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Keep up the good work. Your accuracy lately has been astounding, and I look forward to reading your posts all day long. You're a heck of a lot more interesting than The Wall Street Journal, and usually more insightful. Keep studying and improving your methods.
Having watched the Hurst analysts for years, I know they own an important piece of the puzzle. It's not the whole story but Hurst analysis is more consistently accurate concerning the larger market moves than any other system I've seen.
One criticism is that the Hurst analysts will start searching for all kinds of alternative explanations when the market performance begins to diverge from anticipated results. This is typical of human behavior period, and the Elliot wave analysts are far worse in this department. Cash, Airedale, and PMiles are great role models for keeping a cool head, just paying attention to the facts, and dealing with what is now in a rational objective way. They are willing to make calls, admit their wrong if they are, adjust their assessments and their trades, and move on.
It will be interesting to see how the market plays out over the next several days. We are likely to rally however briefly early in the week, and this will confuse matters once again. The Hurst analysts will say, "See we were right all along. The cycles were just a bit delayed." But we won't really know for sure until the end of next week beginning of the week after when we see whether the rally holds.
If we rally a couple days and it fizzles again--and especially if we head lower--we will know the market has truly topped for the next few years. In the latter instance, it will be mostly downhill into the 4-4.5 year low in 2006/2007.
Write on, FA. You inspire me to greatness.
Black
Cash--re: MaxPain
My studies say this indicator is all but useless as an indicator of market direction. The indicator creates the *illusion* of reliability because most stocks and indices *do* tend toward the center of the distribution. However, this tendency is not a predictor, in my opinion.
I have found that time after time when a stock is way out of line with the MaxPain indicator, a toss of a good, old-fashioned quarter will do as well. A recent example is TOL--in both December and January. One might theorize that where the market is heavy on puts, the indicator might do better in predicting a bounce. Not so in my experience. Sometimes it does in fact work, but so does a flip of my quarter.
Heads or tails.
Black
"...Please parallel your nose to this line by turning your head toward your right shoulder."
Very, very funny. :)
Are you really 21 years old? I'm impressed with your natural trading instincts. Keep on writing.
When do you think the steel sector might crack?
Black
You should be a comedy writer. :)
Perhaps you are!
Black
FA -
You're an interesting guy.
I have to say I'm really curious concerning how this one plays out. I've followed Cash and Airedale for a couple years, and they are among the best in the business. Straightforward, no nonsense, and all too often, dead-on accurate.
The $INDU and $SPX look like head and shoulder formations. I also see a conflict between the rising oil price and the market. The dollar fluctuations could play a role here too. It will be interesting to watch to say the least.
On the other hand, I have to say that the market today bears little resemblence to the one we faced in 1999/2000. The advance-decline line is far healthier, and investments have been spread across a broader base of stocks that are far closer to the ground. A market like this is far harder to shake. It could sustain a considerable shock compared to the market of 2000. It also has a far better base to build on.
Having said that, even the Hurst analysts are expecting a substantial dip sometime late Spring as we head into the 40-week low. That's not so far away. Everyone could end up being right.
I'm neutral and listening. Most of all, I'll be paying attention to what the tape tells me day by day.
Black
Airedale--re: Oil and Stocks
When I run comparison charts between the price of oil and the $SPX since 1990, higher oil prices correspond with a lower stock market with good consistency.
When oil climbed during the summer and fall, the stock market held up well. I believe one reason is that U.S. oil companies had good hedges on oil inventories and prices through February '05. This is one reason we didn't see the price of gasoline at the pump soar--which would have put a greater tax on the consumer economy. If the heat stays on oil prices, I think we could see the pseudotrend in oil put a lid on upward cycles in stocks.
At the very least, it is going to be interesting to watch.
Do you have information that contradicts my charts comparing oil and the $SPX since 1990?
Black
PMiles -
Aren't you looking for the 80-week low on the Euro in February? If yes, then this doesn't match current cycle expectations in the U.S. stock market. Something's gotta give.
Black
PMiles--
I agree that time decay is one of the bigger risks even if you're sure of market direction. After you know the market direction, then precise timing is the key to successful options trading.
I like to think of the options profit zone being like the tiny window for bringing the space shuttle back to Earth. If the descent is too shallow, the shuttle will bounce back into space. If too steep, it will burn up.
Likewise your entry into options needs great precision. I'm exaggerating a bit but not too much.
Black
PMiles...
