Until otherwise proven wrong, I'll stand by that trade. The reason is simply inflation. When you get into these inflationary cycles, EVERYTHING goes up in value, regardless of value.
Well Fish, don't fear. The more I look at the chart of the Q's, it's really looking more and more absolute to me that the pattern will play out --
Market falls into fall to around (Qs) $41 to $43. That makes your right shoulder of an inverse head and shoulders. Then, it turns and runs bigtime to make a monster bubble top between 2012 and 2013.
So, TZA runs to about $11 to $13, then we go long the Q's calls which at the time we'll look at it, and hit a lotto ticket.
Same stuff from '07, same guys, same BS. Remember most on CNBC have a vested interest in always having you long the market. SHORT is a four letter word.
But like I said, I think the Q's go to low $40s around late summer, then we go long Q calls 6 months out, $3+ out of the money, and possibly make 5 or 10 baggers. That's the goal as of now. TZA will see $10 to $12 on this leg down.
If you're worried about your trading because you're too heavily invested in one direction, do what I mostly do: go long 50% and short 50% all the time and short calls on both just outside the strikes. You're always going to make money and always be on the right side of one of the trades with larger extended moves in the right side possibly more than doubling or tripling your risk the other. The short calls limit the downside the other way and when things eventually turn the otherway(they always do), then you rake it in that side. It's better than having a job.
BBQ looks like he has something there with his ES trading.
New game plan...
Okay, the QQQQ fibo projection target is $55.10. That's the 161.8% level. But $50 is a big level here, too. So, anywhere here.
Now, 5/23/08 high is $50.47. This rally's high so far was $50.57. So, a double top? The 07 high for the Q's was $55.07 when the DOW and SPX were making all time new highs.
The point? If you take the level we're at now, $50.50 let's call it, use it as a neckline, then take the 3/21/08 $41.05 swing low on the initial drop before the big drops of '08 as the left shoulder, we can assume potentially an inverted head and shoulders setting up on the weekly chart. It's pretty clear. So, we should then expect a big pullback to begin right here any day to take us back down to that $42ish level between now and Oct? If you time it the same and the same angle of degree, we should be around Sep 3rd through the 17th to get that low. I'm not calling those dates as 'the' dates, but just watch for it.
Now, after that, it gets interesting. If this is a setup for a new major leg higher, what 'should' happen is that the market finds a low around the low $40s on the Q's, then begins a new setup leg up for an inverted H&S breakout to the upside. A break then of $50.50 next year will most likely mean you'll see potentially over $75 on the Q's within the next two years. That's right!
But the initial thrust out of the $50.50 neckline will be explosive. Explosive enough to setup quadruple returns on options right out of the gate.
But, since we'll be aware of this entire thing starting now, we'll start going long calls this fall if the market begins to trade down to our $42 level on the Q's. $42 or so could put TZA around $10 to $11.
S2
Read this--
Interesting how everyone was bitching last year when they were talking about lowering principle on mortgages so people could stay in their homes. But, it didn't happen because of the public backlash since over 90% of people actually pay their mortgages. Well, looks like this has been the backdoor way of doing this -- let people live rent-free for months, then let them walk away, let them buy a new home cheaper in the same area, then the bank takes the hit, rolls it over to the taxpayer via bailout TARP money. Nice. So, it also has the effect of adding all this 'wealth effect' into the system because now all these people no longer worry about losing anything. They are actually feeling pretty good with all this new 'found' money.
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/the-easy-mortgage-era-will-not-last.aspx
As for TZA and the market, just sit tight. I know it hurts. But as long as you have the fundamentals on your side, eventually you'll score big. Just look at SYNA last year. The RUT is now trading 100 points shy of its all time high. And yet, on a higher PE now at 740 than when it was at 850. I think that article above kind of explains what's going on. But just like March 2000, and Oct 2007, all the happy talk will end in a violent swoosh. Remember, if you watch CNBC enough, you get the idea that no money manager professional has been in the market, they've been in fixed income and bond funds. The public hasn't been in. So, where's all this money coming from? Hmm? Fantasy money? An illusion to creat the perception that things are getting better via the market's advance, yet being bought with fantasy money? AAPL at $270? huh? Geez, the last time Steve Jobs stepped down due to his illness the stock fell from $200 to $85. Talk about a one man show.
