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Market Thoughts and Analysis: The Next Moves

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July 20, 2009 – Comments (13)

The bulls have been fully in control the last several days. Based on momentum it looks like the bulls will be driving the next couple of days as well. I have some counts and theories to how long the current rally will last and the rough timing for a correction and well as some updates to my intermediate counts. Let the speculation continue ! ... :)

As I communicated in my last post, I got out of my shorts. I am currently neither long, nor short. 100% cash. And while the bulls are, well, bullish and goring runners (bears) like it is Pamplona, I think this particular leg of the rally will end soon (next couple of days), but more importantly it will end abruptly. I would definitely not entertain opening long positions here (personally), and would much rather make my next play a short play for the correction of this leg of the rally. This is not advice, just sharing thoughts on my own moves . I think we are in the final A-B-C of the current triple zigzag of Primary Wave 2, where the current rally is Wave A and we are nearing its completion. With my 100% cash position, I will probably play Wave B short (not going all in short here, because the overall momentum is decidely with the bulls here which will make for an unexpected end to Wave B).

Links are still messed up in the main post, so continuing in the comments section.

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

13 Comments – Post Your Own

#1) On July 20, 2009 at 5:43 PM, binve (< 20) wrote:



I am going to try to start posting a few thoughts on a semi-regular basis. I have written a lot of "special topic" mammoth blog posts in the past when I had time on the weekends. This post will not be a tome, nor will any in this series of regular updates. Just a few thoughts on the Fundamentals and some charts that I watch on a regular basis. It will tend to be broad market / equity focused. I will save gold, commodities, and in-depth Dollar analysis for special more focused posts.

Here is a list of most of my short term market update posts (this current series):

- Market Thoughts and Analysis: ..... Wow. Jul 15, 09 - LINK
- Market Thoughts and Analysis: Summer Doldrums or
    Hurricane Season?
Jul 09, 09 - LINK

Here is a list of most of my in-depth market analysis posts:

- This Rally was Pure Weapons Grade Balognium Jun 22, 09 - LINK
- Thoughts on the US Dollar, Analysis of the USDX Long Term, Follow
    up on the Gold Blog
Jun 17, 09 - LINK
- Market Thoughts and Analysis: The Gold Blog. Gold/Silver/GSMs (and a
    little Oil for good measure)
Jun 15, 09 - LINK
- More Thoughts and Analysis: Timeframes - Bearish, to
    Bullish ... to Bearish
May 17, 09 - LINK
- Still Bearish: FA and TA on S&P500, Observations on the Economy May 10, 09 - LINK
- Technical Investing Themes: MacroTrends, USDX, Oil,
    Gold, S&P500, etc.
Mar 27, 09 - LINK
- Is Natural Gas Potentially Bottoming? Mar 23, 09 - LINK
- Update on Oil, Gold and the USDX Mar 19, 09 - LINK
- Short Term Oil Jan 7, 09 - LINK

Here is a list of very good commentary posts that discuss inflation / deflation / monetary policy / macroeconomics, etc.

- Steve Saville: Market Value, Money and Credit - Good layman's description of TMS and its importance
- Quantitative Easing Explained - Just a good funny article on QE
- Steve Saville: Why We are Gold Bulls - A good inflationary summary
- Steve Saville: Money Confusion and Inflation/Deflation - Good discussion as to what constitutes money and why some monetary discussions are invalid
- Zeal: Big Inflation Coming 2 - Good discussion of inflation and deflation.
- Mises: TMS - Good Definition of True Money Supply (TMS).
- Saville: Inflations New Upward Trend - Misuse of the Velocity of Money concept
- John Mauldin: The Endgame - Very good deflation arguments.

Purpose and Background

LOL! Yet *again*, more guff on this issue. Please read comments #29 and #33 from this post Market Thoughts and Analysis: ..... Wow. Jul 15, 09 - LINK. There is a decidedly unpleasant conversation between myself and AdirondackFund. Look if you want to say that your method of TA is infallible and is not a guess, power to you. If you think your calls are absolutely brillant, then fantastic! But do *NOT* come onto my blog, trash talk my calls because you think yours are better, when I already acknowledge that anybody's call is a guess, including my own, especially when you have very little documentation for your call. And saying they are listed somewhere several days ago on a chatroom is not an effective means of documentation. Write a blog post and document your calls there and then shout it from the rooftops for all I care. If it is a brilliant call, then it will speak for itself and people will listen. But if you want to come here and trash talk mine or anybody else's calls, save your breath and take a hike. I am not interested

Hmmm.... I thought I was going to be able to get rid of this section. Unfortunately I was questioned regarding the same exact points in this rant (and all of my other rants) twice in the comment section of my last post. ... So it stays. Please read before asking any more inane questions like: "How can I be convinced of the validity of your analysis" or "EWP is a set of rules, is not your guess as good as mine?". The answer to both of these questions are below and in comments 10-13 and 31-36 of my last post.

