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Market Thoughts and Analysis: Potential Turning Point This Week and Some Important EWT Observations

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May 25, 2009 – Comments (60)

"The time has come," the Walrus said, "To talk of many things: Of shoes--and ships--and sealing-wax--Of cabbages--and kings--And why the sea is boiling hot--And whether pigs have wings." (from The Walrus and The Carpenter, in Through the Looking Glass, by Lewis Carroll). And we do have a lot to talk about in this post. But I think if I can take a bit literary liberty, I have as small rewrite for the current market:

“The time has come,” the Grizzly said, “To talk of many things: Of debt--and mortgages--and Option ARMS--Of consumers--and spending--And why the fundamentals are so bad--And whether pigs have wings.” (I left the last part the same because the size of the Financial rally proves that pigs have wings) … :). Okay, okay, enough hamming it up. Down to business.

But First a Serious Note: Thank You to Veterans on Memorial Day

We celebrate this day to honor all of the Veterans who have served our country in uniform. They are in the military to protect America. They have fought and died to protect our ideals and freedom. I honor and respect them for believing in something bigger. America is a beautiful country and I love it. And I am very grateful to the men and women who defend it.

Intro / Reason for this Post

First this post is a continuation of the thoughts and analysis in: Still Bearish: FA and TA on S&P 500, Observations on the Economy and More Thoughts and Analysis: Timeframes – Bearish, to Bullish, ...to Bearish. Please read these first to provide the context for this post.

I would like to talk about a few things in this post. First is the large count for a number of indices. Because there is some discrepancy between the EWT chartists about what the large count is since the bear market move from the 2007 top (for most indices anyways). This will lead to some very important observations that can lead to some serious implications.

Next is the count from the bottom (early March for most indices) which will take us to where we are now.

And where we are now suggests a turning point for the market. As always I will refrain from making definite predictions (as per the rant in my last post, NOBODY has a crystal ball). However there is evidence based on the price movement in a lot of the indices last week that we could see some serious, potentially violent weakness this week.

Preferred Counts and Opinions (a mini Rant).

It’s not even really a rant. Only just a smidge, barely :). As I said in the rant in my last post, Nobody has a crystal ball. Nobody knows the future. The best anybody has is a guess. I also belabored the point in the last post that because nobody knows the future, you should never put all your eggs in one basket. This applies to investing. It also applies to Technical Analysis.

Many of us EW Technicians have what we call a “preferred count”. This means the count and analysis that is the most likely to happen, in our opinion. We may have several different counts that are viable based on the unfolding price action (because ultimately any pattern is incomplete until it is in the past). But we select one that is most likely, the “preferred” one. And per the observation made above, any good analyst knows that even the best guess is still a guess. So even the analyst who makes the count does not put an absolute 100% likelihood of occurrence on it.

What this means for the reader is not to get married to yours or anybody else’s count. In fact looking at a variety of counts is often very useful. Because as the price action unfolds, assumptions made in one count may prove to be more or less accurate than others.

EWT Observations and the Large Count

In order to understand where we are and where we are going, we have to understand where we were. I talked about this in the last two posts, but this really bears more discussion because the large count has very serious implications for what can be expected in the next few weeks to the next few months (and the next few years).

Another analyst who is not on Caps has a distinctly different large count than many of us do here on Caps. You may know who I am talking about or you may not. That is irrelevant at this time. I will present the overall count, why I think that count was arrived at, and why I have a different opinion. In the spirit of the section above, there is no “right or wrong” assumption. There is only a guess. But I will lay out my assumptions and opinions, and explain why I arrived at them, so that they can be compared and contrasted against other assumptions.

When looking at the EWT analysis from this other technician, I become perplexed. I mean this analyst is top-notch, extremely generous, runs though alternate scenarios, is exceptionally thorough, has made brilliant and deadly accurate calls. So why am I seeing the big count differently than him? (Incidentally, my large count is the same as GoodVibe’s from 2007 to March 2009. His was the original and we all have adopted his because I am convinced it is correct.). I actually was carrying both variations on my charts, trying to make one work over the other. But I have studied it for a VERY long time, and (IMO) the Wave {3} termination at 666 doesn’t not work. I agree with GV, it is a clear 5 wave impulse at the large scale, not 3 of 5. So why is it being called differently?

When you look at the charts and the videos, the analysis seems clean and compelling, and when you watch them, you can almost convince yourself that it is a Wave 3 at 666 and not a Wave 5.

And then it dawned on me why.

Take a look at the chart below (the S&P 500 since 2007), it is basically a recreation of the Large Wave 3 at 666 count. And on its face it seems compelling. The waves are in proper proportion. It actually looks like a big 3 move and not a 5. But look closer.



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So what’s the problem? ….

… It is a linear scale. That’s the problem. All the analysis (it seems) is done on a linear scale. And this is (again, IMO) not correct. Why?

Because all gains and losses in the stock market are EXPONENTIAL! NOT ARITHMETIC!

Here is an example: Is a 200 point move a 200 point move? NO. If 200 point move A occurs when an index is at 4000 (5%), it is much less meaningful than if a 200 point move B occurs when an index is at 500 (40%).

This is why linear scale stock charts are almost meaningless.

Because we don’t measure stock performance on an absolute basis, we measure it on a RELATIVE basis. A 50% gain is a 50% gain. Whether you bought a stock at 10 and it moved to 15 or you bought the stock at 1000 and it moved to 1500. This makes all gains and all moves in the stock market exponential / logarithmic.

Now take a look at the S&P 500 on a log scale



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There is a clear, well defined 5 wave moved when looked at on the proper scale. The 5th Wave down was very dramatic because while the move from 950 to 666 was only 284 points, it represented at 30% drop!!

Now on small scales (relatively little difference in the max and min values on the y-axis), maybe less than a 10% difference between min and max, it is little matter if you use linear or log.

But the S&P moved from 1550 to 666, which is a 56% change. This improperly exaggerates the importance of moves at the top of the chart and improperly diminishes moves at the bottom of the chart when viewed on a linear scale.

Not convinced? Lets look at a more extreme example.

XHB is a Home Builders Index. And as we all know, Home Builders have taken a thrashing the last few years. In fact XHB went from 45 at its peak down to 8, that is a drop of 82%. So, a move of 4 points when XHB was at 8 is a 50% move, whereas a move of 4 points when XHB was at 45 is a 9% move. That is a big difference!!. So how different does XHB look on a linear scale vs. a log scale? You bet, very different!

Given this linear scale chart, I might count it like this:



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But if I were give the log scale chart, I would count it very differently.



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And in my opinion, the log scale gives the more believable count. Because it shows the relative importance of the impulses and corrections relative to the price action around it for all prices and times. The linear scale chart does not.

As always, this is just my take. There is no commandment handed down from on high stating “Thou shalt use log scale stock charts”. But just an exercise in logic, as I went through above, shows that this is a pretty obvious conclusion. But as an analyst and reader, you need to make up your own mind about this.

Okay, so with that out of the way, I would like to show the large count on another important index: Financials.



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Again, I see another clear 5 Wave impulsive. I could throw up a bunch more charts that all tell the same story. But I am not going to. I am going to list some indexes and invite you to do it yourself. BKX (Banking Index) from mid-2007, IYR from beginning of 2007, XRT from mid 2007, IYK from late 2007, etc. There are many more that cut across the economy that show the same pattern. In some of these charts the impulse structure is very clearly defined, and in others it tends to plateau for longer periods. But the telling feature is that the action is NOT corrective, it is clearly impulsive, with a largely overall 5 count (make sure the internals subdivisions work, there is a lot of 1-2, 1-2 action in these indices).

.... continued in the Comments section ....

60 Comments – Post Your Own

#1) On May 25, 2009 at 9:01 PM, binve (< 20) wrote:


The Even Longer View. Bear With Me for a Minute, This Is Important

Okay, so if you have read this far, then presumably you are interested in some more of my opinions. And I will lay out some big ones.

