GoodVibe Market Vibes – The anatomy of the rally
March 31, 2009
– Comments (153) |
RELATED TICKERS: G
, V
, CALL
……… Notice ………
Previous closed but related blogs to this post's content are:
1. Let the charts speak for themselves March 6, 2009
2. The anatomy of the bottom (Leg Two) March 13, 2009
3. Beware bulls of the ides of March March 16, 2009
4. When will the bull cross the Rubicon? March 18, 2009
5. The crossing of the Victor March 19, 2009
6. Bulls victoria! March 24, 2009
Other blogs that we are currently actively commenting on are:
1. GoodVibe Lounge
2. GoodVibe Chart Lab
Please, choose the appropriate blog to post your comments and questions in. Click here to read this post carefully before reading further or commenting to know why we are doing this. Thanks!
....................
“The thing that has been, it is that which shall be; and that which is done is that which shall be done; and there is no new thing under the sun." — Ecclesiastes
“What actually registers in the stock market's fluctuations, are not the events themselves, but the human reactions to these events. In short, how millions of individual men and women feel these happenings may affect their future.” Above all else, the stock market is people. It’s people trying to read the future. And it’s this intensely human quality that makes the stock market so dramatic an arena, in which men and women pit their conflicting judgments, their hopes and fears, strengths and weaknesses, greeds and ideals." — Bernard Baruch
....................
Elliott weekly lesson:
** Stock market prices trend and reverse in recognizable patterns. The patterns are repetitive in form but not necessarily in time or amplitude. They link together to form larger versions of themselves and in turn link to form the same patterns for the next larger size, and so on, producing a structured progression. Elliott wave principle - Page 19
** The wave principle is governed by man’s social nature, and since he has a nature, its expression generates forms. As the forms are repetitive, they have predictive value. Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are casual conditions. The market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experience of life. The path of prices is not a product of news. Nor the market is cyclically rhythmic machine that some declare it to be. Elliott wave principle - Page 21
** In markets, progress ultimately takes the form of five waves in a specific structure. Motive (impulse) waves have five-wave structure. Three of these waves are labeled (1), (3), and (5) where they effect the directional movement and follow the same direction as the one larger trend. They are separated by two countertrend corrective waves, which are labeled (2) and (4). In general, motive waves don’t always point upward, and corrective waves don’t always point downward. The mode of a wave is determined not by its absolute direction but primarily by its relative direction. The essential underlying tendency of the wave principal is that action in the same direction are carried in five waves, while reaction against the one larger trend develops in three waves, at all degrees of trend.
Note the followings:
1. Wave (2) never moves beyond the start of wave (1)
2. Wave (3) is never the shortest one.
3. Wave (4) never enters (overlap) the price territory of wave (1)
4. Wave (2) and (4) nearly always alternate in form, where one correction is typically zigzag and the other is either flat or triangle.
In our current large wave structure since October 2007, the direction is DOWN where the motive waves within the larger motive wave are down and the major corrective waves within them are UP. See charts below.
** All waves maybe categorized by relative size, or degree. The degree of a wave is determined by its size and position relative to component, adjacent and encompassing waves. Elliott named nine degrees of waves, from the smallest discernible on an hourly chart to the largest wave he could assume existed from the data then available. He choose the following terms for these degrees, from largest to smallest: Elliott wave principle - Page 26
* Grand supercycle: multi-century
* Supercycle: multi-decade (40-70 years)
* Cycle: one year to several years.
* Primary: a few months to a couple of years
* Intermediate: weeks to months
* Minor: weeks
* Minute: days
* Minuette: hours
* Subminuette: minutes
................ End of lesson ............
What is the large picture?
We are in a DOWN cycle wave (ideally should be consisted of five primary waves) that started October 11, 2007. A cycle wave usually lasts one year to several years. Within this cycle wave, to the best of my count, primary wave {1} DOWN has bottomed on March 6-9, 2009 in all major indices. My current most acceptable count lead me to believe that primary wave {2} UP is underway. A primary wave usually lasts a few months to a couple of years. I expect primary wave {2} UP to last 3 to 6 months with possible minimum target of S&P 1015 – 1125 and DOW 9422 – 10334
Where are we coming from?
Since March 6-9 launch of primary wave {2} UP, the bulls are sweeping the bears’ strongholds with their bulldozers and the chainsaw’ jugglers who shorted the market deep down are losing limbs right and left. Reasons of why we rallied can be summed in one sentence: “The strong hands are back in town.” They got their treasure chest filled from the Fed’s almost zero interest rate, and also uploaded their trash to the Fed’s balance sheet in exchange of crisp T-bills. They loaded more dry powder from the alphabet soup bailing plans by the billions from the treasury, issuing bonds insured by the FDIC, as well as taxpayers’ money funneled through AIG, and squeezing John and Joan by hijacking interest rates and calling loans among other gimmicks to milk the system they are calling themselves indispensable part of. Now, they are not only able to hold the sell off they were forced into since last year but also to load up the wagon.
Intermediate wave (A) that lasts weeks to months started as the first leg of that buying binge primary wave {2} UP, where minor wave 1 UP of primary wave {2} UP ended sometime last week. The exact ending point is still unclear at this moment. Currently, minor wave 2 DOWN that lasts maximum few weeks is undergoing. This minor wave 2 DOWN with its possible formation of minute waves that each lasts for few days will be the topic of this blog and the comments below. Keep this blog for chart updates when needed. If there's no chart update, there nothing of value to add.
Where we are going?
Now that those who captured the bottom and filled their books with double and triple gains are the winners and those who watched and hesitated are biting their nails for not joining the party and we can call them sinners. For fund managers, the only thing worse than losing money is underperforming their benchmark. Performance anxiety was a very viable upside catalyst for the last three weeks. Now, traditionally the winners will try to hurt the sinners (the chasers, nail bitters) so they can even look smarter and their window look better while the sinners even look uglier. The winners usually will fade away the day before the final tally, which was last Friday as they did and accelerated the selling even before the open on Monday. Now they handed the bag to the sinners while raising loads of cash to show off with and buy back what they sold high at lower prices later. Also, pay attention to hedge fund redemptions starting today. Many funds typically require 30 to 60 days notice on withdrawals, March 31st is the first quarterly exit offered to many investors in the space. For more on the hands behind the curtains, check out this article by Todd Harrison .
According to EWP, there are 11 different Elliott wave corrective patterns at all degrees and or combinations, as opposed to just one impulse pattern (with a slight variation in a fifth wave). We are in a primary corrective wave {2} UP against the primary impulse wave {1} DOWN. So forecasting how this corrective wave {2} UP is gonna unfold is not an easy task. An impulse wave is easier in the sense that one never knows with a high-degree of certainty the specific wave structure of a countertrend move until well into its development. That said, we will take one day, week, and month at a time to try to pin down trading positions that serve the larger current trend, which is UP. Meaning I will lean to the long side more than the short side.
For the micro view - As I said, we are in minor wave 2 down. Second waves in general often but not always retrace so much of wave one that most of the profits gained up to that time are eroded away by the time it ends. This is especially true of call option purchases, as premiums sink drastically in the environment of fear during second waves. At this point, investors are thoroughly convinced that the bear market is back to stay. Second waves often end on very low volume and volatility, indicating a drying up of selling pressure in anticipation of the start of wave three. Elliott wave principle - Page 79
Terms & Conditions
RSS Headlines
Fool UK