If you're nervous about your position, then sell calls or buy puts to hedge it. Collar it. But at year end, I can assure you, our little $10k account we took to $17k will be well north of $20k.
We are seeing exactly what happens at major market tops. It doesn't just turn south and go down. Those are swing high/low actions. What happens is that it fights to keep going. But sellers quietly start to jump in giving you those hangman candles. But still, the market comes back. But each time, it gets weaker and weaker, just like it is now. Soon, 'they' will realize that buying the dips is useless. Then the market will slowly roll over and begin a quiet decent. That slow decent will then start to quietly break support levels which then will turn into a cascade. Just watch.
It's almost textbook.
Now, here is what the problem is for the market on a fundamental level--- In March of last year at the low, the SPX combined EPS was expected to be around $50 per share. Multiply that by a bear market PE of 12 and you get 600. But when Bernanke flew to the rescue and threw the kitchen sink at the problem in March, all of a sudden the expectations changed and everyone realized that no longer could you assume the worst in terms of EPS continuing to fall. So, with all the expected stimulus/fed money coming in, 6 to 9 months later from last March you had to assume at least a $65 per share for the SPX. Raise the multiple to 15 and you get a target of 975. So it was safe to go all into the market, which many did.
Now, the EPS has come in around $75, multiplied by 15 you get 1125. The hope for many money managers who survive off the commissions by clients is that the EPS keeps growing. But clearly now with all the talk of VAT taxes and the Bush tax cuts expiring, no way. So, the market here should begin to discount 6 to 9 months out.
What will it be.
You know what's funny about the bond market? If you watch CNBC religously like I do, Rick Santelli always talks about how the bond market is probably the most highly correlated trading market to technical analysis than any other - including forex. Just look at that chart of the 30 you posted. Wow. He always talks about how bonds move in basically 20 year cycles. Well, here we are some 20 years later. What do you think is going to happen?
Just look at the Q's chart. Enough said. Fall, then hammer bottom, then hangman, then?
Remember, major cycle lows such as the 4 year coming are LOWS, not the beginning of selloffs. They predict LOW time cycles. That means the market has to start falling and selling off into that low.
Considering that the SPX PE on a GAAP basis is now 25, with 20 being considered overvalued, with 9.7% unemployment, what do you think is going to happen?
The cheerleader theory is that that unemployment number will fall as the economy grows. Yeah. But that doesn't mean stocks will become EXTREMELY overvalued just because they want the public to come into the market at these levels to push it up higher.
Everything is great at the top, isn't it always?
If this wedge breaks, we most likely are going to see new lows. If you look at the chart from this perspective, you can see how guys like Prechter are counting this as a wave 4 of the grand super, not a wave 1 like I think. Hmmm... The fact that we didn't run higher to the March 2008 swing low kind of suggests Prechter might be right. Remember, impulse waves can't overlap a previous wave's swing high/low.
Okay, one day means nothing. But go back and compare all the somewhat large down days to all up days over the last few months and look at the size of the volume on those down days to the up days. Then look at today's down day. Wow. The volume is clearly screaming distribution.
Now that said, there is a feeling out there that the market was pushed up further (extended) to kill all the puts that have been bought in Feb. The volume in the market has been so low that it's not been to hard a thing to do if you got the money.
But that's just speculation that makes some sense as today being op-ex would mean most of those puts were expired worthless and now 'they' don't need to hold things up here anymore.
So, I think the next target for the SPX will clearly be 1150 which is a monster level that goes back to the 90's for support/resistance. It seems to be a magnet level. Everything in the market returns to the 'mean' as defined by either the 50/200 mas, or more specifically a linear regeression level. For the Q's who I think is pulling the market's chain the 200 is way down at $43 which is about 12% lower. A 10% correction in the DOW would take it to magically around 10,000. If I'm correct in my wave counts, then we should begin an ABC correction all the way down to that level on this A wave, bounce big off it in a B to the mid to high 10ks and then shoot down to the mid 9000s. That's a perfect scenario. What puts all that into chaos is not just the cycles coming, but the reasons behind why they could be big.
As many of you who've followed along over the years and have seen the cycle calls play out almost to perfection sometimes is that always a catalyst comes out from the blue and seems to be the reason for the market doing what the cycles suggest it should do.