First I am not going to comment on the Supercycle Wave, Grand Supercyle or Millennium Wave, that is will beyond the scope of this post and well beyond my investing horizon. I am trying to look out between the next week and few months for my trades and the next 15 years for my investments. Beyond that, there are way too many unknowns. So in order to understand the wavecount for a normal traders or investors time horizon, we need about 50-100 years of data to establish trend / countertrend moves. The logical start point (at least for my purposes) is the 1929 crash and the Great Depression.

The roaring 20s was the culmination of a long rally from the late 1800s (there was a panic around 1900 and again around 1910). Previous to that (within modern history, say the last 150 years) there were a number of rallies and corrections, but nothing like the run up and crash of 1920-1935. So the Great Depression was a very strong down move that corrected much of the huge run up previous to the 1929 crash. And what have we had since 1929? A very huge run up. Here the term run-un is NOT used pejoratively. Much of the was an actual true bull run with positive and increasing fundamentals..

Now I will show a chart in a second and I want to make a few things clear. IMPORTANT: read these next several paragraphs before looking at the next chart. The move from 1929 to 2000 was an enormously long bull run. There was nothing “fake” about this move. America was a hugely productive society and economy. This represented real growth and real value being built, and productive enterprises being formed. It was a “true” bull run.
Notice that I say to 2000, not 2007. I do not believe that 2007 was the top, even though it was higher (at least on the Dow). There are many reasons, but here are the two big ones:

1) When adjusted for inflation, the “true value” of the market in 2000 is higher than it was in 2007, and

2) The Wave personality fits. 2000 was a peak in euphoria and proclamations of “market invincibility”. This was as America got rid of much of its productive enterprises that we built up over the last 60 years and put its faith in financial instruments and outsourcing as the way to maintain the “healthy economy”. The market begins its correction after the unsustainable parabolic runup in the 1990s (as this transition from healthy to unhealthy economic activity takes place). However the euphoria would not diminish and the market tried another stab at the top. This is the textbook definition of a Wave B. “B Waves are phonies, they are sucker plays, bull traps, speculator’s paradise, or expressions of dumb institutional complacency. They are rarely technically strong, unconfirmed by other averages, and doomed to retracement by Wave C”

Here is the biggest tell for 2007 being a Wave B peak. 2007 is a new high on the Dow Industrials, it is a double top on the S&P 500, and it is almost 50% lower than the 2000 peak on the NASDAQ composite. It is so highly unconfirmed that it is utterly unbelievable.



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Comments on this chart and the market: As I said above, I am not trying to “properly” fit this count in the Supercycle and above counts. This is beyond my scope. However I do see a 67 year long bull move (1933-2000) that results in a clear 5 wave impulse. Now, like I said, I don’t know the proper count in the grand scheme, so I am just calling this wave a large “[1]” (in quotation marks). Then the next move needs to be a 3-wave corrective impulse {A} {B} and {C} to make a “[2]” (again in quotation marks) . If {A} lasted 3 years and {B} lasted 4 years, I would expect {C} to last between 4 and 7 years. This will be necessary to make a proper correction in terms of time (e.g., It is unlikely to have a bull run for 67 years and a correction for only 9 years – i.e. ending now).

This of course is my opinion. But if you look at the market in terms of scale and proportionality in both price and time, this seems to make sense. So while inflation will help to prevent a crash down to say the price level of the 1960s, I don’t think it will diminish the time aspect. The market needs to correct, and there is no amount of government bailout money that can undo that process. With copious amounts of new money, the Treasury and Fed can soften the blow for a stock crash and they can (attempt to) bailout financials, but the ramification is a huge increase in the price of real goods (namely commodities). But a correction needs time to unfold. Because new money doesn’t fix the problem, it just moves the problem around. From my point of view, this correction is going to play itself out, and need the time to do so, whether we like it or not.

So, how will it unfold?

I have a guess, of course. I talked about this in my last post and I will recap it right now. The {C} wave needs time to unwind. And the {C} wave correction (which will be an impulse – C waves are ALWAYS 5’s) has only been going on since mid 2007, only about 2 years. This has not been enough time and price correction to adequately correct the bull run since the Great Depression, IMO. So my opinion is that there is almost zero chance that 666 on the S&P 500 is the bottom. It *could* be the bottom for this year (maybe, maybe not). But I put a very high likelihood that 666 will be broken before we find any kind of true bottom. Now like I said, the correction will be a large 5. So why doesn’t the Wave 3 at 666 work (if you didn’t buy my argument above about the log scale)? According to this count, we are at the end of Wave 4, going into Wave 5 and Wave 5 finishes up sometime this year. So this theory does not work from a time perspective / not enough overall time to allow the C wave to complete (again IMO).

So when I look at the body of evidence: The long EW count since the Great Depression, the failed move of 2007 on most indices to make new highs, the fact that most of the worlds stock indices moved down as the result of a global financial meltdown, the US economy still dependent mostly on consumer spending and how consumers are going to be squeezed in the coming months and years from unemployment and lower home prices, and how financials are going to get further hit by the next wave of Option ARM resets and subsequent defaults due to unemployment and lower home prices, the next wave of Credit Card default, etc. .., when I look at all of this I see a large impulsive C wave starting in 2007 and the 5-wave move from mid 2007 to March 2009 makes only the first wave (Wave 1) of that large C Wave.

And I think that projection COULD look something like this:



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…. Those are all of my large count assumptions and why I have come to those conclusions.

I invite you to read my points and think about them. Don’t take my word / thinking / research / analysis for it. Research these topics yourself. Think about these things, come to your own conclusions. Maybe you reach the same conclusions as me, maybe you don’t. But this is important enough to discuss and to discuss fully. Not just some aspect. Not simply taking economic data out of context and twisting it into a bullish or bearish stance. But a real honest discussion of the full scope of technicals and fundamentals. That is ultimately why I write and post this. To share my thoughts and ideas and to have a discussion about them.

Intermediate Count and the Potential Turning Point

As another recap from my last post, I think the move of the S&P 500 off of 666 on March 6 was the beginning of Wave 2. There have also been some discrepancies in how the move from March 6 to May 7-11 was counted: and there seem to be 2 schools of thought here. 1) That it is a complete (or nearly complete) A, B, C move, with a flat correction in the middle. Or 2) That it is a 5 wave impulse forming the A wave of 2. I belong to the second camp, as shown below.



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I see 3 impulsive moves separated by two corrections. It is not that I think Option 1 is an impossible count. It is a very viable, perfectly legal count. But it is not my preferred one. This looks like a relatively steady and sustained move. It simply looks like one long impulse to me.

But it is more that simply one index, I think this 5 wave impulse is very visible and obvious across a wide range of indexes. Here is a count for the Russell Financial (RIFIN). You can see a clear 5 wave structure.



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Again, I could throw up a bunch more charts that all tell the same story. But I am not going to. I am going to list some indexes and invite you to do it yourself. Nasdaq Composite, Nasdaq 100, the Dow Industrials, the Dow Transports, BKX (Banking Index) XLF, IYR,  XRT, IYK, etc. There are many more that cut across the economy that show the same pattern. Additionally, nearly all of these indexes show a clear peak on May 7, and some will show a double peak on May 7 and May 11. As per my SPX chart above, I believe May 7 was the real end of the Wave {A} correction, and the move back up on May 11 was simply a retest.

The market action has been corrective but mostly flat since May 7. But this seeming consolidation hides several major bearish developments.

Bearish Development #1 – Weekly Technicals

As I was mentioning on the CIL at the end of last week, the weekly technicals are very weak :). Two weeks ago I indentified what looked to be like a Blowoff top forming. The last two weeks have closed below that top (very bearish). Additionally action this past week has formed a long-legged doji candlestick (very bearish), however the volume was lower this past week which doesn’t make it as bearish as it could otherwise be. But weekly stochastics are downtuning from overbought and the unsustainable slope of the RSI is breaking down.