First I am not trying to convince anybody of anything. You may hate TA and think it bogus. Fine. You may think Elliot Wave is garbage. Perfect. You may think my fundamental stance is idiotic. Good for you. I am quite literally fine with all of those responses. I am sharing my thoughts. That's it. Maybe it is useful to you, maybe it is not. I have nothing to sell. I am not trying to wow you with prognostications, nor am I trying to indisputably prove that TA works. I am sharing my thoughts. Nothing more, nothing less.

I have written several posts and many have come to appreciate my thoughts and / or my writing style. And many of you disagree with me. And that is perfectly fine too. In fact, the discussions from these disagreements are some of the best discussions I read on CAPS. So even if you don't agree with me, please rec my posts if you appreciate my thoughts, candor, or analysis and the time I take to write them.

Regarding my analyis and Elliot Wave counts specifically: Read this RANT. I will not regurgitate that rant here. I have done it many times already. Please read my rant first before questioning the validity of my analysis, or presuming that I am stating my analysis as more than a guess.

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..

Okay, that out of the way, lets get to the good stuff!



Yes indeed, this is binv's Tin Foil Hat Area! Actually many people don't agree with my fundamental analysis, especially regarding inflation / deflation. And even less agree with my TA, especially my Elliot Wave Counts. So if you find yourself actually agreeing with what I write, then might I suggest wearing a Tin Foil Hat? I will gladly sell you one for just $19.95! (plus shipping and handling of course) .... :) (just kidding). On to the analysis!

Fundamentals

No big update on the fundamentals. Everybody is ga-ga over non-GAAP earnings (which are BS). But because I think they are BS means jack squat. The market wants to have a rally, so the market gets a rally. Okay. You can tell yourself that things are getting better and that the economy is improving, but I don't buy it. I stand by my statements regarding the falsity of earnings and the weakness of the economy that I have made in the last several blog posts.

Delving into this a little more, I had a very good coversation with Londamania in my last post regarding this. We don't exactly see eye to eye on this issue, but here is the conversation. I am re-posting because I think it is a good one and relevant.

Londamania writes

Of course, as you point out, the market isn't reflecting your thesis lately - nor any of the bears going back to March really.  So here we have a head fake beark market rally that is going on 5 months in duration, has had a correction period, and is back to rising up.  Getting a bit old that one is.

It's time to start questioning some of the assumptions here I think.  Bear arguments are increasingly obvious variations of "I'm right, I know the truth, and the market is just stupid."  I am sure you know this is folly and rarely true.  Unfortunately for the bears the market missed a big one last Fall (I think it's understandable when you throw an executive oversight branch that was completely asleep at the switch with new derivative trading products that few people understood and no one had a long history with) and that has emboldened the attitude that an individual (or small group of them) is right and the market is just dumb no matter what the evidence.

And this economic time is a tough one.  Their are arrows in all directions pointing to whatever economic outcome you care to favor.  Plenty of ammo for all sides.

I think the chink in your thesis if their is one (i.e. if you turn out to not be correct) is the earnings.  GAAP is a misnomer because they are just not Generally Accepted at all.  And their are very good reasons for this.  The bottom line is that accountants don't know jack sh*t about running a company and I have worked in them and around them for over twenty years to know this.  And the GAAP methodology forces companies into gyrations that make no sense to them.  Their is no global conspirancy by most all companies, news media, and many investors to dupe everyone else and trade on fantasy earnings.  The market uses the earnings process it does because most of the people involved have determined it's more accurate than GAAP.