Now let's look at wave theory and those who claim it all to be nothing more than voodoo BS, I want to argue otherwise and use a most recent example of what you're dead wrong. If you have access to a chart that goes back on a weekly basis, not monthly, to the 1980 timeframe, you can actually count a large grand cycle wavecount from 1981 to 2000. What then threw it all into strange weirdness was the extension of the referred to 'b' wave in 2007, where the DOW and SPX made new highs. That had many elliotwave guys scratching their heads, but when you look back and the reasons for the market doing that, it makes perfect sense how many would actually buy stocks into a clear overvalued market not understanding what was going on. For example, Ken Fisher of Fisher investments was always on CNBC screaming away at why the market was going to 15k and then 17k back in 2007. His logic made perfect sense for a fundamental standpoint - many were borrowing money at a low rate from Japan, then buying stocks here and getting 5 to 8% back. It's called the carry trade. Bank earnings were on paper looking so good that the valuations were extremely low even with C for example trading at $50 or whatever it was. So, the SPX combined earnings were to be suggested in 2007 and into 2008 around $99 to $100 per share. Multiply $100 by 17x you get 1700 target for the SPX back then. EVERYONE was going along with that basis.
But, what happened? The stocks that made up the SPX were actually looking to bring in $99 until they didn't. In less than six months, those numbers started to fall with the market falling faster than those earnings were coming down. The market LED the EPS decline. So, in March 2009, the low, the expected SPX earnings had come all the way down from $99 to $50ish. At 12x SPX multiple of $50 per share, you got an SPX target of 600. Well, we hit 666, but the idea was if that was a low side risk, then you could easily be safe buying anywhere under 700, which is what happened. But what did happen? As soon as the market started climbing again last year, the companies started doing better. The MARKET LED THE EPS UP again. You see how it works? The market wags the dog, not the EPS dog wagging the market tail.
So, the other day I'm watching CNBC and this guy comes on, like so many cheerleaders the damn network has on all the time, and says the SPX will do $77 this year and you multiply that by a PE of 16 you get a SPX target of 1230 to 1280. But he thinks the multiple should be 18 giving you a target of 1380.
What the? These guys just make this stuff up as they go, I swear. Why a multiple of 12 at the low but 18 at the high? Huh?
Clearly it's all about scaring the retail guys into the market because without their money to invest, these money firms can't charge commissions. That's what it's all about.
But the elliot guys were right about the wave counts. Where do they see things now? Well, I think this last year's rally is clearly a 1 through 5. I think it's a wave 1 of a larger new bull market. But we just completed a wave 1. (5 impulse waves within a wave 1 impulse). Prechter says it's a 4th and says we should bottom out on the DOW around 3800. He knows way more about this stuff than I do. But I don't see that. For now, I'll stick with my thesis. However this will take years to play out. Wave 2s are ugly. They typically retrace as much as 78% of the wave 1s. Considering how much is in front of us in terms of taxes and other government garbage, I can't imagine a scenario in which the market will run and make new highs until these clowns running the country now get voted out. I personally don't see the Republicans taking over congress. It takes 40 seats. They might get 35. They'll need 10 for the senate. No way. So, that could be a catalyst for the fall.
Cap gains taxes go away this year and run from the current 15% to 28%. Wow. That exit door might get very small once the market starts to break down as all these investors who were getting ready to sell by year end to take advantage of the lower cap gains rates end up competing with everyone else with the same plan. Ugly.
Banks are still technically insolvent because they are holding onto a record foreclosure shadow inventory that if weren't for the government bailout money, most would be shut down. There is no way in hell the public will allow another bailout if things start getting ugly again. No way. So, what are they going to do this time?
You see, the scenario looks like a perfect setup for a bigtime drop. Plus when compared to the mid 1930s where the biggest market decline happened AFTER the initial 1929 drop in which the market fell 82% off the 1931 recovery high, it's scary how it looks nearly the same. Seriously.
So, as The Net suggests, shorting TNA or buying TNA puts is probably a bit better of a trade than going long TZA because of the $$ declines that will occur on it. But I am going to play things a bit more cautious with the $10k account this year and with my own money. I think TZA has at most .50 downside risk to $5.50ish and a quadruple upside potential. It was almost $140 at the March low. So, we could be sitting on a lotto ticket here.
You could only dream.
There are two types of tops/bottoms - the first is the most common which is a simple swing, basically defined as nothing more than a wave leg within a larger wave count. So, if you have a 5 wave count up, let's say, you'll get a wave 1 up, a reversal creating a swing top off that wave 1 high, then a pullback wave 2, a reversal creating a wave 2 swing low, a larger 3rd wave high, creating a wave 3 swing high, then a 4th swing low setting up a final 5th wave leg higher to end it.
