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Longer Term Projection

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May 08, 2010 – Comments (15)

Here is my longer term projection for the SPX for anybody that is interested (which is probably not many)

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On April 27th, I was showing a possible count with 3 Minor Waves up from the February low, which could have served as the last Intermediate wave in P2: Boring Title #5

But what P2 did exceedingly was to put the doubt into the mind of every single bear. I never had any doubt that this was a bear market rally, but every time I thought we had a legitimate top for P2, the market spat in my face. I started playing around with Cycle Degree X counts. But I was always adamant that this was a bear market rally. I NEVER bought the "new bull market" theory that has been gaining momentum. See these posts:  Not All Five-Wave Moves Are Impulses: A Short Treatise on Elliott Wave and Another Impulse Wave Study: A Look at the 1974-1975 Low and Rally

But still, even after I counted (yet another) possible end to P2 on April 27th, I hemmed and hawed and I doubted myself. I wrote this on May 1st in this post: Reviewing the Larger Count

I would be more than happy, ecstatic in fact, if last week marked the top of P2. And if the move this next week and especially the week after that develop *decisively* downward impulsively, then I think we have the makings for a major trend change (which would make this bear **very** happy). This is the option that I am showing here: Boring Title #8

But this fine (but unfortunately busy :( ) Saturday morning I am reviewing the larger count structure. I had proposed this count last month: Update on My P2 Projection. I was drifting away from it since this "wave from hell" took us nearly to the 62% retrace, I really thought that this could be the top of P2 (and like I mention above it could)

... But it also could not. Lots of "Sell in May and go away" talk seems to coincide with the wave ending, so this is a compelling spot for a top. but it just seems too obvious now. Too many people are expecting it, so my Spider-sense is unfortunately tingling (that, or I need to switch to Selsun Blue)


In short, I doubted the possibility of a top and showed a sideways wave for the next 3 months before a top in July.

And there are some legitimate reasons for counting it that way

1. No divergence on the Advance/Decline Line
2. No divergence on the New High / New Low data
3. Minimal divergence on the weekly indicators
etc.

.... But EVERYBODY was looking for divergence. Many people have been looking at high/low data.

So I find it very apropos that the market flips all of us a bird and crashes, more or less, out of the blue.

P3 will be fast and furious. I think, as bears, we just had to wait for the opening salvo of P3 to mark the end of P2. I think (in retrospect) it was always going to come without warning. And now that we have it, we can get back to the business of what the Elliott Wave Principle is really meant for .... counting impulse waves

So just one thing to keep in mind, within extensions Wave 2s tend not to retrace as deeply as they otherwise would. Wave 2s are typically deep and fast retrace waves (50-78.6%). In extensions they are more typically 38.2-50%.

I am not offering advice here, but what I am saying is that I usually wait to buy wave 2 retraces at 62%. Within P3 I will be more aggressive with entry shorts and give myself a margin of safety should the move go up past my entry before resuming violently down.

I think the next few years are going to be very interesting. Good luck to all!!!



ENLARGE


ENLARGE


ENLARGE
 

15 Comments – Post Your Own

#1) On May 08, 2010 at 7:20 PM, Turtleread (67.11) wrote:

Oh, Good Grief, so after 12,000 points straight up, you began to have doubts?  I believe in what works, and if you were following this membo-jumbo strictly, then you made zlich.  Strict mathematical models do not describe the investing decisions of millions of people on a regular basis, and as a matter of fact, it is hard to describe the investing decisions of one individual with any regularily.  Sometimes the math works and sometimes it does not.  Besides that, philosophically, you are using a perfect system (math) to try to describe an imperfect system (the market).  Good luck with that!

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#2) On May 08, 2010 at 7:39 PM, BlackshearCaptL (< 20) wrote:

I agree with turtle's sentiments, but I will say that it's easier to predict a group's tendency with regularity more than an individual's.

Groups tend to average out more than the extremes of a single person (which is not to say that they won't be grossly irrational or exuberant at times).

Not sure how I feel about TA. 

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#3) On May 08, 2010 at 11:02 PM, Option1307 (30.03) wrote:

Thanks for all the good wrok you do Binve, I always appreciate yuor thoughts. Enjoy your weekend buddy!