Run all of your thesis but change one thing - that the S&P right now is trading at a earnings multiple of 13 (other recent posts did a good job of establishing this as a legitimate multiple given the earnings data that everyone uses).  I think this would be very good to do even if you wan't to stick to your GAAP guns because it's very important to trade the market you are in, not the one you want, and the market is trading based on non-GAAP earnings.  IMO it will take a large economy or world shaking event to change this so until that happens any thesis based on this assumption is much more valid until (if) that happens.  Then at least you can chart out a more accurate tin foil hat near term at least I think :)  

binve responds

Regarding my thesis: What happens in the short and intermediate terms is not always driven by fundamentals. My *thesis* is the second chart in comment #28 above. That is that despite the inflationary evironment that we will be coming into, market fundamentals and earnings will be terrible over the next 10 years. The inflation will prevent a drop on the equivalent of the Great Depression move (which would be an S&P value of 133 at the bottom) because it will prevent earnings from being as bad as they otherwise would.

Now the fact that you say that the market is not behaving according to my thesis cannot be determined yet, becuase it is a very long term projection. Monetary policy and economic activity the next several years will either prove or disprove that.

Regarding my intermediate term projections: I agree, the market is not behaving according to my original projections (second chart in comment #1). I thought that we would get a significant retest before reaching higher highs. But I acknowledged that would be reaching higher highs *months* ago, see this blog post: More Thoughts and Analysis: Timeframes - Bearish, to Bullish ... to Bearish May 17, 09 - LINK

Regarding rethinking my assumptions: I don't think I need to, because nothing has occured on the economic front to invalidate them.

I did see you post recently on backing up the truck. I already acknowledged that the market was going to go higher going in to the fall both in my original intermediate projection as well as my new intermediate projection. But near term market activity, even for 6 months, doesn't factor in long term effects. I maintain, as I always have, that this is a bear market rally / correction nothing more. I believe we are in a secular bear market, and this rally is nothing more than a relatively short term (in the bigger scheme) counter-trend move.

Regarding earnings: I really disagree with you here. Okay, accountants do not know how to run businesses, I agree with that. But it is the *general accounting standards* and bookeeping that is important. Non-GAAP is completely amorphous. You can do absolutely no historical comparison using non-GAAP numbers. With GAAP accounting, even if it is not the clearest picture of the health of a company (which I do not buy to the level you talk about above), it at least provides a level of historical comparability, so that you can use it to find similar level where the market has bottomed in the past in terms of valuation. My $0.02 at any rate.

Regarding charting my tin-foil near term: Like I said above, my tin foil hat projection always predicted higher prices in the fall from where we are now, I just thought we would be getting a more substantial retest before that. You can compare that to my new projection (charts 1 and 2 in comment #1).

Thanks for the comments, discussion and thoughts! I really do appreciate them! and I enjoy our discussions :)..

Technicals

Since my last post the rally has continued. But I think the impressive part of the rally is done. For those of you who speak EW, I think we just started Wave 5 of A (third) in the triple zigzag of Primary 2. I think we have upside for tomorrow and maybe on Wednesday and then we need to correct. This is of course this 5 wave move is not Wave 1 of a more more gigantic move up. Which I do not think it is, that would put this move way out of proportion with the surrounding waves. As I communicated in my last post, I got out of my shorts. I am currently neither long, nor short. 100% cash. And while the bulls are, well, bullish and goring runners (bears) like it is Pamplona, I think this particular leg of the rally will end soon (next couple of days), but more importantly it will end abruptly. I would definitely not entertain opening long positions here (personally), and would much rather make my next play a short play for the correction of this leg of the rally. This is not advice, just sharing thoughts on my own moves . I think we are in the final A-B-C of the current triple zigzag of Primary Wave 2, where the current rally is Wave A and we are nearing its completion. With my 100% cash position, I will probably play Wave B short (not going all in short here, because the overall momentum is decidely with the bulls here which will make for an unexpected end to Wave B).

As a proxy, my go-to index is the S&P 500, and I present much of my analysis in that one. But you will see in my charts below, that I always look at the S&P 500, Dow Industrials, NASDAQ Composite, and Russell 2000 for all my counts and analysis, even if I show the SPX predominately.

Medium and Short Term Count for the SPX:

Progress on my new preferred count:



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Before I jump into the shorter term counts, let me zoom out for a minute. anchak and columbia1 had a great conversation this weekend and I put a chart in the comment section of my last post which I will re-post here. It is a Fib fan extrapolation down from Wave 1 of Primary 1. It is very interesting to see to my preferred projection fits with that Fib fan. Read the notes on the chart, there are some very compelling proportions in time and distance



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Next is the my old preferred count and my new preferred count (they are labeled backwards on the chart). The last few days have really confirmed the new count (at least in comparison to my old count)



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Here is my trendline and lateral support analysis chart. The first long term trend / channel line from 2007-2008 is broken, with now 4 sucessive closes above. Very bullish sign.