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On the whole the weekly technical are portending weakness. But I believe there are some much more strong and imminent bearish signals taking place.

Bearish Development #2 – Intraday Technicals

Wave {A} of [2] (the 5-wave impulse from 666 in March to 930 in May on the SPX) was against the trend of of [1]. Which means {B} of [2] needs to be with the trend of [1] (which means down). My preferred count says we are now in Wave {B} of [2] (at the large scale). {A} of [2] lasted roughly 2 months and I think {B} of [2] will also  last roughly 2 months. Whether a zizzag or a flat, B waves are always 3s, so we need to took for an overall 3 structure. Which means we are looking for (A) (B) (C) of {B} of [2]. I think since May 7 the movement has been downward / corrective, but essentially flat. Since we are in (A) of {B} of [2], it seems like this (A) wants to  subdivide into a 3. I think we have seen [A] and [B] of (A). And now we are getting ready for [C] of (A) - which would be a strong 5 wave impulse down. Additionally there is a good sized head and shoulders formed by the action of the last 2 weeks. Which is also forecasting a strong move down to about 830-840.



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There is the possibility that Wave 2 of this impulse in not complete yet, and that Wave C of 2 of this impulse might try to close the gap at 903. But either way, this looks to me like an impulse right after the right should of a decent sized head a shoulders. This to me screams “bearish”. I think this week we definitively break the 20 day MA and test the 50 day MA.

Conclusion and the Topics for the Next Blog

Wow, this was a bit longer than my last set of posts. But this information is critical to studying the markets IMO. The two biggest takeways from this blog should be 1) ALWAYS USE LOG SCALE CHARTS to properly understand and identify market behavior, and 2) This correction is part of a much larger correction and must be viewed in term of the bull run from 1933-2000 and a correction of the proper size and time to balance the force of that large impulse.

At the end of the day, despite the fact that I believe the US economy is going to contract and the stock market will be headed lower in the coming years, I am still very optimistic. America will make the changes necessary to become a healthy economy. When things start looking worse in a few years, innovators and entrepreneurs will start new industries, the dormant manufacturing capability of the MidWest will rumble back to life. America is blessed with abundant natural resources, an educated population, and a “Can-do” attitude, especially when we buckle down. Despite the myriad of problems that our country faces right now, I am still very bullish and optimistic on the very long term prospects for America.

Here is an excerpt of a conversation between myself and madcow, that talks about my long term bullish outlook and how I am positioning / protecting myself while the necessary transition from consumption to production takes place in our society.

I have been patiently waiting and waiting and waiting for the time I feel it is right to buy long term again.

I know what you mean. Because ultimately, I too would rather be a bull. And for the VERY long term (next several decades) I am. I have stated that in my investment account that I am in gold and oil. Why? Because I am bullish on the very long term prospects for the economy of the US and the world.

.... Now that might seem odd, because aren't all the people who invest in gold assuming the world will end? The answer is no, at least for this gold investor. I invest in gold not because the world might end, but I invest because I firmly believe it WILL NOT!!. If I was uber-bearish for the very long term, I would build a bunker underground, stocked with years of food and buy guns. Gold? For the end of the world? It makes no sense. Why would a useless shiny metal rock be something to collect if civilization ends?

It is the same thing with fiat currency (such as the US dollar). If you really thought the world would end, why collect little pieces of green paper with faces on it? How is that possibly useful? If there is no government to give you goods in exchange for it, then there are better items for a bunker mentality.

So I invest in gold because I am an optimist.

I am not bullish on the US government. I think they will inflate the dollar into worthlessness (or devalue it highly at least). But ultimately economies WILL recover, and I want to trade my gold in for something useful. Shares in a profitable alternative energy company, or a water from seawater plant to sustain drought countries, or any number of productive future endeavors.

Gold is simply a way to maintain purchasing power as the worlds economy goes through this large contraction. So as an optimist, you should invest in gold :) Just my $0.02 (silver coins of course, not actual pennies ... :) )


My next post will talk about the fundamentals and technicals of Gold, Silver, and Gold and Silver Miners (GSM) via HUI. Of particular interest is why the HUI is moving very differently (and a lot more bullishly) than the rest of the stock market in the large counts. Also if I have time, I will try to tackle an analysis of Oil.

Please feel free to comment, disagree, discuss. This was a long-winded compilation of my current thoughts and the market possibilites that I see now. So even if you don’t agree with my conclusions, please rec if you appreciate the effort or the explanation of my thoughts, even if you use them draw different conclusions than mine.

The binv standard disclaimer: This in no way constitutes investing advice. All of these opinions are my own and I am simply sharing them. I am not trying to convince anybody to do anything with their money. I am simply offering up ideas for the sake of discussion. As always, everybody is expected to do their own due diligence and to ulimately be comfortable with their own investing decisions.

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#2) On May 25, 2009 at 9:32 PM, JGus (28.72) wrote:

You should be getting paid a small fortune for your analysis, my friend!

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#3) On May 25, 2009 at 9:36 PM, JGus (28.72) wrote:

Oh, and just so that you know how aligned in thinking we are (aside from all my comments that state we are), I own both gold and silver bullion and my favorite company at this point in time (see my AllStarPortfolio pick & top pitch) - PDS - is an oil/nat gas driller : )

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#4) On May 25, 2009 at 10:03 PM, Varchild2008 (85.33) wrote:

Looks like S&P 500  between 400-500 before then going into a choppy bull-run.

But, there needs to be a catalyst to send the S&P 500 below 666 and I can think of only 3:

1)  America gets its AAA rating lowered to negative.

2)  CAP and TRADE  creating mass economic chaos.

3)  Nuclear Attack from North Korea  or Iran either against one of our allies or against us.  Whether successful strike or intercepted it could easily scare the bejesus out of the Market.

Sprinkle in just 1 of those and you got an epic crash.

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#5) On May 25, 2009 at 10:03 PM, Varchild2008 (85.33) wrote:

Looks like S&P 500  between 400-500 before then going into a choppy bull-run.

But, there needs to be a catalyst to send the S&P 500 below 666 and I can think of only 3:

1)  America gets its AAA rating lowered to negative.

2)  CAP and TRADE  creating mass economic chaos.

3)  Nuclear Attack from North Korea  or Iran either against one of our allies or against us.  Whether successful strike or intercepted it could easily scare the bejesus out of the Market.

Sprinkle in just 1 of those and you got an epic crash.

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#6) On May 25, 2009 at 10:27 PM, crystlz (58.48) wrote:

Thanks for another thought provoking post. 

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#7) On May 25, 2009 at 10:29 PM, gman444 (28.87) wrote:

Wow, Binve.  Deserves more than 1 rec at a time.

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#8) On May 25, 2009 at 10:44 PM, belfairinvestor (29.16) wrote:

Binve,

My compliments on the quality of your recent blog posts. Use EWT or not, the obvious effort and conviction which you have been writing with are admirable. This will get over 100 recs again.

Considered submitting this post to Seeking Alpha or the like for publication? Your content compares to anything I've read there over the past year. 

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#9) On May 25, 2009 at 11:11 PM, starbucks4ever (97.42) wrote:

So what king of science is that if during the 70 years since the Guru has put forth this theory, you haven't even worked out what scale should be used?

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#10) On May 25, 2009 at 11:16 PM, ChrisGraley (29.75) wrote:

Extremely fantastic analysis!

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#11) On May 25, 2009 at 11:31 PM, Tutom (< 20) wrote:

Very thought provoking, binve. It'll take some time to digest it all.

I'm happy you brought up the log chart. Makes sense. Not sure if this will though. This weekend I've been thinking about the components of the charts as well. Especially, wondering about the denominator ($US). The dollar just messes up the results. Or should I say the FED does... I'm sure you've looked into it as well, but when you look at the DOW using an inflation adjusted chart or gold as the denominator things look quite different. I had been thinking about how far and quickly the market dropped. Like one big 3 Wave... Well, indeed, when you look at a DOW chart in Gold terms, it was a iii of 3 Wave we just had from 2007~2009. You may have seen this chart: http://www.ritholtz.com/blog/2009/05/dow-gold-ratio/

Wow, it really has been a big bear from 2000. That's why I think we'll have a long flat period (4th Wave) that'll be extremely difficult to trade (for me anyway). Just like the Japanese market. We may not get the 5th Wave down for a few years. What do you think? But, that means that Gold may not be so hot until the 4 Wave is done. I would therefore expect the 5th Wave to end between 2015 and 2018. 

