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Monday, January 06, 2014 9:44:58 AM
Elliott Wave analysis:
* Sunday, January 5, 2014
Market top to test long-term optimism
Do you know anyone anymore who is willing to short this market? Do you know anyone who doesn't think that this market is going higher? I mean, even Dr. Doom, Nouriel Roubini, and Marc Faber, the author of the Gloom, Boom and Doom Report, think that the market has higher levels to attain. That is a lot of "Gloom and Doom" that has now been taken out of the market. Is there any more "wall of worry" left for this market to climb?
This past week, I read an article that simply astounded me with its conclusion in light of the facts it cited. Specially, it noted that "it is important to remember that Main Street is jumping into the stock market. This year [2013], small investors put the most money into stock funds since 2000. And, as a group, they generally tend to be late to the party." But, the conclusion to which the authors came was that it was still time to go long this market, as blue skies are still on the horizon. Well, I mean, isn't that the easiest trade to make at this point in time? Isn't that what everyone believes? Seriously now, haven't all market participants now seen and believe the "BTFD" videos?
Let me get this straight... mom and pop have put more money into this market than at any other time in history, and mom and pop are known to always be wrong and buy at the highs. And, as the put/call ratio seems to be near record levels, and in light of evidence that institutions are selling into this rally — not to mention the amount of divergences that the longer term charts are displaying at this time — we should continue to expect higher and higher in this market?
I have to be honest. This past week, I have posted a possible alternative bullish count on our site at elliottwavetrader.net, which would call for an initial target of 2050-2100 in the S&P 500, with ultimate targets around the 2500-3000 region by around 2016-2017. But I noted that such a pattern would have to truly prove itself to me in the first quarter of 2014, as there are many serious issues with such a pattern set up. The probabilities that we often trade don't support such a pattern 70% to 80% of the time. So, clearly, this isn't my primary perspective at this time. But it is now an alternative that I will track for the next few months.
As to the uber-bullish alternative chart, I noted during this past week, regarding the highlighted blue box, that "[f]irst, the only way to consider that an impulsive count with those 3's in each move up is as a leading diagonal. Now, it is extremely rare to see a leading diagonal for the start of the heart of a third wave. Second, leading diagonals ordinarily have deep retracements, whereas this one had a negligible retracement. Therein lies the issues I have with the overall uber-bullish count, or any other count one may attempt from the 2009 lows."
Of course, this time may fall into the lower end of such probabilities, but in order for me to adopt such a lower probability perspective, the market will have to prove it to me over the next few months beyond a shadow of doubt. To me, this means that the market will have to maintain support over 1740 on all pullbacks. And, yes, even if it does approach the 1900 region over the next few months, the expected pullback from such region must exhibit corrective properties and maintain support over 1740 at all times for me to consider going long from the 1740 region to the 2100 region next. Yet, as always, I will maintain an open mind, as 20% to 30% probability trades do work out, well, 20% to 30% of the time.
So, what all this means to me is that the first quarter of 2014 will be a very important quarter from my perspective for the longer-term concern of the equity markets. And, I do believe that the market will be testing the 1740-1770 region of support within the next few months, so we can then make a better assessment as to whether to get back in on the long side with longer term holdings. But, in my humble opinion, the probabilities don't support that region holding on the coming test.
In the smaller time frames, this market looks to be setting up to make a higher high. As long as we maintain support over the 1803ES region, I am expecting another rally of at least 33 points to potentially make a double top or higher high. Based upon the way the market left us on Friday, as long as we remain below the 1840ES region, we can still see further lows in this wave (4), as represented on the 60-minute chart. This would set up a wave (5) rally which would ideally be 33 points, wherein waves (1) and (5) would exhibit the common 1:1 Fibonacci ratios we so often see.
Assuming we do see further pullback in the coming week, my ideal target for wave (4) still remains the 1814ES region. This is the .382 retracement of wave (3), the 1.618 extension of the move off the 1753ES recent bottom, and it is also where waves (1) and (5) would be exactly equal into the 2.618 extension at 1847ES. So, if one chooses to go long on this potential wave (4) pullback, you may use a stop just under 1803ES for a potential 33 point trade in wave (5), which provides you with an appropriate 1:3 risk/reward ratio. But, we will need to see exactly where the c-wave projects within its own 5-wave structure to focus in on a more accurate target for the bottom of the c-wave. And, if the market sets up a wave 1-2 within wave (5) to the upside which presents us with early evidence that wave (5) will be larger than wave (1), the next higher Fibonacci extension is in the 1859ES region.
Alternatively, in the event that we immediately break down below the 1803ES region, the market will undoubtedly test the 1740-1770 support region, which is imperative to the longer term bullish perspective. As long as that region holds as support, then higher levels can be seen, and I may be convinced of the run to 2500-3000. However, should that region break as support at any point during the next few months, then all that stands between us and the 1500 region is the 1650 level of support.
Ultimately, I will maintain an open mind to a much longer term bullish count into 2016, with potential targets of 2500-3000 in the S&P 500. However, the next few months will be quite key in setting expectations in my mind for the longer term health of this market over the next few years. Meanwhile, I still expect a major top of larger degree to be seen when this current 5-wave pattern from 1753ES completes, and I will, at a minimum, expect a retest of the 1740-1770 region.
http://www.marketwatch.com/story/market-top-to-test-long-term-optimism-2014-01-05
George.