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Short term counts. Again very bullish, but this particular leg of the rally is getting close to completion by my counts.



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Sectors and US Dollar:

The sectors continue to look strong in support of this rally, but definitely losing steam.



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The US Dollar is the loose cannon here. It is very weak, and is breaking lot of support level, But it is oversold and approaching some stronger support. It looks like is it in the bottoming process, and its bounce up in the next couple of days will also end the current equity rally. Also look at the correlation / inverse-correlation (and sometimes non-correlation) of Treasuries, the Dollar, Equities, Gold, and Oil. The more these start to decouple, the less stable things will get and expect a lot of asset classes to resume their crash. Pay attention to these the next 3 months.



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Long Term Projection:

Just for kicks, here is my *thesis* chart. Notice I have changed Primary 2 to no longer be the large zigzag, but the more flat triple zigzag in my new preferred count. Either way, it has little bearing on my overall long term projection. I maintain, as I always have, that the current rally since March 9 is nothing more than a relatively short term bear market rally.



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Please feel free to comment, disagree, discuss. And 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 July 20, 2009 at 6:39 PM, kstarich (30.61) wrote:

Binve

Another marathon post.  I need to get a cup of coffee and a cookie when I sit down to read your posts...because I'm gonna be sittin here for awhile :-)

Kidding aside thanks for the education.  I agree with your assesment of the probable correction in the nearterm.  I am also in cash however I'm not going to go short anytime soon but rather let a correction happen and pick my spots to go long.

I am suspicious at the moment with the type of trading I see.  The institutional and preditory algorythmic trading programs being used in the market (where is the S.E.C.?) is making EW mute.  It is a burdon on my heart to see some of our friends on the CIL lose money to these scemes as the market gaps up over their stops.   At this point I am making my plans for inflation plays that will be backed up by an international force that can't and won't be manipulated!

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#3) On July 21, 2009 at 1:42 AM, amassafortune (29.41) wrote:

I subscribe to the Russ Wild visual analogy that a large inhale is needed to expand a baloon significantly with a single breath. It follows that a large upward move would be needed before a historic move down, as the possible next [3] down is outlined in your long-term projection.

It makes sense that a 58% drop (1,100 to 460-ish) would partially be achieved by blowing off the unjustified excess that formed the preceding [2] top. The move we have seen from 666 to the possible 1,100 as S&P earnings struggle to reach $40 (much lower without the GAAP giveaway), makes your bold [3] leg down more likely. The market's recent upward move with very weak retraces signals continued insane P/E growth. The approx 2-yr downward move you outline would be more historic that the upward move of the 90's. I'm not a total believer of sub-666 projections, but I will be short if 1,100 is reached in just a few more months. 

If China, with 20% of the world's popluation, is really growing at 8% this year, an 1,100 S&P might be reasonable, though early, if the world follows suit. I'm keeping an eye on audited Fortune 500 results to see if lost international revenue fits China's unaudited stats. "We made it up in domestic activity" sounds too much like the old joke of making up losses with volume. 

Thought-provoking work as always Binve.        

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#4) On July 21, 2009 at 2:05 AM, uclayoda87 (29.14) wrote:

camistocks's CAPS Blog
 

Marc Faber CNBC interview from July 17 (50 min.)

July 20, 2009 – Comments (4)

This series of interviews with Marc Faber ties in well with your discussion.

My impression from these interviews is that if we get a short term rise in the market to S&P 1000, then sell into the rally and look for a buying opportunity later.  If as expected nothing much changes in the economy, then stock prices will fade, which would trigger another stimulus plan.  The additional money added to the economy will again prop up prices, at least in the short term.  So getting out of the market today may lose a little profit in expected rise between here and S&P 1000, but as long as you parked your money in CEF, you will preserve your buying power for the Fall sale.

I think I'll take Faber's advice and sell soon, taking the rest of the summer off.

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#5) On July 21, 2009 at 2:16 AM, TMFUltraLong (99.95) wrote:

I'm still firmly in the camp that feels this move is overly exacerbated and purely a headfake to the upside. I'm no doom and gloom progenitor, but we need to settle a few chart problems in the 840s before we can move on.

UltraLong

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#6) On July 21, 2009 at 3:03 AM, salvadorveiga (21.72) wrote:

yaaaaaaay.... You're with my scenario triple zig zag ;) eheheh

 

I hope you guys were ably to exit shorts last week around bottom...