As we've seen over and over, the FED has always been willing to err on the side of inflation by flooding the market with liquidity. This time, however, may be different. The will try, but the deflationary forces will be much greater than expected after all these years of reflating. I don't think the US can supply the liquidity that will be needed without T-Bills and the dollar crashing. Deflation could win out for a few years. The Fed may constantly be behind the curve this time. It will all end in inflation but probably not for a few years. And when we do hit the end of the 5th Wave, it'll probably not even go much below 666 on the S&P using the $US as the denominator.

Thanks man! 

 

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#12) On May 25, 2009 at 11:43 PM, MastiffFool (< 20) wrote:

Binve,  You've outdone yourself again! You have brought us a very thoughtful technical analysis of the markets that is expressed in a humble manner, a nice contrast from the various arrogant bloggers here in Caps.

A very enjoyable read that gets a Rec from me!

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#13) On May 25, 2009 at 11:45 PM, AllStarPortfolio (24.48) wrote:

You fools are going to think i am joking, but that is just what i was thinking.

   I wondered why folks didn't see that 1000 points at 15,000 is not the same as 1,000 points at 8,000, and why so few fools thought it was important to look farther back than 07 to do EW.

Of course they were only vague notions, and Binve has done us all a favor. Thanks B.

Truely one of the best post i've read on caps.

solaris

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#14) On May 25, 2009 at 11:46 PM, jatt22 (46.45) wrote:

 it was worth reading two times .  good job

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#15) On May 25, 2009 at 11:59 PM, ocsurf (< 20) wrote:

BRILLIANT!

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#16) On May 26, 2009 at 12:12 AM, lastupendas (< 20) wrote:

OLE'!!

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#17) On May 26, 2009 at 2:28 AM, alexxlea (60.14) wrote:

Reccing this a billion times if I could. Top-notch stuff, and I have to agree with much of it.

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#18) On May 26, 2009 at 2:28 AM, alexxlea (60.14) wrote:

Reccing this a billion times if I could. Top-notch stuff, and I have to agree with much of it.

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#19) On May 26, 2009 at 6:30 AM, marktsgooch (< 20) wrote:

Yet another great post, Binve. Thanks for taking so much time to set your thoughts out.

Varchild: Re. your required catalyst to drive the SPX below 666 - why? It didn't require anything as dramatic as nuclear war to drive the SPX down to 666 the first time round. 

 

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#20) On May 26, 2009 at 7:45 AM, ttboydxb (29.09) wrote:

A+++  Really great post, I agree that you should be getting paid for this!  I'll start my payment with +1REC!!!

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#21) On May 26, 2009 at 7:54 AM, IIcx (< 20) wrote:

fantastic post binve - Thanks

Your point about linear scale and its effect on the count is great

IMO, I don't personally feel that there's any way to make a valid comparison to the 30s unless the charts are adjusted for inflation and even then the time factors are completely different due to changes in telecommunications. But, its just an opinion.

Take a look at the S&P weekly with a time frame of 10 years and the market movements prior to the bottom that occurred in late 2002-2003. This appears to fit with your counts and projections.

Great work!!! 

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#22) On May 26, 2009 at 8:16 AM, GoodVibe4Ever (< 20) wrote:

Well thought blog and much well invested time in others, Binve. I am glad that you didn't only invest the time and energy in learning and excelling so quickly in a new tool (EW) to add to your knowledge and tool box but also is sharing with others in hope they might benefit.

You are a true example of staying open minded while "Build, share, and add positive difference." I hope many who have something of value to also share. They don't need to be right but just sharing in the spirit of adding some value to others is what will make a difference in their own lives as well as the rest of us.

..... 

For the first part of the blog: It's a well known issues to chartists and thanks for bringing it up, Binve. Most uncertainties in the count can easily avoided by keeping charts on both arithmetic and semilogarithmic scale. A 60 minute chart is the best as well to see clearly all the counts, minors and majors. 

.....

For the points versus percentage argument. I hope really people stop been obsessed with absolute numbers and instead look for percentage when trying to compare orange for oranges. A stock that drop from 10 to 5 lost 50% percent and to get it back it has to rise 100%. Always a hard task and takes longer time. So if people are expecting going back to 14K DOW anytime soon, they need to question their ideas. We are in for a rough ride for many years to come whatever this 666 or another became the bottom or not. It's so unsustainable that stocks like GS and JPM are currently having desire to challange their all time high (when we had a bananza economy and money was dumped into the banks' coffers by the truck load every minute!). This is gone and that was a good thing. 

......

For 666 is the bottom or a bottom or no bottom at all is of no concern to me at this point. What I am really trying to gauge here is where is THE top instead of where is the bottom. When we will visit there as I mentioned many times before, the bottom will take care of itself. My best hope it holds for the sake of the world or there's a huge black hole underneath it that will suck the entire world economy in it. It will not be an easy time for all of us.   

You said; "There is almost zero chance that 666 on the S&P 500 is the bottom."

Never say never and never say zero chance. Even little chance still count as a chance. At the end of EWP book, there's a long term count that goes back to even before 1900 where your [1] is little bit more complex (I am sure you know that ;) but it's good to mention it to others). If you guys have the book, you can look at it (page 217) or you just stopped reading after page 100? :) The count there is what you should be looking at not the value.

.....

For the current count, I believe that your chart (number 2 from the top) is very viable count and one of my favorite ones though we need first to pull back from here and then make new high for this count to come back in the picture as the preferred count.

......

For the second chart, in the comment section - I saw this chart before and I see serious issue with the MACD. If you look closely the MACD doesn't take a cross over lightely. Once it crosses, it means we have a 90% chance that the market is going up long term. This is is one of the best indicators for long term investors. From your MACD charting, the MACD if it rises that far, it has to cross over signaling a new bull market. Check out the last bull and bear and you will see it clearly.  

For STO on the same chart, in  secular bear market, this STO will stay over sold for years to come as it was the case also for the last bull and bear. It's a long term indicator as well and the market is buy when we cross the 50 and stay there above it, which I don't see happening anytime soon.

......

For last chart - The S&P made a new high after your 5 (A). Don't you think this is the right place to end it? It can easily fit and will make your 5 of (A) wave count look more neat where the digonal is 3 instead of 5. It will make minor difference for the count in (B) of {2}. Just give it a thought.

....

Okay! That was a blog comment of itself. I hope this added value to your thinking as well as the rest.

GoodVibe

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#23) On May 26, 2009 at 8:22 AM, OldEnglish (28.08) wrote:

Word. This is top-notch TA. I hope people remember this post in November.

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#24) On May 26, 2009 at 8:28 AM, portefeuille (99.60) wrote:

Because we don’t measure stock performance on an absolute basis, we measure it on a RELATIVE basis. A 50% gain is a 50% gain. Whether you bought a stock at 10 and it moved to 15 or you bought the stock at 1000 and it moved to 1500. This makes all gains and all moves in the stock market exponential / logarithmic.

Maybe you should remind people that 

log (a * b) = log (a) + log (b),

so

log (1.5 * b) = log (1.5) + log (b),

or written differently

log (1.5 * b) -  log (b) = log (1.5),

so in a logarithmic chart the "size" of a 50% move does not depend on the "starting value" b.

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#25) On May 26, 2009 at 8:31 AM, binve (< 20) wrote:

JGus, Thanks man! LOL! No I am not getting paid and no payment is necessary :) I do it because I would literally do it anyways (for myself), but more important because in sharing it spurs discussion. And usually the discussions are better than the orignial post! :) And I agree with you about Precision Drilling. Great company and they have been knocked down to ridiculously low valuation with the commodity correction.