Now, when you get an end of a larger move, or a completed wave count (5 complete waves), those types of tops/bottoms are phase tops or bottoms, ie, distribution or accumulation tops/bottoms. They don't just turn on a dime like normal wave swings. They drag out over time, say a month or so. Then they slowly shift direction and setup your new wave count in the opposite direction.
I think that's where we are now looking specifically at the Q's and combining that with the bullish% index readings which clearly suggest a massive completed wave count pattern right here, right now. The Nasdaq has an upside final target around 2550, and the Russell around 750 to 760.
Now this should lead to a large ABC correction. But, and I stress 'but', I think this move off the March low is a wave 1 of a new secular bull market. Wave 2 pullbacks many times will retrace as much as 76%, or bringing the SPX possibly back down below 900 again sometime. A 50% retracement will be right around 900. When you consider the fact that the capital gains tax and dividend tax cuts expire the end of this year, the selling could be big. Also, if China revalues their currency higher, which is supposed to happen, that could destroy their stock market, which will have a big effect on ours. So, sell in May and go away might be a bigtime thing to live by this year especially.
I think TZA will run to at least $14, giving us a better than double this year bringing our account to well into the $20ks. As soon as it starts trading into the $9s, I'm going to start shorting calls against it. I'm personally a big buyer of TZA right here in the $5s as the Russell now trading over 710 is probably 40% overvalued. A 10% market correction will push TZA well north of $10, but I think any substantial decline in the market of 1000 points on the DOW or more could send those investors waiting to see how high the market will go before they pull the trigger to beat next year's cap gains tax increase piling out trying to beat each other out the door.
Okay, what the hell? Well, if you're short, as I am, feel comfort in these:
First is the DOW's bullish % index chart. What this is is a culmination of all 30 DOW stocks and what % of them are point and figure buy signals. As it stands now, it's at 96%, or 29 of the 30 all on buy signals. (I won't go into that here). The key here is to know that rarely does this happen where an index hits above 90%. The last time? 2007. Yup, you know what happened then. The time before that? 2004 and 2000. Need I say more?
The next one is of the Nasdaq 100. Currently at 91%, or 91 of the NDX 100 stocks (QQQQ) on buy sigs. Last time? 03, 00. Again, what happens after these types of moves? Well, just look at the charts.
Interesting tidbits -- the DOW's 50 MONTH m/a = 11,155. Guess where the DOW was 50 months ago?
The $SOX is now at 90% bullish % chart on its PnF chart.
TOP
Okay, this is how I'm seeing things - if you look at the seasonality of the market, we (the Q's) should be going down, finding a low between now and June, rally into Aug, then sell of into late Oct.
But, that's not what's happening because we are in the middle of completing a 5th wave for this entire leg up off the March lows of last year.
So, technicals are ruling the market. What I see if you look at the chart of the Q's is on a weekly, a clear 5 waves. Daily looks a little more distorted, but not as clear as a weekly. But look at the chart of the Q's on a 60 min and you can see that the decline in Jan was clearly an ABC, then now finishing an apparent 3rd wave high anytime, setting up a shallow 4th wave (of a larger 5th I keep referring to) only to then rally one last time into May/June to end it finally. So, it looks like now we're in a 3rd of a 5th.
Let's look at the Russell at 707. I think it was 850ish the all time 2007 high. At 850, the Russell was trading at some ridiculous PE of 40 or 50. But then again, small caps do that. So, now, most are losing even more money than they were back then. So, at 700 now, I don't even know what the PE is.
In other words, there is no fundamental case for the market. It's all technical. So, don't worry about. TZA will soon enough workout. I'm holding it because I know that the top of the market will come within the next two months max if I'm counting the waves right, which look pretty clear, and the bigtime sell cycles that are coming along with the market having to soon face reality of higher taxes next year eating into investors available investable cash being discounted any day. The market always looks forward and will price itself for that reality soon.
Remember also that large over-swings usually react the same way in the opposite direction. We over-sold to SPX 666 and are now over-buying into 1200. The median will find itself somewhere I think around 900 between now and next year. Compare that to the Russel (if you can) and you're probably looking at TZA over $20 between now and then.