 

Still on vacation guys sorry... where is the lounge btw?

 

thanks 

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#7) On July 21, 2009 at 3:34 AM, Tastylunch (29.20) wrote:

Binve

watch California, it appears they may have a stopgap budget ready to pass. If it does I could this market really shooting higher, That and Oil going to 50 or lower on  Seasonality +the worst supply glut  I've ever seen in my life could really fuel a move to 1000+.

I'm not a fan of Fibonacci Fans by the Ac/Col secnario seems plausible to me (similair to your preferred scenario, working off overbought conditions  down to 840 ish and then blasting higher)

Some negatives, Goldman Sachs just made  very loud for 1060 i on the S&P  for the fall To me  that says they are dumping stocks and banks stocks are really fading when they should be leading.

Still most retail investors are unsually bearish so the dumb money still isn't fully vested in the game...

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#8) On July 21, 2009 at 9:27 AM, binve (< 20) wrote:

kstarich, mmmm, cup of coffee and a cookie :) I like your plan. Like I said above, when I go short on Wave B it will not be with all of my trading account, because the overall momentum is still bullish. I, like you, am considering playing the C wave from the long side. Can you be long and not be bullish? :) Anyways, that would describe me. Thanks!

amassafortune, Thanks for the comment! I am always very appreciative when you comment, you investing and trading thoughts are always valuable. Yeah, I do like the breath idea. And also thinking about Wave [2] from a bearish standpoint, the personality at the end should be (I am reading from EWP, pp 77, and replacing the bearish phrases with bullish ones, as we are still in a secular bear market):

Second Waves often retrace so much of Wave 1 that most of the losses endured up to that time are gained back by the time it ends. This is especially true of put option purchases, as premiums sink drastically in the environment of bullishness during second waves. At this point, investors are thoroughly convinced that the bull market is here to stay. Second waves often end on very low volume and volatility, indicating a drying up of selling pressure.

... Wow. Sounds textbook so far to me. Especially the last sentence. This whole rally has been market by generally increasing prices on generally decreasing volume.

I understand your hesitancy of sub 666 projections, but like you mention with earnings above (which I have been harping on for the last 4 months), they are so bad. Other than the necessary correction (technically driven) of Wave 2 before the plunge before Wave 3, there is no incentive for the market to rise right now. Fundamentals are so weak and we are absolutely nowhere near any kind of bottom in terms of valuation.

Thanks amass, I appreciate it!

uclayoda87, Thanks man. Yeah, I think that is a good possible plan. Just be careful. A fall "sale" / drop might be (and I would contend it is) the beginning of the large Wave 3 down. But whether more drop initiate more stimulus plans, you are virtually guaranteed that the Powers That Be will try to fix the problem by monetization and messing around with monentary policy. I agree with you, the safety of PMs (including / especially CEF) should not be ignored right now.

UltraLong, Thanks for the comment! I have only some slight disagreement there. I commented on your post last week that I thought the current rally (the Wave A) would have more to run. Then next correction (Wave B) will be a downward move. I think Wave B will certainly fill the gap around 920 on the S&P, but based on the strength of this move, I don't think we are heading down to 840 before we head higher.

My originial projection very much agreed with your statement above. See the 3rd chart in comment #1. Up until last week, my preferred projection called for us to do a fairly substantial retest before moving higher, based mainly on the Head and Shoulders setup and the fact that my guess was that Wave 2 was going to be a large zigzag (which they typically are).

But based on the strength of the rally this past week, that setup is all but completely invalidated, and I think that the triple zigzag (first chart above) is much more likely. It just seems to explain the price action much better, especially the recent bullishness.

So while I agree, we will be revisting 840 (and I believe *much* lower), I just don't think we will until an even larger runup in this rally after autumn. Thanks!

salvadorveiga, Hey sal! Yes sir, you were right on, and I definitely give you props for that! Like I was saying to UltraLong above, Up until last week, my preferred projection called for us to do a fairly substantial retest before moving higher, based mainly on the Head and Shoulders setup and the fact that my guess was that Wave 2 was going to be a large zigzag (which they typically are). But based on the strength of the rally this past week, that setup is all but completely invalidated, and I think that the triple zigzag (first chart above) is much more likely. It just seems to explain the price action much better, especially the recent bullishness.