Click on "In reply to", for Authors past commentaries.
* Sunday, January 5, 2014
Market top to test long-term optimism
Do you know anyone anymore who is willing to short this market? Do you know anyone who doesn't think that this market is going higher? I mean, even Dr. Doom, Nouriel Roubini, and Marc Faber, the author of the Gloom, Boom and Doom Report, think that the market has higher levels to attain. That is a lot of "Gloom and Doom" that has now been taken out of the market. Is there any more "wall of worry" left for this market to climb?
This past week, I read an article that simply astounded me with its conclusion in light of the facts it cited. Specially, it noted that "it is important to remember that Main Street is jumping into the stock market. This year [2013], small investors put the most money into stock funds since 2000. And, as a group, they generally tend to be late to the party." But, the conclusion to which the authors came was that it was still time to go long this market, as blue skies are still on the horizon. Well, I mean, isn't that the easiest trade to make at this point in time? Isn't that what everyone believes? Seriously now, haven't all market participants now seen and believe the "BTFD" videos?
Let me get this straight... mom and pop have put more money into this market than at any other time in history, and mom and pop are known to always be wrong and buy at the highs. And, as the put/call ratio seems to be near record levels, and in light of evidence that institutions are selling into this rally — not to mention the amount of divergences that the longer term charts are displaying at this time — we should continue to expect higher and higher in this market?
I have to be honest. This past week, I have posted a possible alternative bullish count on our site at elliottwavetrader.net, which would call for an initial target of 2050-2100 in the S&P 500, with ultimate targets around the 2500-3000 region by around 2016-2017. But I noted that such a pattern would have to truly prove itself to me in the first quarter of 2014, as there are many serious issues with such a pattern set up. The probabilities that we often trade don't support such a pattern 70% to 80% of the time. So, clearly, this isn't my primary perspective at this time. But it is now an alternative that I will track for the next few months.
As to the uber-bullish alternative chart, I noted during this past week, regarding the highlighted blue box, that "[f]irst, the only way to consider that an impulsive count with those 3's in each move up is as a leading diagonal. Now, it is extremely rare to see a leading diagonal for the start of the heart of a third wave. Second, leading diagonals ordinarily have deep retracements, whereas this one had a negligible retracement. Therein lies the issues I have with the overall uber-bullish count, or any other count one may attempt from the 2009 lows."
Of course, this time may fall into the lower end of such probabilities, but in order for me to adopt such a lower probability perspective, the market will have to prove it to me over the next few months beyond a shadow of doubt. To me, this means that the market will have to maintain support over 1740 on all pullbacks. And, yes, even if it does approach the 1900 region over the next few months, the expected pullback from such region must exhibit corrective properties and maintain support over 1740 at all times for me to consider going long from the 1740 region to the 2100 region next. Yet, as always, I will maintain an open mind, as 20% to 30% probability trades do work out, well, 20% to 30% of the time.
So, what all this means to me is that the first quarter of 2014 will be a very important quarter from my perspective for the longer-term concern of the equity markets. And, I do believe that the market will be testing the 1740-1770 region of support within the next few months, so we can then make a better assessment as to whether to get back in on the long side with longer term holdings. But, in my humble opinion, the probabilities don't support that region holding on the coming test.
In the smaller time frames, this market looks to be setting up to make a higher high. As long as we maintain support over the 1803ES region, I am expecting another rally of at least 33 points to potentially make a double top or higher high. Based upon the way the market left us on Friday, as long as we remain below the 1840ES region, we can still see further lows in this wave (4), as represented on the 60-minute chart. This would set up a wave (5) rally which would ideally be 33 points, wherein waves (1) and (5) would exhibit the common 1:1 Fibonacci ratios we so often see.
Assuming we do see further pullback in the coming week, my ideal target for wave (4) still remains the 1814ES region. This is the .382 retracement of wave (3), the 1.618 extension of the move off the 1753ES recent bottom, and it is also where waves (1) and (5) would be exactly equal into the 2.618 extension at 1847ES. So, if one chooses to go long on this potential wave (4) pullback, you may use a stop just under 1803ES for a potential 33 point trade in wave (5), which provides you with an appropriate 1:3 risk/reward ratio. But, we will need to see exactly where the c-wave projects within its own 5-wave structure to focus in on a more accurate target for the bottom of the c-wave. And, if the market sets up a wave 1-2 within wave (5) to the upside which presents us with early evidence that wave (5) will be larger than wave (1), the next higher Fibonacci extension is in the 1859ES region.
Alternatively, in the event that we immediately break down below the 1803ES region, the market will undoubtedly test the 1740-1770 support region, which is imperative to the longer term bullish perspective. As long as that region holds as support, then higher levels can be seen, and I may be convinced of the run to 2500-3000. However, should that region break as support at any point during the next few months, then all that stands between us and the 1500 region is the 1650 level of support.
Ultimately, I will maintain an open mind to a much longer term bullish count into 2016, with potential targets of 2500-3000 in the S&P 500. However, the next few months will be quite key in setting expectations in my mind for the longer term health of this market over the next few years. Meanwhile, I still expect a major top of larger degree to be seen when this current 5-wave pattern from 1753ES completes, and I will, at a minimum, expect a retest of the 1740-1770 region.
http://www.marketwatch.com/story/market-top-to-test-long-term-optimism-2014-01-05
George.
Click on "In reply to", for Authors past commentaries.
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