Check this out, I have a friend who works for Goldman as an analyst (buy side) and we were talking last night. He always has interesting trading systems that the traders he works with pass along. He gave me one last night that I found very interesting. It's very simple.
Take REGN for example. I first bought the near month $22.50 puts for .60. Then again the next month ones for .60. Lost on both. But his idea is that if you are pretty sure you're right about the eventuality that a stock will go in whatever direction you're betting on, even if it's sometime within the year, just keep buying the next month puts or calls until eventually you'll be right. The key to this is getting a good strike price that will enable you to get at least a triple or more. Now think of it as a betting progression system you would do in blackjack or roulette. Each time you lose, just buy a few, not double, your original bet your lost. If you're a good stock picker, within a 12 month timeframe you'll get a win on that one trade and the triple or better on it will make you more than sitting in a fund all year.
Now, supposedly his guy that told him that makes millions a year doing it. Pull up a chart for almost any stock and you will see that all of them eventually fall or trade the other way. So, if you're patient, and have a good bankroll, maybe it will work.
Not my kind of trading, though.
Decreades volume? What about now?
http://apnews.myway.com/article/20100409/D9EVQFF81.html
As you all know, I'm a big believer in cycles. Whenever you see the talking heads talk about why the market went down or up, it's all BS. It's about cycles. Now, I've pounded the table constantly about how we're setup to fall into both a 40 week cycle around Oct and the biggie 4 year, 3rd year prez cycle next year. But, what will be the catalyst? Hmmm? What magically times perfectly with next year being potentially so bad fundamentally for stocks?
Well, well, well. Today, I heard probably the best reason for why the market is doing what it's doing today. Next year, the Bush tax cuts expire (this year). So, the capital gains tax goes from now 15% to next year 28%. Plus all the other tax increases on income.
So, what's happening is that many are piling into the market now to take advantage of this and trying to make as much money as they can in the lower tax brackets. However, soon, probably this quarter, we'll begin to see the signs of many bailing out to take profits all this year creating an exasperated selloff as no one wants to hold profits now into next year's higher tax rates. The selling should setup more selling because that door will be tight.
Could get interesting very fast.
I think I'm going to do a trade for the account in the inverse healthcare ETF, RXD. Talk about a toppy chart. Just a 100 shares.
$SOX starting to breakdown? Look at which stocks are leading the decliners. $SOX right at major resistance. Add in SPX at a fibo level and DOW at 11k, what do you think is about to happen?
That wasn't even the big issue. Look at the volume today. WOW. You see, this is why the VIX isn't rising. "They" aren't buying puts as protection anymore when they know the market is going to fall. Options expire. Now they have these triple funds. Just buy these as a collar and you can wait it out forever with your longs.
Doug Kass now calling for a major selloff. I think he's seeing the wave counts like everyone else. This is a clear final 5th wedge that should lead to a protracted ABC 50% correction.
Listen, I know what it feels like, but you have to understand how the market works to put your mind at ease. Remember, the market moves in waves and in phases. Only about 20% of the time does the market go either parabolic or trend strong in one direction or the other like it is now. If you understand elliotwave and fibonacci, then you'll understand that when you get large protracted moves like this, it usually sets up the end of a major move leading to an even bigger retracement, rather then the setup for a bigger move higher.
Now, that said, what I want you to do is take a daily chart of the Q's. Draw a line connecting the March low last year to the June and Aug swing lows (I think it's those months). Then extend it further into space. Now, you'll notice something that happened this Jan through Feb 8th. The market cratered right out of the gate this new year and broke that rising uptrend. Then, Feb 8th, it found a low, and since, it's been basically parabolic from a low of around $42 to now a high near $49. Okay, fine.
But look at the chart. You or anyone can draw this at freestockcharts.com.
What do you see? Can you scream, RISING WEDGE? It's a classic final 5th wave, kiss of death setup.
Now, when, not if, the Q's do a simple 38% retracement back to about $45ish, TZA should trade back to $9 to $10. A 50% retracement will take TZA all the way up to $13 to $14, maybe higher considering that small caps will probably get obliterated faster than the Nas 100 will.
Swenlin on Decisionpoint points out that the current S&P PE ratio is about 23, very high historically and extremely high considering the economy we're in. 20 is considered overvalued.