I exited my shorts around 930, because I was waiting for the 1-2, 1-2 down setup to be invalidated, which it was. :( ah well.

The newest CIL is here, comment #2. Enjoy the rest of your vacation man! Looking forward to you being back!

Tastylunch, Hey man! yeah I think both of your observations above are very good ones. At this point, I think the move higher (especially baked on the recent uber-bullishness) is baked in. We need a small correction first and then we will get a manic buying phase after that.

What is nice about the Fib Fans is that I never used them to build my original sceanario. This was an interesting chart from this weekend that seems to confirm the analysis that I already had in place, which is very interesting.

Yeah, I agree with you regarding GS. But consider this:

We had a bullish move that is almost done (Wave A). At the end of Wave A, GS needs to dump, so they talk up the rally and sell into strength. Eventually that selling turns into a correction (Wave B). But based on the strength of A, we don't make a low further than the beginning of A. GS talks up stocks again, and only a little more bullishness is need to further the rally (Wave C).

Simplistic scenario I will grant you, but I think the market wants to turn itself into one more manic buying frenzy before the next major selloff begins in earnest.

I thought up until last week (base on my originial preferred projection) we would do a fairly substantial retest before moving higher, based mainly on the Head and Shoulders setup and the fact that my guess was that Wave 2 was going to be a large zigzag (which they typically are). But based on the strength of the rally this past week, that setup is all but completely invalidated, and I think that the triple zigzag (first chart above) is much more likely. It just seems to explain the price action much better, especially the recent bullishness.

Sorry that was mostly a repeat. The point is the price action really is reflecting this manic build up before the end of the correction, and I think any pullbacks now will be relatively shallow. Just my take anways. Thanks man!..

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#9) On July 21, 2009 at 2:07 PM, binve (< 20) wrote:

wow, luckiest score I have ever had :)

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#10) On July 21, 2009 at 4:49 PM, Londamania (66.35) wrote:

Hey Binve :) Came across a great post I think you will enjoy:

http://www.minyanville.com/articles/AAPL-GOOG-INTC-rimm-jpm-bac/index/a/23615

I think he makes some great points about Q3 earnings and that "it ain't about just the US it's about the world".  I like that he seems to be neither bull nor bear just reading the trade winds.  Plus he's willing to use non-GAAP earnings as a gauge (sorry couldn't resist :) ).

I didn't get into many of my positions because the market went up so fast and I didn't want to buy into the rise (my stocks were literally rising $1-2 a day with no real pullback at any point - the quiet days were flat), and can't see buying now, but if target stocks drop back into my range I think I am back in - long term if the market will just settle down.  At this point I will take a long L and be very happy.  I worry about your last chart - past the #2 leg that is :)  But if it comes to pass, as long as I am paying attention, should be able to retain some nice gains even if I sell on the backside.  I could use a dip down on your B leg for sure to get in on some of the positions I missed this recent jump up. :)

Hope you read that article he offers some differnt support that lines up nicely on some of your stuff here short term.

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#11) On July 21, 2009 at 6:03 PM, binve (< 20) wrote:

Londamania, Awesome, thanks! I will definitely check out that link.

And I know we have discussed these issues in the past and it is okay if we don't see eye to eye. Your points add to my thinking, for real. Actually almost all of the conversations that take place on the blogs help to influence me views. I hope my writings do the same for you :)

My only point regarding your Backing up the Truck Post / Going full long, is that I, like you believe will will go higher in the coming months. However, I believe this will be a very transitory run-up. Now I could be completely wrong. Maybe 666 marks the absolute bottom. But at this point (~950), I think the risk / reward does not favor being "back up the truck" long (in my mind, back up the truck means no-brainer, where you can buy it and almost forget it). When gold miners (via the HUI) reached 150 in decemeber, that was a back up the truck moment for me. I bought a lot of GSMs then. Right now feels like a paused before new highs in the fall.

So lets continue with the idea that my thesis is bunk. If indeed we 666 is the bottom, do we return to 1500 territory on the SPX with absolutely no retest of the bottom? Again, I find that expentionally hard to believe.

This is why the timeframe in my new projection (triple zigzag - slight pullback next month with higher highs in the early fall) is actually slightly shorter than my orignal projection (more significant retest / pullback in July-Aug before larger rally in Sep-Nov). Because this correction is like a candle, and this rally is is like a torch on the candle. We are burning through it so fast. With no breath / pullback, we just burn through it faster. 