Varchild2008, Yeah there are a lot of ways this could play out. In my last post, I layed out a *possible* sceanrio for how the S&P after a retest, but not a bread of 666, could go to 1200 before turning back and eventually breaking 666 before it finds the true bottom. And that was a highly speculative sceanario. But my ultimate point through my last 3 post is that I don't believe 666 is the bottom. And we might have a catalyst that is pointed to as the cause, and maybe we don't. And I think we head down anyways. It is because there are all the problems with the fundamentals that I point out above and in the first post, and they are not getting better, they are getting worse. At the same time, there are some postive fundamentals developing. Which is why I am very long term bullish. This is why I included my "I invest in gold because I am an optimist" speech at the end. Thanks for the comment!

crystlz, Thanks, I appreciate that!

gman444, Thanks man!

belfairinvestor, Thank you! I really appreciate that! I honestly have not considered going to SeekingAlpha. I read articles there sometimes, but not very often (I like other sources much more). Because most of the authors there write to convince or to show off. I personally write to share and discuss. I would rather have a good discussion any day. And I think the average Caps user is very intelligent, usually brings up good points and is interested in discussion. So this ends up being the only place that I blog :) Thanks for the comments!

zloj, Thanks for the comment. First I want to make a few points before I adress your comment. I am a mechanical engineer. So I too like very defined rules. When doing a loading analysis for a structure, F=ma at all points. Not F=0.5ma, or F=2ma. The rules of physics have to be maintained. But TA or EWT is not a science where there is one correct answer at the end of the day and that's it. If it were, then they would be able to indisputably and unambiguously predict the future. And that is on its face completely ridiculous. Beacause this is a pointed I have repeatedly made: Nobody can predict the future

Instead you have to think of as TA and EWT as tools. That's all they are. EWT is exceptionally useful, because while it does not predict the future, it gives great insight as to the form, then next patter / cycles / countertrend move will take based on the current and past patterns, and what forms they are likely not to take.

To adress your question: Elliott, and then later Frost and Prechter use linear scales and log scales. It is not that they were unaware, its more that they would observe channeling in scale vs. another. But (again, just my opinion), channels and trend lines are important, until they are not. Trends are broken eventually. And it is more important (to me) to look at relative price movement properly, so that you can see its relative magnitude to the surrounding price action.

And this is why I think for ANY analysis, EWT, TA, or even just referencing highs and lows when performing FA NEEDS to be done on a log scale chart. Just my opinion, just my take. Thanks.

ChrisGraley, Thanks Chris! I appreciate that!

Tutom, Need to take a break :) But I am answering you next :)

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#26) On May 26, 2009 at 9:10 AM, portefeuille (99.60) wrote:

You should also realise what it means when you draw straight lines in a semi-logarithmic chart.

Starting with the straight line

log (y) = a + b * t

and substituting

z := a/b + t

you get 

y = exp (b * z)

so the slope b of the straight line gives you the factor b in the exponent.

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#27) On May 26, 2009 at 9:22 AM, binve (< 20) wrote:

Tutom, Thanks man :). Your comments are awesome! And like I said in my conclusion section, my next post will talk about Gold. And these are many of the topics that I think about and will address! You are reading my mind man :).

Yes, the jist is everything has an exchange rate. 1000 dollars for a TV, which might be 700 euros for a TV, or one ouce of gold for a TV. Anything that is liquid, transportable, divisible and fungible is a medium of exchange. Which is why gold has been a currency for about 4000 years.

And so to your point, becuase everything is an exchange rate and dollars are being inflated, you are correct. Goods denominated in dollars have some funny historical trends because the denominator has gone AWOL. This is why other historic ratios are so useful in understanding what is going on: Gold-Oil Ratio (GOR), Gold-Silver Ratio (GOR), Dow-Gold Ratio (DGR), etc. Gold is a factor in a lot of these historic ratios because it is a currency (I know that some don't agree, but I submit that it is) and it is under no ones liability, it is finite, and non-inflating (mining brings in new supply of about 0.25% to less than 1% per year).

And this is another means to identify 2000 has the top. DGR was 45 in 2000, and it was 20 in 2007. The DGR runs in these large supercycles (I will put a chart up in my next post), that ususally bottom between 5 and 1. Based on how bad the fundamentals are right now, I don't get bullish on equities until broad market PEs are less than 10 and the DGR is less than 2. Just my opinion.

As far as the Wave 4 without gold going higher. I have a lot of opinions on gold. Gold and commodites are both inflation trades, but gold is not scrictly-speaking a direct inflation trade. It is a monetary sanity trade. True inflation results from money supply growth, and takes awhile to permeate through the system as price inflation. So there are periods of time when gold does well in "inflationary" enviromenents (price-inflation, which is not truly inflation, it is an inflation by-product). But here is a good explanation why gold will do well before price-inflation takes hold. Steve Saville: Why We are Gold Bulls. Definitely read this article. I agree with your point that inflation is the long term problem, but that there are still deflationary forces at work. I also recognize this subtlety and so does Steve Saville. Thanks for the comments man!.

MastiffFool, Thanks man! I am glad to blog and share. I too much prefer civil discouse to angry rhetoric :). Thanks!

AllStarPortfolio, Thanks solaris! That is a great compliment, thanks. Yeah, I have come to the log conclusion a long time ago, that I always look at my charts in log format. And I then assume that everybody else does too, and that is not always the case. I am glad I brought it up just so that everybody is aware. Thanks man!

jatt22, ocsurf, lastupendas, alexxlea, marktsgooch, Thanks! I really appreciate that!.

ttboydxb, LOL! Thanks man! No payment required :), I definitely appreciate the recs and the good discussion :).

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#28) On May 26, 2009 at 9:24 AM, SolarisKing (21.54) wrote:

Damn, P, you freak me out. Your not guessing are you? Thanks for your support, of an already brilliant post.

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#29) On May 26, 2009 at 10:50 AM, arboretum (28.59) wrote:

We're all guessing, it's just that Binve's guesses are a lot more educated than most... ;)

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#30) On May 26, 2009 at 11:02 AM, darroj (34.14) wrote:

Binve - excellent post as always! Thanks for your updates, they are always an enjoyable read. What did you think about the news on the market today?
"Stocks are spiking amid news that the Consumer Confidence Index for May came in at a much better-than-expected 54.9, which marks the highest reading of this year. The consensus had called for a reading of 42.6." (Yahoo! Finance)

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#31) On May 26, 2009 at 11:12 AM, starbucks4ever (97.42) wrote:

binve,

My guess is very simple. 30 years from now we'll read the memoirs of some GS trader where he'll be describing the events of 2008-9. It will turn out that the trader in question was in love with the EWT theory at the time (only to abandon it later after a series of disappointments), and that in the absence of other major players who'd been wiped out just prior to that, the market often went down when GS thought it was time for the market to go down. Then, a year later, other players came up with more capital, and with different trading strategies, and that was when EWT stopped giving correct predictions.

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#32) On May 26, 2009 at 11:13 AM, ocsurf (< 20) wrote:

Binve, I had to read this again because its so informative. It's nice to see someone actually give good concrete information. This stuff is educational.

This is so much more appropriate than that propaganda that the Doomsdayers on here preach (they know who they are) and they're jealous because they haven't commented on your post.

Keep up the great analysis!

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#33) On May 26, 2009 at 11:21 AM, portefeuille (99.60) wrote:

double top in bond yield?

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#34) On May 26, 2009 at 12:16 PM, binve (< 20) wrote:

IIcx, Thanks, I appreciate that!. I don't fully agree with your statement though: "I don't personally feel that there's any way to make a valid comparison to the 30s unless the charts are adjusted for inflation and even then the time factors are completely different due to changes in telecommunications." These are valid points. And the inflation one is the one I agree with you almost completely on. But of all the crashes and corrections we have had, the crash of 1929 does (IMO) have some very valid comparisons. Similarlites include a huge run up in euphoria (check), the panics/crashes of previous years were said to be a "thing of the past", in the cast of 1929 that would be the 1900 and 1920 panics, and 2007 would be the 2000 tech burst (check), both crashes were fundamentally brought on by finanical "innovations" and "new debt instruments" (check).