Thanks. The reason for the latter question is the paradox we now face between the rising dollar and the rising cycles. We'll soon find out what is real. If the relationship between the dollar and equities is causal and not coincidental, we might experience a bit of gear grinding in the next few weeks.
Scenarios: 1) We might see the more extended bottoming MrCash has suggested. 2) Just as the market was on steroids in December, we might see the cycles subdued substantially as we head into February. 3) The dollar-stocks relationship was coincidental--not causal--and we take the moonshot into March.
Personally I would love to see 3 but reality? January 21 low followed by a fitful few weeks into the Euro low and then rally hard into late March.
The macro-flow of capital between countries and currencies is as important and unstoppable as ocean currents. I sense this flow can propel and slow the Hurst cycles in ways we cannot calculate. Pure speculation of course but it's the weekend. Speculative meditation is what I do for relaxation.
The missing piece is the causal connection between the falling dollar and rising equities. Heard it explained as the repricing of stocks to account for paper inflation. Still don't see how money flowing out of the dollar flows into stocks. Or how the dollar rising would take money out of stocks. If we nail the connection as causal and inevitable, it implies volatility dead ahead.
Black
PMiles--Questions re: Euro/Dollar/Gold
Do you see them all trading on the same cycle--only with the dollar being in an inverse relationship?
So is gold 6 weeks away from a bottom as well as the Euro? And will the dollar reach a high at the same point?
Also, do you see an inverse relationship between the dollar and equities in 2004? I know there appears to be one, but is it real--and if so, why?
Have a great weekend!
Black
USA & Cash--Thanks for the discussion. This kind of give-and-take is enlightening. USA, a casual observation: It seems the McClellan often prints a low ahead of the market.
Black
OT: PMILES
Blackbelt Trading is a business name.
I'm not a black belt in the martial arts.
Thanks for asking.
Black
Good read - bullish view of fundamentals.
http://www.oakltd.com/files/a_041214.pdf
re: Pseudo trend
Trend: Tide in, tide out, tide in, tide out
Pseudo-trend: Tsunami
Pseudo-trend is where ordinary cycles are skewed or overwhelmed by persistent or strong fundamental conditions or causes. Example: The rise of oil prices in 2004.
I'm writing off the top of my head, and I look forward to further clarification. I don't know that one could lay out an exact formula for identifying a pseudo-trend unless it is extreme and therefore obvious as with oil prices. When it is on the boundary line, it is probably debateable and difficult to know for sure.
For example, I suspect the current move up is caused by a synchronous move of up cycles *and* excess liquidity from deficit spending, debt spending, printing of Monopoly money (as in the game), and the ability to hide the effects by having an entire world absorb the paper and the Far East provide the capital to fuel our little bonfire of the vanities. So is there a pseudo-trend afoot? Perhaps.
And it is the flip side of this upmove that I'm suggesting could become the pseudo-trend of the century. We are currently enjoying a magnificent recipe for disaster, and I mean literally enjoying it. As individuals, we can do nothing about it of course, so we might as well enjoy the ride. :)
I'm just honing a keen awareness that when the music changes next time because interest rates are moving up hard, the shift in investor consciousness could be swift, powerful, and perhaps unprecedented.
Black
Re: "the last time we had a 20 wk low coming off an 80 wk (and 4.5 yr) bottom."
There is an important difference between this time and last. Last time the market was emerging from deeply oversold conditions after an extensive multi-month bottoming process.
This time we are moving into much stronger overhead resistance--not insurmountable mind you, but still different from the last time.
As far as I'm concerned, what Airedale speaks, the market does. Still, I don't think this is the time to mortgage your house to take the ride up. It might happen but there are many more warning lights flashing this time.
The biggest warning light I see now is a U.S. economy that is dependent on debt-spending and foreign capital to fuel it. It's a formula for disaster and demands resolution soon (at least within this decade, and who knows, maybe next month).
If this one starts to unravel, it could do so with great speed and power--sufficient to create the pseudo-trend of the century.
Black
P/C data inaccurate on stockcharts until 1 hour after close.
Black
Question re: $USD. During 2004, the equity market has risen and fallen opposite the dollar--the market rising as the dollar falls.
At some point, could the dollar's fall become a significant fundament event that would affect the stock market significantly? If yes, where would you draw the line.
My answer is yes, and I draw the line at the 1992 low. If the dollar drops below that support, the uncertainty of what happens next could upset the cart.