However, in a trading market like we're in, not an investing market, many times valuation is not relevant for the short term as many trading firms only look to trade the moves and can care less about valuation. Read this:
From our perch, it is clear that value no longer drives prices. A few months ago we referred to a Bloomberg article on the subject (see http://tinyurl.com/y9usych) wherein Lotus Capital Management LP of New York realized a competitor was beating them to a particular programmed strategy by 3 microseconds day after day, at a cost of about $1000 per day in lost profits. Lotus eventually found a way to shave off five microseconds from the router and two microseconds from the execution server to preserve their advantage. Investing is not a consideration.
If you listen to or watch CNBC all day like I do, you'll hear nearly every day them talking about the utter lack of volume. And actually the volume has been on the large selloff days, indicating clear distribution (large 'smart' money funds dumping into the market on sporatic days to get out of positions and selling them to dumb money new investors).
Just wait.
I agree with you that now oil is getting the attention of many. You can almost say that the run to $147 was the 'top' in the market.
Exactly Plash, the big boys are the only ones out there trading. The public is not in the market anymore. The volume screams it. Hell, even Rick Santelli today on CNBC was talking about. Most wealth managers are 60%+ in fixed income and have been since the low. Why didn't they buy into the market on this? The DOW has now climbed what? 4600 points and no public money helped? Who the hell did it? Clearly a lot of short covering was responsible for a lot of it. But now?
When I see Najarian on Fast Money constantly talk about how 'cheap' semis and AAPL in particular are, I scream at my TV -- "COMPARED TO WHAT?"
The only valuation that matters on PE basis is that of the indexes. As I pointed out in the previous post, the SPX is most likely trading right now over 40 when factoring the healthcare expense to companies and the loss of their tax breaks. Add in that we are now at a fibo time/price level target with 2 major cycle lows setting up and a bunch of solialists running the country, I ask you, or anyone, exactly how do you justify the market priced higher? Also add in the clear 5 waves from 666 low and it is what it is.
I have a big bet on TZA that says we're going lower, much lower.
Yeah, I'm using his because I don't subscribe to stockcharts anymore which doesn't allow me to save them and then publish here. But I agree with the way he's seeing it.
I'm telling you, we're at a classic valuation level here which typically turns things hard the other way. Now, when you add in the cycles, watch out.
Remember, the fibo retracement was always about 1200 on the SPX from the 1550 to 666 level. 1550 - 666 = 884 point drop. 61.8% of 884 = 546. 546 + 666 low = 1212 target on the SPX.
So, clearly the market is timing this perfectly with the typical March topping timing. Remember March 2000? The top of all markets then? We're currently not far from those valuations now and we're in a MUCH worse economy and even worse outlook considering the jackasses running the country now.
Just sit back and watch what happens.
What I find very interesting is what no one is talking about -- For those who strictly use fundamentals for valuation and ignore technicals, well, how do you even get to a PE of 32 on the SPX (March 2000 high) now with the loss in EPS due to the new healthcare tax break removal? Didn't anyone notice what AT&T said? Almost a .17 per share loss just due to this?? What about CAT? And on and on.
The future PE of the SPX now is probably more in the range of over 40!
I've said this many times over the years -- watch the 10 year bond yeilds. Pushing 4% and with the pathetic demand on Thursday, we are screwed. The stock market will follow soon enough. Just look at that attempt at a breakout. If this thing starts moving north of 4, mortgage rates will start blowing through 6%.
Don't these clowns always come out at tops?
Remember the game -- always push the market to scare the public into having to throw all their money at the brokers to get them in the game. It's how Wall Street makes money.
Notice today's knife at the end of the day? Nasdaq up 30 points and ending down?
Watch out below.
Remember that TARP program? That money was supposed to go to buying bank's mortgages. Instead, it goes to the banks, then the banks buy stocks via third party trading firms as leveraged loans to them. It's totally legal and total BS. It's why the banks are still not really loaning any money like they were supposed to using all this government money. The banks are still insolvent. Just not forced to admit it.
But that's what the Fed wanted. Prop the market to prop the retirement accounts and pension funds. Otherwise, the country was totally screwed. I agree with the motives and understand the need, but c'mon, it's time we get back to being responsible for your own actions and having to pay for your mistakes.
Now this new Dodd bill in congress I agree with too. No more bail outs. You go out of biz, the goverment then takes you over, breaks your company apart, and sells off the pieces, just like Wall Street does.
Maybe that will stop these bastards from getting everyone into these messes.
Isn't that an OmniTrader chart?