However, I am not actually forecasting the Dow or S&P to go down to 1933 levels. After the initial crash in 1929, the Dow went from 380 down to 200. The great depression led the Dow from 200 down to about 40 (another 80% drop). So to be clear I am not suggesting that the S&P go from 666 to 133 (another 80% drop).

The reason is because the inflation gun will be set to fully automatic. Bernanke has stated many times that he will use every tool (chiefly the printing press) to guarantee another 1930s type depression does not occur. So I believe wholeheartedly that this is not the bottom. I think the S&P will go lower, but my estimates are somewhere in the 500s. But how does this fit with my "the bottom occurs at a broad market PE of 6-10" statement? Because earnings will be inflated.

I think once the S&P hits the bottom in prices probably sometime next year, stock prices will go nowhere (very sideways on average) for several years. In the meantime, the economy will be in the process of consolidating for a long time and then eventually repairing itself. But at the same time the Fed and Treasury will be inflating the dollar into oblivion (well, not quite that bad). But inflation will be very high. With stagnant stock prices and then inflated earnings for several years, the market will eventually bottom in term of valuation. Then the market will finally be in an opportunity to rally for real.

Thanks llcx, I always appreciate your comments and thoughts!!

GoodVibe4Ever, My brother!. First before I get into my response, I just want to say Thank You again for taking the time with all of us on Caps and getting the whole EWT ball rolling. It has certainly made a difference in my understanding and perception of the market movements! Thanks..

As for being an example of staying open-minded, to build, share and make a positive difference, I am just emulating my teacher man :). And yes, that is exactly why I write these posts, to share my ideas, and to discuss them. We all learn and benefit from good discussion.

I do know that the arithmetic vs. semi-log is a known issue. You can see I acknowledge that in my response to zloj above. I just felt it was a useful exercise to go through the logic and demonstrate why semi-log charts are a far superior tool for understanding price movement and the relative importance of those movements. That's all :). And I agree with you 100%, looking at different time scales is critical to seeing and evaluating patterns in the market. I jump between weekly, daily, 60 min, and 5 min all the time, with 60 min being my default / most useful time scale.

I agree completely with your percentage vs. absolute argument.

I have to talk about this comment though:

You said; "There is almost zero chance that 666 on the S&P 500 is the bottom."

Never say never and never say zero chance. Even little chance still count as a chance.

LOL! GV, look at the wording that I used. I said *almost* zero. You are actually making my point. I have said all over this post and my last two posts that there are no absolutes. When it comes to investing and TA. That there is no such thing as a "perfect" prediction that is 100% right. That is why I qualify all of my statements as opinions, as guess, why I used the words nearly and almost, etc.

...At the end of EWP book, there's a long term count that goes back to even before 1900 where your [1] is little bit more complex (I am sure you know that ;) but it's good to mention it to others). If you guys have the book, you can look at it (page 217) or you just stopped reading after page 100? :)

LOL! Again, I addressed this already above. I have, of course, read the whole book But here is what I wrote above:

As I said above, I am not trying to “properly” fit this count in the Supercycle and above counts. This is beyond my scope. However I do see a 67 year long bull move (1933-2000) that results in a clear 5 wave impulse. Now, like I said, I don’t know the proper count in the grand scheme, so I am just calling this wave a large “[1]” (in quotation marks). Then the next move needs to be a 3-wave corrective impulse {A} {B} and {C} to make a “[2]” (again in quotation marks) . If {A} lasted 3 years and {B} lasted 4 years, I would expect {C} to last between 4 and 7 years. This will be necessary to make a proper correction in terms of time (e.g., It is unlikely to have a bull run for 67 years and a correction for only 9 years – i.e. ending now).

So my purpose is not to predict bottoms and tops 50-100 years out (trying to fit the really large degree counts). That is for EWT techs with an ultra long view. I am trying to look out between the next week and few months for my trades and the next 15 years for my investments. Beyond that, there are way too many unknowns. So in order to understand the wavecount for a normal traders or investors time horizon, we need about 50-100 years of data to establish trend / countertrend moves. The logical start point (at least for my purposes) is the 1929 crash and the Great Depression. This is my take and the timeframe that is relevant for my investing style :)

Regarding your preferred count vs. mine. Absoultely, we have talked about this before. We both agree and see eachother points. The way I see it, I give my preferred count a 55% chance of being right and I give yours a 45% chance. And it is proabably flipped for you. I agree with you it could be either way at this point. But I also agree that you are being "safer", my count is being more anticipatory and could therefore never happen, wheras yours is making a complete picture based on the know price action so far. I definitely acknowledge this.

GV, you may be misunderstanding what I am trying to convey with the MACD and the projection. Again, from my last post is a *highly speculative* projection. And I label that chart in this post as well being highly speculative. The point that I am getting at is the fact the technicals on the monthly are at oversold extremes, but they have also upturned. And monthly technicals once they start turning take a very long time to turn the other way. So I do foresee the *possibility* (and that is all it is, a guess at a possible scenario) where if Q2 and Q3 fundamentals upturn slightly, we could get a mini-bull market (which would actually just be a very large bear market rally) within our secular bear market. All of the verbage around that chart in this post and the last qualify it as highly speculative.

I hear you about my mini-count. I just think the the correction is going to start off flat and then accelarate downward in another panic. And my counts are geared toward the possibility. It is just the option I am carrying. That's all :) This is why I put up the summary on your blog. Because it shows all of our different assumptions and how all of our different scenarios can play out.

Seriously. Thank You for all of the support and all of these comments. This is a fantastic discussion! Thanks!.

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#35) On May 26, 2009 at 12:43 PM, binve (< 20) wrote:

OldEnglish, Thanks, I appreciate that!

portefeuille, Exactly man! Thanks! I deal with semi-log and log-log plots all the time with work (Frequency Response Functions for structural vibration, S-N curves for fatigue analysis, etc.). And so I am also very familiar with analyzing and viewing the benefits of log charts.

The most important that the "lay person" can take away from a log chart are that straight lines on a log chart (which is exponential) is an expoential growth function. For example, look at my 1933-2009 Dow chart above. The curve was basically flat from 1988 to 1995, and then it dramatically changes slope to another flat curve from 1995 to 2000.

This is a huge amount of continuous exponential growth and I would argue unsustainable.

I appreciate and use the equations you provided quite often myself. Except when I have to use log-log plots, then I usually resort to Matlab scripts and power-law curve fitting for data points to find trends in experimental data.

Thanks for all the comments man!

arboretum. LOL! Thanks :). I don't know about more educated. More opinionated, that I could buy :)

darroj, Hey thanks man. I actually think the market wanted to rally to close the gap at 903 (like I mentioned in the paragraph after the last chart above). The news was good, but not great. And all during the rally up, we were rallying on some pretty bad news and would hear statements like "the market is ignoring all the bad news" ... okay. Well, I believe we are going to begin a phase of selling on "good news". The market needs to correct right now, and I think it will just boil down to that. Just my opinion of course :)

zloj, LOL! yeah, I could see that happening :)

ocsurf, Thanks man :).

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#36) On May 26, 2009 at 3:02 PM, PrestonCheek (31.70) wrote:

binve, I have fell behind these last few days with my grandmother in the hospital and have just got a chance to read your blog.

Thanks for taking the time to put your thoughts on paper for all of us to see and I hope your dedication to your work pays off two fold for you.

Preston

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#37) On May 26, 2009 at 4:06 PM, bostoncelitcs (42.29) wrote:

Great work with the charts man......but I think you can throw all that "technical" jargon out the effin window!! We have seen how theorists and academics can destroy the market with "weapons of financial mass destruction" such as derivatives and credit default swaps that companies like AIG backed and the American taxpayer is now bailing out!!