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#4) On May 08, 2010 at 11:33 PM, uclayoda87 (29.31) wrote:

What became apparent after last week was that older models for predicting market moves may not be very reliable, if the model was developed at a time when high volume program trading did not exist.  The old models would have to be validated again using data from the last 10 years to determine if they still work.

I suspect that if the algorithms that were used by these computer trades were available a more reliable model for market moves could be created.  But this would ruin the whole purpose for proprietary computer trades.  If their algorithms can gain a small advantage to the investment bank, like a roulette wheel in a casino, this may be an acceptable business model for the company.  If however the trading algorithms are able to change the rules by manipulating prices with very large focused bets, then we have a problem.  This is no longer a conspiracy theory, since we saw it last week with a 900-point drop in the DJIA.  If C, GS or JPM are able to make these big bets that can dramatically move the market, then you know that they can make smaller bets on other stocks to facilitate short squeezing while not being detected by anyone other than those who lost money.

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#5) On May 09, 2010 at 12:58 AM, binve (< 20) wrote:

Option1307 ,

Thanks my man, I appreciate that!! Enjoy your weekend too! I am planning on a day of pampering my wife on her first Mother's Day (our daughter is 8 months old now). Good times!!

uclayoda87 ,

>>What became apparent after last week was that older models for predicting market moves may not be very reliable, if the model was developed at a time when high volume program trading did not exist. 

This is a fair argument. And on its face sounds very reasonable. But I don't agree, and let me tell you why:

Computer do not make the market. People do.

HFT algos trading against eachother add volume, add volatility. And they can affect short term results.

But the real long term market trends always have been and always will be determined by people.

There is a reason why we had a peak in 1929, or 1973, or 2000, or 2007 or last week: Investors were exuberant and were no longer investing on fundamentals, they were caught up in the movement of higher prices.

This past week was no a "bear raid", it was bulls stampeding for the exits. It was herd behavior, simple as that. It called a major selloff hours before the crash, based on simple chart pattern analysis: http://marketthoughtsandanalysis.blogspot.com/2010/05/1-2-heaven.html

The large drops are always because investors are scared. It is not because of evil corportations or HFT. Prices get irrationally low at bottoms and irrationally high at tops. HFT doesn't make the market, neither does the Federal Reserve. These entities are part of the market, nothing more.

The market will always be made by people, or it would never exist in the first place. And so analysis tools that look at the movement of herd behavior and social mood (like EWP) will always be applicable. HFT distorts waveforms (I concede) that, but as long as humans dominate the overall direction, then waveforms will have the meanings that R.N. Elliott observed nearly 100 years ago.

My $0.02 at any rate. Thanks!..

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#6) On May 09, 2010 at 4:09 AM, uclayoda87 (29.31) wrote:

I guess that I don't consider big banks like GS, JPM or C people, they are more like trolls who eat small investor children.  These banks have their own trading accounts, which are independent of their client's trading accounts.  So my counter argument is that the market is made of both people and trolls.  Unfortunately, I believe that the large trolls now control the market at the expense of the small individual investor.

If the trolls are big and scary enough, they may be able to periodically cause the herd to stampede off a cliff and then feed off the carcases later.

Maybe this was happening 100 years ago too, but the computer tools in todays market and the free money that these banks can get from the US government may still cause problems for the old model.

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#7) On May 09, 2010 at 4:43 AM, binve (< 20) wrote:

uclayoda87 ,

>>I guess that I don't consider big banks like GS, JPM or C people

I don't either, and that's not what I was saying and it  was not the argument I was making. This is what I wrote:

The large drops are always because investors are scared. It is not because of evil corportations or HFT. Prices get irrationally low at bottoms and irrationally high at tops. HFT doesn't make the market, neither does the Federal Reserve. These entities are part of the market, nothing more.

What I am saying is there are trolls and the trolls control HFT and trolls+HFT can affect volatility and short term market directions.

But this statement of yours actually gets to my point:

>>If the trolls are big and scary enough, they may be able to periodically cause the herd to stampede off a cliff and then feed off the carcases later.

The herd will not stampede off the cliff until it is ready too. Trolls can spook the herd, but they cannot lead the herd off the cliff. It does that when it is ready.

People are *very* bad at seeing cycles. We see very long cycles in the historical record in terms of both stock prices and valuations. Long Valuation Waves and K-Waves. We see shorter cycles as well (10-year and 4-year). But people, especially as a herd *almost always* extrapolates linearly.