And I will read your link and I will ponder it, but earnings are not very good now, and this rally is only a "real" one (start of a new secular bull market vs. a bullish correction in a bear market) if the earnings growth and outlook really continues. And there is nothing about the macroeconomic evironment that is condusive to that (IMO). The consumer outlook in the coming years looks signficantly worse, not better, than it does today. Just my take :)

But regarding the interemediate term, Yeah, the B wave correction will be a good time to go short, or to start entering longs in prepartion for wave C. Just make them longs you watch like a hawk. Hopefully we can all make money and protect ourselves against a retest of the low / new lows at the same time. Thanks!!.

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#12) On July 22, 2009 at 10:01 AM, Londamania (66.35) wrote:

Hey Bin - the days of me going long and forgetting about it are long past - I will be watching it all and keeping an eye on things don't worry. :)

Concering your retest of the bottom - something to consider.  There has been a lot of talk of needing to re-test the bottom and that V-Shaped recoveries just don't happen.  Fair enough.  But when I look at a one year chart of the DOW, the S&P, most Blue Chip stocks - I see W's all over the place - which is the standard pattern people are looking for. 

Take the S&P.  Their was a first bottom on 11/20/2008 @ 747.  Steep climb back up to an intermediary high on 1/6 @ 934.  Then we retested (and made a new) bottom on Mar 6 @ 666.  And since then we have climbed back up to approximately where we were last Nov-Dec (was a LOT more volatile back then).  There is a W in that pattern and a retest of a bottom.  Lots of stocks have a pattern like this not suprisingly.

And believe me, your posts cause me to think a LOT :)  I don't really consider myself a Bull per se, since I expect an L recovery, I just don't buy the Bear "their will be another crash" case either.  :)  Barring unforeseen real world events like wars and physical calamaties and such.

I can't divorce technical analysis from the real world events.  To me you have to blend them together.  TA without real world events is basically saying you can predict the future and it doesn't matter if we make good/bad economic policy decisions, what wars happen, etc...  I just can't buy that.  And while when times are moderate maybe all those real world events just blend together and you can ignore them for the sake of TA - these are not moderate times and the events have big impacts that possibly Trump the TA tendencies.

So for instance - to me it's possible that the second retest of the bottom in my postulation went farther down to 666 than it was otherwise going to because of real world events - like that Obama was saying a lot of very negative and very public things about wall street which exacerbated the pessism, broke the resistance line, and caused a farther bottom - down to 666.  And that we are on the other side of a W recovery because 666 was the restest(normal expected pattern) and will be settling into a flat  (meaning less and less volatility centered on some S&P number probably less than what we have right now) from here for several years as we battle the big headwinds against the growth we had the recent past.  With some slight trend up as we slowly and painfully improve.  I am not sure I would call that a rally, just not another crash.  If we can entrench around S&P 900ish we can look for a real rally in a few years. 

I tend to agree with you about the earnings, of course I think they are much better than you since I don't hold them to the GAAP methodology, but certainly not great.  The question is are they sustainable at or even just near, this level?  Cause if they are, it's time to buy low.  The debate about that is a whole separate post :)

I also think that once it becomes accepted that they are sustainable, whatever level that is at, the market will get an articifical bump up as a lot of sideline money splashes in.  Will be good to be in before that.

Great discussion! :) If you are ever up in New England we should get drunk on beer sometime - would be great discussion I am sure :)

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#13) On July 22, 2009 at 5:44 PM, binve (< 20) wrote:

Londamania,

the days of me going long and forgetting about it are long past - I will be watching it all and keeping an eye on things don't worry. :)

Awesome, glad to hear it :). I figured that was the case with you, but I was just saying it becuase it needed to be said. Definitely no offense meant!

Concering your retest of the bottom - something to consider.  There has been a lot of talk of needing to re-test the bottom and that V-Shaped recoveries just don't happen.  Fair enough.  But when I look at a one year chart of the DOW, the S&P, most Blue Chip stocks - I see W's all over the place - which is the standard pattern people are looking for.

I agree with you that a lot of sectors have exhibited this behavior, but here is why I will make a distinction. When I do my fundamental analysis and then combine it with the technical analysis, I also look at the major indices for confirmation. You are probably familar with Dow Theory (Transports lead / lag Industrials during particular phases of the of economic growth / contraction. In particular new highs / lows are either confirmed or non-confirmed by synchronous action on these two indices). But I like to do my analysis and look at the movement of: S&P 500, Dow Industrials, Nasdaq Composite, and Russell 2000. So there reason why I think a retest is needed and that the last stab down on March 6 cannot serve as a "final" stab down is that *all four major indicies* made lower lows on March 6. If we had non-confirmations (only some of the four making lower lows) then I could really see your W-argument. But becuase they *all* made lower lowers, the right end of the W is not in yet. As always, that is just my take.