I would suggest sticking to the basics....if a company makes a good product.....invest in it.

Don't get me wrong though....the charts are very pretty.

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#38) On May 26, 2009 at 4:20 PM, UKIAHED (36.26) wrote:

Great post - thanks for all the work. I'm fairly new to your posts (love them all so far ;) ), have you compared your indices analysis with a graph of historic P/E ratios?  I’m just wondering how that may filter out and/or limit some of the past index moves… would this comparison even make sense…?  

I'm looking forward to your next post on gold/silver/oil!

Have a great day

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#39) On May 26, 2009 at 4:58 PM, binve (< 20) wrote:

PrestonCheek, .Hey Preston, Thanks man!. But I am very sorry to hear about your Grandmother. I hope she is doing okay! And thanks, I am happy to share my charts and analysis with everybody :)

bostoncelitcs, Thanks. ...but I think you can throw all that "technical" jargon out the effin window!!.... LOL!. Perhaps man. I could be deluding myself that any of my TA works. But I do like making pretty charts, so that's something :)

UKIAHED, Thanks! I am very glad you like them. As far as making graphs of historica PE ratios, I am very glad you asked :) Yes this is a valuation tool that I watch a lot (and I talked about in the first post in my series). This actually ties into a concept called Long Valuation Waves. That link is a very good read, you should definitely check it out.

Earnings estimates for the S&P 500 for 2009 right now are somewhere between $35 and $45 (discounting the Pollyanna’s and the uber-bearish). There is obviously no consensus here, because estimates are estimates (it depends on if the estimate is made top-down, bottoms-up, or other assumptions). But lets take an “average” value of $40. Based on the current price of the S&P at ~$925, this gives a P/E of …. 23 …. !! When the S&P got down to 666 and still using earnings of 40, the P/E was 16.7. That is still absolutely nowhere near any real bear market bottoms (which are typically between 6 and 10). We are still even above the average earnings of the S&P which is historically 12-14.

This is yet another reason why I think we are going lower eventually. Becuase I do not see anybody making a viable case for earnings growth the next few years. I think $40 for the S&P is probably a good if not optimistic value to use for the next few years. Thanks for the comments!.

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#40) On May 26, 2009 at 7:18 PM, missmalibu (< 20) wrote:

Binve..... We are all so lucky to have your intelligence at work for us.  You deserve an honorary doctorate in Blogging.  : )    I shall call you at least .....'professor'.  It is a real gift to teach and speak in a manner that makes sense when teaching things of a complex nature...especially to those not yet entirely versed in the advanced stages of EW.   You are indeed gifted.  You are beyond inspiring.  I admire your concentration and commitment to deriving the truth out of these charts.  A moving truth.... with Mr. Market..our work is never done!!  Thank you for your excellent perspectives.  Most appreciated!!   My poem to you!!!       

"where are we going? Our money's on the line...

Is wave 3 over?  Are we headed for a decline?

I see a descending triangle... and a truncated fifth...

Is the bear coming back in power? ... or is it just a myth?

I want to check with binve.... I trust his thorough take...

Understanding the indices is key to the money one can make.

Thanks for all your time, and valuable opinion...

May we all be on our way ....to market dominion!

 

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#41) On May 26, 2009 at 8:12 PM, binve (< 20) wrote:

missmalibu, Hey MM!. Thank you so much for the kind words and the support! It really means a lot. Its funny, because I don't consider myself a teacher, except to myself. I am literally just going through the reasoning to clarify for me what seems to be happening in the market (I think about these things all the time, but actually writing them down instead of keeping them in my head forces a clarity in my ideas). But I also post it here at Caps because a) I think these are useful exercies and others could get benefit from them and b) posting these encourages discussion. And it is the discussion that I get the most benefit from. We have some exceptionally smart users here and I love the discussions that take place on the blogs!

As far as the poem, that was wonderful! What a nice gift! You have no idea how much I appreciate that :) Thank you so much, and good luck in all your trades!!.

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#42) On May 26, 2009 at 9:30 PM, RootnToot (30.03) wrote:

B,

Outstanding as always! You are setting the bar high my friend. I eagerly anticipate your next thread!

Two fools up and a rec from me.

Root

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#43) On May 27, 2009 at 11:18 AM, binve (< 20) wrote:

RootnToot, Thanks man! I appreciate that :)

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#44) On May 31, 2009 at 4:04 AM, Alwaysgolong (< 20) wrote:

Here Here! A most excellent post binve!

I didn't know what I was missing. Your posts are becoming an addiction. A "Fix" if you will --- That I must have to prevent the slobbers and violent DTs -- Sort of like my evening cigar. If I don't get it, I sling snot and snarl like a pit bull thats been eating kittens rolled in gun powder.

I am THE busiest man on earth. After our conversation on your April 29 blog/post, I decided to take you up on your prod that I write my opinion on Peak Oil and all that.

I must apollogize, I think,,, I can't find the time to write my stuff for being addicted to READING your's!

I have a career and two small businesses. And the economy hasn't slowed any of the three down yet. (Plus it's camping season and we have grandkids) But I am determined to write my piece. You made mention up there somewhere (I'm still over whelmed by it all) about addressing the subject of oil again sometime soon.

Please do my new friend. I can't wait to read your next GOOD READ!

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#45) On June 01, 2009 at 8:50 AM, binve (< 20) wrote:

Alwaysgolong, Hey thanks man!. I truly appreciate feedback like that :). I am very eager to read your blog when you finish it. I think that will be fantastic. I am also very glad to hear your businesses and career are going well! Thanks man, I will definitely write more blogs with great feedback and support like this.

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#46) On June 03, 2009 at 10:05 AM, madcowmonkey (< 20) wrote:

That took a couple of days to really get through:) If you are looking at mining, which I know you do. What are your thoughts on GMO. I don't have anything to really add to your post that would add any benefit to readers, I think you did a good job explaing log graphs and also the theory behind the market not being arithmetic. You and portefuille have a great background for the market and understanding the mathematical concepts of investing. Great post. BTW- I tried looking you up on facebook, but couldn't find anything. Make sure you send some pics over of your new girl. I am happy for binve- your blogs are very helpful and you put a bunch of time into them and get great feedback. I think that is the experience everybody is looking for on CAPS and you have mastered it.

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#47) On June 03, 2009 at 12:09 PM, binve (< 20) wrote:

madcow, LOL! Thanks man. Yeah, this was a pretty mammoth one to write :) As far as GMO, I have nothing intelligent to say about them. They never really caught my eye (don't know why) and have never really looked into them. Have you? Any thoughts? Thanks for the props man. Yeah, it is one thing that I am pretty adamant about for doing any kind of analysis or in-depth study of prices, you need to use a log chart. Arithmetic is fine for a quick comparison or contrast. But it hides a lot of important price action when looking at long term trends. Thanks man!.

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#48) On June 03, 2009 at 12:53 PM, kstarich (30.60) wrote:

Binve

I don't have time to be on the CIL today so I'm going to leave you a quick note here.  Thank you for the Silver chart yesterday! I saved it and printed it.  I am going to look into Silver more and see what I can drum up.  THis is one to definately pay attention to.  I just really appreciate the chart it really helps me to see the picture.

Also, I put 2 posts on the CAPS blog if you can pass those around.  Most of it I have writen about in the CIL.

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#49) On June 04, 2009 at 5:36 PM, arboretum (28.59) wrote:

Binve - you've gone long! What gives?

My CAPS ranking has gone from 99 to 82 in the last few weeks since i went short - did you throw in the towel? Or did the count turn bullish short term?

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#50) On June 04, 2009 at 5:52 PM, binve (< 20) wrote:

arboretum, LOL! No not quite. I said I have closed my shorts. That is not the same thing as going long. I have some very small long postions for trades (mostly in energy, ERX, UCO), as some VERY short term trades. But I am >90% cash right now.