People start jumping on at the tops waves. People see an uptrend after it has gone on for a long time and jump on board. Right as the trend changes.

The fact that the sentiment over the last couple of months, *much* more than in January, where everybody was calling a new bull market, justifying high valuations for their pet companies, calling bears idiots, etc. Set the stage for a trend change. Investor sentiment (broken up between "smart" and "dumb" money) has shown that smart money started getting very bearish and the dumb money started getting very bullish all last month. See Guy Lerner's site for lots of good evidence of this.

My point being that even in January, when the trolls tried to spook the herd off the cliff, it didn't work. Because the herd wasn't ready. There was not a peak in hubris. And April 2010 did show a hubris peak like I talk about above. The herd was conviced of a new bull market from these levels and were linearly extrapolating to all new highs. And in my mind, that is the perfect recipe for a trend change. And with ripe conditions, the herd was susceptible to being spooked.

Just one possible interpretation..

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#8) On May 09, 2010 at 7:21 PM, ralphmachio (27.53) wrote:

Technical analysis doesn't work when you are not objective. The less you want, or expect a certain result, the less it works. So, it actually works better in some instances without much else. I short companies i know nothing about based on their charts. I have been an Elliot practitioner for all of 3 weeks, and I am still at the 101 level, but that didn't stop me from making back most of what I lost HOLDING FAZ like an idiot, for 9 months with minimal trading. 

Now the challenge is to be a bit more conservative, exercise more patience, and keep the powder dry when there is uncertainty, and the stops tight when I'm pretty sure it is a one way street down. 

On a separate note, I am also keeping buy orders for my shorts at ridiculous prices during regular hours, because you never know when the damn thing will free-fall and not be able to get out at the right second, when you just made thousands 'by mistake'.

Should we expect kind of a sideways-irregular 4 wave up on the short term, once the end of wave 3 happens?  

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#9) On May 10, 2010 at 3:45 AM, ralphmachio (27.53) wrote:

I meant the more you want a result the less it works... 

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#10) On May 10, 2010 at 4:12 AM, topsecret09 (39.58) wrote:

Spring time......  Bears are coming out of hibernation. Thats all we need to know....  LOL!!!!     TS

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#11) On May 10, 2010 at 10:16 PM, MikeMark (29.43) wrote:

binve,

This works very well with my sentiments. It's what I'll call the long slow ride down the James river. It's a river that doesn't flow very fast, and around every curve, you think you're going to get something exciting. However, you don't. It's just dull, boring, useless and unprofitable. Don't enjoy the ride! Get off!

-MikeMark

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#12) On May 11, 2010 at 9:05 AM, binve (< 20) wrote:

ralphmachio ,

>>Now the challenge is to be a bit more conservative, exercise more patience, and keep the powder dry when there is uncertainty, and the stops tight when I'm pretty sure it is a one way street down.

I agree

topsecret09 ,

Indeed!

MikeMark ,

>>It's what I'll call the long slow ride down the James river. ...Don't enjoy the ride! Get off!.

LOL! Nice :) Thanks!..

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#13) On May 11, 2010 at 9:36 AM, IIcx (< 20) wrote:

Hey Binve,

Great post as usual. 

I don't know if this will help any but take a look at the second and last chart for an interesting timing approach.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3272523&cmd=show[s169662596]&disp=O

Best, IIcx

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#14) On May 11, 2010 at 9:48 AM, IIcx (< 20) wrote:

sorry, I should have said "the 2nd and the last 3". 3rd from last details the timing.

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#15) On May 11, 2010 at 9:51 AM, binve (< 20) wrote:

IIcx,

Hey man! Thanks!

I actually do trade timing based on the NYMO and NYSI, and what I found *very* interesting is that that they sell signal (which is confirmed on both) that worked for every single wave top since March 2009 did not work for the wave top on this last wave from Feb-Apr. That's another reason why I think it is special like a termination wave. It kept moving up in spite of technical resistance and a number of indicators that we hugely overbought and went right to a sentiment peak.

Also, I watch the Adv/Dec and High/Low data very carefully, like I mention in the original post. I was looking for divergence.... but so was *every other trader in existence that is aware of the High/low data (which is a lot)*. While I would like to have seen divergence (it would make me a lot more comfortable with my larger count), I think the sentiment peak and subsequent move (not counting the super-spike) trumps all.

We will see if I am right or wrong in a few weeks :)

Thanks man!..

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