Black
5-year monthly charts, that is. (EOM)
Look at monthly charts of $INDU, $SPX, $COMPQ, and tell me the overhead resistance looks like butter we will cut through easily when the $VIX has already fallen below 12.
If we do cut up and into resistance and the $VIX falls to 8, what kind of fall should we expect? And yet, the $VIX would fall to 8 and the market would climb deep into resistance if we rallied now, sold off lightly into the 20-week low, and then rallied hard into 2005.
Perhaps the best compromise between the upward-pointing cycles and the already low $VIX is an up-and-down market--working off overhead resistance one bite at a time, trending generally up but more slowly than we have seen since mid-August. This, of course, would be the worst-case scenario for both bulls and bears.
Black
My question did it. ;)
No tradeable pullbacks before January 1? (EOM)
Only...
your certainty goes in the bulls' favor. :)
I would feel a wee more comfortable with a put-call ratio a hair lower--could happen soon of course.
Also, irrational exhuberance can continue for weeks, months, and even years in some cases.
The last few weeks have given me a bit of respect and humility concerning Hurst cycles. At a minimum we will likely see the upward momentum arc over into the New Year. Depending on fundamentals, we could see a substantial selloff--or not.
Black
Down Monday, up Tuesday, Weds. AM, down rest of week (EOM)
The market behavior we are now witnessing has little to do with sustainable bull markets. It is desperate, grasping, and ultimately foolish except for the most adept traders. Bull markets are built on confidence and slow, careful uptrends. These voracious upmoves are powerful, exhilarating, and seemingly unstoppable. Don't, however, be swayed entirely by cycles analysis. It works until it doesn't.
Black
Oil, inflation, and a falling dollar do matter.
Can we just say that sometimes cycles are predictable, and sometimes they are not. When they are not, we do the same thing everyone else does--wait for clear signals regarding market direction and rationalize our charts while we wait.
At the moment, the signals are mixed every which way. Period. They may clarify fast--and of course, maybe not.
If this weren't an election year, I would say we are in danger of an '87 style crack. Maybe we are anyway.
Black
Can you spell inflation?
With commodities ($CRB), copper ($COPPER), oil ($WTIC) and industrial metals ($GYX), breaking to new highs, we are watching paper dollars chase too few goods. These fundamentals will affect cycles, and I'm noodling through possibilities. 1) The market first inflates further before realizing the true causes and consequences--and then correcting hard. 2) The market intelligently corrects sooner rather than later.
Any thoughts?
Black
Techcharter: VXO
Clearly this is not a market anyone is anxious to buy. The low VXO reflects the equal and opposite fact that no one is anxious to sell. Gridlock.
So the problem of liquidity will only occur if stockholders find a compelling reason to want to sell. And that is why we wait. Compelling reasons are certainly upcoming but they are not here now--at this moment. Could change in the next moment.
So you are correct that the current environment is somewhat brittle. It also has a certain strength. Prices have the appearance of stability. That stability will remain so long as some compelling catalyst or cycle down does not motivate impulsive selling.
If the price of oil pushes above $50 and stays there, if the price at the pump heads for $3, if earnings warnings accelerate, if the jobless claims charts turns upward, we may see a rise in motivated selling.
The convergence of fundamentals and cycles points to late December. A moderate selloff could be in the works for October. Meanwhile, enjoy the paint.
Black
$VXO - More specifically,
traders are not seeing volatility. The prices are tight, stingy. Options are too risky for so little gain, perceived gain, implied volatility. Wait. Watch paint dry. $VXO falls. Nobody makes money. Frustration builds. Suddenly the waiting explodes.
Up. Down. Any which way is better than the noose of a flat market.
$VXO - The message is
simply that traders are unwilling to bid up option prices in this environment. The market is tight, tricky, somewhat inscrutable. We are operating with contradictory signals everywhere. Low VXO and high oil--the market should fall. By some cycle analysis, the market is heading up. Many analysts think we are heading lower but are waiting for more confirmation, are waiting for a bounce before entering positions. All this I read in the $VXO.
My conclusion? We're skating on thin ice. That $VXO could start a real uptrend at any time based on fundamental events that affect the price of oil, earnings expectations, or conflict involving Iran and/or N. Korea. Because we can't trade on speculation, we wait. We wait for confirmation of trend, clarification of signals and projected prices. This waiting calculates perfectly the current print on the $VXO.
Black
Ted