But just to wax philosophic for a moment :)

I can't divorce technical analysis from the real world events.  To me you have to blend them together.  TA without real world events is basically saying you can predict the future and it doesn't matter if we make good/bad economic policy decisions, what wars happen, etc...  I just can't buy that.  And while when times are moderate maybe all those real world events just blend together and you can ignore them for the sake of TA - these are not moderate times and the events have big impacts that possibly Trump the TA tendencies.

The main theory of Elliott Wave is not technically based, in fact it is psychologically based. The price action is determned by human beings with emotions and as such will always display a certain amount of herd behavior. Granted the is undeniable manipulation in the markets (Goldman Sachs, e.g.), but mostly these manipulations add volume. I still believe much of the price movement is largely determined by instituional investors and the general investing public, i.e. people. And always people react to new highs and increased momentum with excitement / greed and new lows with fear. And the logical trader / investor behaves exactly the opposite way. (Buy when others are fearful. a la Buffett). But the herd by and large behaves like, well, a herd, and does the exact opposite of what they should. Believe it or not, I was actully long at the bottom. I got in at S&P 700. As the rally was picking up steam and bullish commentary was more popular, I dumped at 825. Because I was being *too* contrarian :). 

But, back to the point of psychology and TA: I am really fascinated by Elliott Wave because it uses three simple concepts to explain price action: the point of civilization is to make progress, there for the *net* gains in market / all human enterprises is a positive quantity. All forward progress waves (impluses) have to be retraced before the next progress wave can begin (corrections), humans are natural creatures and so its creations (the stock market) follow natural patterns. The study of Fibanacci relationships is a key point to this understanding.

This is ultimately why I am an optimist. Because even though I am bearish on the stock market over the next 10-15 years, I don't think armageddon is coming and I don't think the world is going to hell in a handbasket. I just think the last major progress wave (since the end of the Great Depression) needs to be corrected. A lot of healthy enterprise was built up during that time, but at the end (80s and 90s) a lot of unhealthy enterprise was built up (finanicals). And we need to correct that huge progress wave to make way for an even *greater progress wave* for the next century. I am an optimist. I invest in gold and energy for the long term to preserve my wealth through this correction and so I have the captial to get in on the ground floor of the next great progress wave. I am so optimistic for the future!

But I simply don't have any illusions about how bad the fundamentals are currently. I am not negative right now, just trying to be realistic. I honestly don't listen to the "news" anymore because it is so wrong (IMO). I read a lot of thoughtful commentary by analysts (Mauldin, Roubini, Saxena, Saville, Hoye, etc.), some bullish, some bearish, but mostly real-ish. And the honest commentary points out a myriad of problems and unintended consequences of the massive recent government intervention. I honestly don't read this stuff to further my own view, I read to learn. In fact I constantly seek own articles that run counter to my thinking. And these have tempered a lot of my long term projections.

.... Wow, I am really rambling. Sorry :)

I tend to agree with you about the earnings, of course I think they are much better than you since I don't hold them to the GAAP methodology, but certainly not great.  The question is are they sustainable at or even just near, this level?  Cause if they are, it's time to buy low.  The debate about that is a whole separate post :)

LOL! Yeah, that is the big question. But I just don't see the catalyst for real sustainable earnings growth right now. One ... maybe 2 quarters out. But there is so much top-line revenue shrinking right now across the board, that we are "earning" our way into a brick wall in 3-6 months. I obviously could be wrong :)

Great discussion! :) If you are ever up in New England we should get drunk on beer sometime - would be great discussion I am sure :)

I agree, as *always* a great discussion!!. If I am ever up in New England, I can guarantee you I will let you know :) My favorite brewery is admittedly not in New England, but at least roughly in that neck of the woods. Dogfish Head in Deleware. My all time favorite (their 60 min IPA, their 90 min IPA is awesome too, as is the Marone). I am a big fan of Sam Adams to (most of it anyways). Harpoon is excellent! But my favorite in Boston is the Boston Beer Works (and the food it good too!).

That would be most excellent :).

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