A Bull, a Bear and a Pig Walk Into a Bar... Another Massive Chart Dump
November 08, 2009
– Comments (10)
Okay, time for another one of binve's Massive Chart Dumps! It is like a TA colonic, and will make you feel right as rain. But I certainly don't mean these charts belong in the toilet!. .... okay, enough scatological humor for one post.
My last Chart Dump was this one: Another Massive Chart Dump / P2 Analysis Wrap-Up that I wrote on Sept 26. Lets take a look at a few excerpts to see how I did:
"...So is Primary Wave 2 done?
I just don't think it is done. But I do think it is very close to being done. There is a count option, that is possible, that shows it could be done (the spike to 1080 on the SPX last week), but I don't think it is. I think there is one more wave up left in it that will make a higher high (up to about 1100) somewhere in the beginning of October. ..."
Hmmmm.... Not bad. We did get a move to 1101, however I was calling it a bit early. I said somewhere in the beginning of October and the high occurred on Oct 21. But not too shabby. And in this post I showed a number of indices and company charts that were showing or beginning to show negative divergence and I felt like one more move up would seal the deal on P2 for nearly all of them. Hence my call on Sept 26.
So what is the call now?
Is Primary 2 done?
In short, I say yes. If I am asked to make a call (and I suppose I am asking myself), that is the call I am making. I think there is enough divergence, enough waning momentum, and bullishness peaked to such an extreme at the top that I think the top is in. But wait, this question deserves more thought and a more nuanced answer.
So here are 2 ways to play this: aggressively or conservatively. Me I am the aggressive type. And so while I think the top is in and have positioned my portfolio accordingly, there is certainly a much safer way to play this. I discussed this very scenario a couple of weeks ago here: Whew! One Crazy week! However I Think Next Week Will Make Last Week Look Like a Walk in the Park :) - Oct 18
The most obvious question is: Did we reach the top (end of P2) last week, or if we have one small wave up next week, will that be the end of P2?
The best answer anyone can give you is: maybe.
That's all. I have opinions and thoughts on this matter, just like any analyst does. But they are irrelevant.
The top will happen when the top will happen. And we will never *know* it is the top when it occurs, we will only know after a confirmation move. What would be a confirmation move? I would like to see a clear impulsive *MINUTE DEGREE* wave down (5 full Minuette degree waves), followed by a 3 wave Minute degree correction with a lower high on all the major indices (SPX, INDU, RUT, COMPQ, and NDX), and then followed by another Minute degree wave down.
I think a move of that size will a) obviously break the 7 month wedge lines and b) be too large to ignore as a bull market correction because c) a 5-3-5 is either a 1-2-3 in an impulse or a zigzag, and I don't see another realistic Minor degree zigzag X-wave to extend this out
So I am heavily short right now. But if you want be a bit more conservative and wait for a confirmation move before abandoning your longs and going short, the above scenario is what I would look for.
A few more reasons why I think P2 is done (beside the massive number of charts which will be following shortly):
The final wave of P2 should have:
- Low volume
- Low volatility
- Low breadth and decreasing breadth as it moves up
- Daily divergences of technical indicators (MACD, RSI, and TRIN more importantly)
- Lots of extension with little pullback and possibly a 5th wave extension for a blow-off, not because of a bullish move but because of little bearish resistance.
The last wave up to 1101 had absolutely all of these qualities. And I was remarking on them as they were occurring in these posts:
- Man SPX, Your Brea(d)th Stinks!
- SPX says "Pass Me the Binaca!"
- Whew! One Crazy week! However I Think Next Week Will Make Last Week Look Like a Walk in the Park :)
Many of us EW bloggers are charting this rally to
a) understand how the count is unfolding to find trading opportunities
b) understand the larger wave structure as it will have *severe* long term consequences for investors, not just traders.
What I am getting at, of course, is finding the top of Primary 2 / start of Primary 3.
So I have been called a P3 "cheerleader" along with several other bloggers. And honestly, I don't mind that label a bit. Why?
Because as this rally (P2) extends, it is suckering in the small retail LTBH investors, the mom and pops, who will buy at the top and become the bagholders
I am very skeptical of claims from economists that "we have turned the corner, recession is over!" (see binve's Long Term View)
I am very skeptical of upgrades from Wall Street analysts and brokers (see Sometimes the Truest Points are Made Through Humor)
So maybe you believe in the larger wave structure that many of us believe we are in (Large Cycle Degree C Wave down from the 2007 top, and nearing the end of Primary 2) and maybe you don't. But I would ask you, barring that, do you honestly believe the stock market and the economy has made a V-shaped recovery? And even if you think it has, after a 60% rally in 8 months, do you think the risk is now to the upside or downside?
So either Primary 2 is done (I believe it is) or we have another rally coming that could make a modest nominal higher high. However, either way, I think the upside to be gained is trivial in comparison to the downside risk.
And that is the real point to this post, to show how tired this rally now looks, but moreover the fact that I don't believe it is a rally any more. That I believe the Primary trend has changed and we are now going to resume trading in the direction of the secular trend
.... which is down
How far down? For my take on that please read binve's Long Term View
.... continued in comments section ...
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