But I am now more bearish, more than ever. But the topping during May has turned into consolidation for a Wave 4. I think we are now in a Wave 5 up. So even though it pained me to do so. I closed my shorts *temporarily*. If the bulls want to continue the rally, be my guest. It makes no sense (the fundametals still stink and PEs are now getting back up into the nosebleeds). But the market will do what the market will do. Which is fine by me, because it gives me an opportunity to re-short from higher levels :).

So to answer your question, yes. I think the short term count is bullish, and the S&P has a decent shot at 1000 in the next 2 weeks. I am waiting for a clear trend change to re-short.

I don't know if you have seen TastyLunch's newest blog. But Tasty, portefeuille, and myself have a very good discussion in the comments section. You should check it out.

Thanks!

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#51) On June 05, 2009 at 12:14 PM, arboretum (28.59) wrote:

Hi Binve

I guess I was referring to your CAPS account, where you have new outperforms on things like TYH. Good to know you are not long in real life...

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#52) On June 05, 2009 at 12:19 PM, binve (< 20) wrote:

arboretum, Yeah I recently put green thumbs on 6 bull ETFs to capture the (possible) last move up. These are very short term and I will probably close as soon as the 7day min is up. But I still have green thumbs on about 20 bear ETFs. Those I will be holding all the way down the B wave.

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#53) On June 06, 2009 at 11:45 AM, binve (< 20) wrote:

arboretum, Check out my pitches for ERX, XTO, CHK, TNA, and TYH. This give a pretty concise statement of my opinion on the rally and why I have temporarily green-thumbed these.

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#54) On June 06, 2009 at 2:24 PM, StopLaughing (< 20) wrote:

EWT has been predicting the collapse of this run for weeks. Every couple of days there is a new count. EWT interpreters can't even agree on the count or which wave we are supposed to be in.

Why is this time different. Why will this time, EWT actually be right? 

I buy the idea of waves. However, based on what I have seen from all of the different EWT predictions, I do not buy EWT's specific 5 wave count. It looks like a flawed theory that many attempt to force fit to the data. 

Yes, from a historical perspective most EWT practictioners can agree on the wave count if they are trying to fit it to data from 5-50 years ago. However, that is not helpful in trying to figure out if you should sell or buy today.

If you m ake enough predictions sooner or later you will pick the top or bottom and be right.

I am not against the EWTers posting. I find the info and arguments useful. I would like an explanation as to why I should take the predictions seriously.

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#55) On June 06, 2009 at 3:26 PM, binve (< 20) wrote:

StopLaughing, Thanks for the comment. But we had practically this exact same conversation on my last blog post. So I will give you the same answer

EWT is not a singular organism with one unambiguous signal. It is a tool, and as such it is open to interpretation. I said very clearly (repeatedly) in the post that this was my POSSIBLE projection. I have said repeadtedly that absolutely nobody has a crystal ball. I have said repeadtely that is is only my interpretation of a possible setup that I see.

I am not trying to convince anybody to do anything. Just sharing my interpretation and the possibility that I see. That is all. It is up to you to listen to it or discard it. Do with it what you will.

MOREOVER

EWT is NOT unambiguously right, because NOBODY IS UNAMBIGOUSLY RIGHT ABOUT ANYTHING. That was the exact same rant I had in my last post. And it is exactly the same rant I had above.

You asked the same question in both my last post, even though I pre-emptively already addressed this question.

So your are either not reading my posts, or you are disregading what I am writing.

If you don't agree, that is fine and we can have a discussion about it. But instead you forcing me to repeat myself about the predictive ability of anything. (i.e. there are no absolute predictive tools ANYWHERE).

Regarding the near term counts: Patterns unfold, and what starts out as one pattern or wavecount can turn into another wave count. And there is no way to know this until the price action is in the past and you can count it.

All patterns unfold at all time scales all the time! This is the priniciple behind fractals.

I don't know what more to say to you on this matter. Either you agree with the principle or you don't.

I am not trying to convince you about its efficacy. I am not trying to get you to do anything with your money. I am sharing my interpretation. Nothing more, nothing less. And I am proactively telling you in my posts about how there is no crystal ball (with EW or otherwise).

You seem to want to argue about points that I am not trying to make.

And I have no interest engaging in that argument.

I am not against the EWTers posting. I find the info and arguments useful. I would like an explanation as to why I should take the predictions seriously

You should not. That is what I have been saying in my last several posts. Use the ideas, see if they make sense. And if you are predisposed, come up with your own interpretation of the wavecount.

Peace.

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#56) On June 11, 2009 at 12:41 PM, eldemonio (98.90) wrote:

binve,

Sweet post.  I agree with your conclusions. 

I am bearish - but share in your optimism for the future.  I don't think the world is going to end, but I do think that the world as we know it cannot sustain itself and must change.  The US must move to a more production based economy in order to survive.  This transition will be very difficult for some who want to hold onto the past.

Have you run across that Stone IPA?  Happy drinking, and thanks again.

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#57) On June 11, 2009 at 4:28 PM, binve (< 20) wrote:

eldemonio.

Hey man, thanks!.

I am bearish - but share in your optimism for the future.  I don't think the world is going to end, but I do think that the world as we know it cannot sustain itself and must change.  The US must move to a more production based economy in order to survive.  This transition will be very difficult for some who want to hold onto the past.

This is a perfect statement, I don't think I could add anything to it. :)

I have been keeping my eye out but I have not found it yet. But based on the description, it sounds like Mirror Pond from Deschutes in Oregon is very similar. (Very citrusy/hoppy west coast Pale Ale). That is another one of my faves and one that I have easy access to. Are you familiar with that one?

Cheers man!.

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#58) On June 20, 2009 at 12:12 PM, salvadorveiga (24.03) wrote:

Binve, actually from the previous post of FA and TA you wrote... you said earnings were at 16 PE.

 That is not true... The current TTM PE is, and brace yourself, 50-60.

 

Data is from Barrons and Standard and Poors themselves.

So actually PE has been increasing, because earnings have been crashing down...

 Actually for the next 2 quarters PE will become INFINITE, since Earnings will for the 1st time in History turn negative for the whole S&P500.

 

Cheers, 

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#59) On June 20, 2009 at 12:24 PM, binve (< 20) wrote:

salvadorveiga: Hey man! From my last post I was talking about yearly estimates. And the numbers you are quoting from my post are a little out of context.

What I said was at at the bottom (S&P 500 @ 666) with an earnings estimate for all of 2009 as $40 (and I explained where I got that estimate from), the PE at that time was 16.6 (which I point out in the post is nowhere near and kind of historical bottom).

This was contrasted against a quoted PE of somewhere around 11 at the time (I think by ValueLine or some such). 

The point of that section of my post was to illustrate how uber-bullish some of the earnings estimates were, and I was calling BS on those.

Moreover, using the $40 estimate for 2009, the current PE is 23!! which is still a completely ridiculous valuation given all the issues in the economy that I talked about.

I also laid out in the post the case that *at best* earnings will stay flat for the next couple of years. I think it is far more likely that they will follow the current trend (which is to drop), and there is no way that I believe analysts when they are trying to make a case for earnings growth.

All of that said, I agree 100% with your statements above. On a quarterly basis and monthly basis, the S&P is in far worse shape.

And anybody else who is buying into the "fundamentals" of the broad market rally needs to realize that *every* actual earnings report was less than the earnings estimates for the last 2+ years.

Thanks man!

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#60) On August 13, 2009 at 10:21 PM, binve (< 20) wrote:

eldemonio, I don't know if you are still following this post. But I did find the Stone Pale Ale (local beer store started carrying it). They don't have the IPA yet but I asked them to get it. The Pale Ale is excellent. Medium body, very well rounded, with assertive citrusy hops. Reminds me of Deschutes Mirror Pond quite a lot (maybe slightly more malty than Mirror Pond). An excellent beer!. Can't wait to try the IPA (I like my beers really hoppy) :)

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