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Market Thoughts and Analysis: Calling Temporary Top

Recs

27

July 23, 2009 – Comments (24)

Just documenting it in real time. I will do a true post in the comments section this afternoon.

24 Comments – Post Your Own

#1) On July 23, 2009 at 10:36 AM, SolarisKing (21.47) wrote:

Wow, you, and i, are getting temporarily pummeled.

The top must be close, because i am starting to close my shorts.

-solaris

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#2) On July 23, 2009 at 11:28 AM, sohumtrader (29.59) wrote:

I am waiting to hear what you have to say about the current market action, I should have got out of my shorts yesterday morning...

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#3) On July 23, 2009 at 11:33 AM, outoffocus (22.89) wrote:

All Glory to the Hypnoto....oh sorry wrong post.

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#4) On July 23, 2009 at 11:34 AM, StopLaughing (< 20) wrote:

I think the market runs up to resistance at +1000 plus. Then it will need to be assessed. There is a fundamental shift in market psychology right now and that could follow thru for a couple of days.

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#5) On July 23, 2009 at 11:37 AM, darroj (33.27) wrote:

hey binve, looks like you're taking a small beating (hopefully only in caps!) but I look forward to your full post.  There's a lot of bullish articles popping up, including Dow 15000! In the meantime, I'll enjoy my portfolio finally being in the green...

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#6) On July 23, 2009 at 11:39 AM, StopLaughing (< 20) wrote:

Correct me if I am wrong but "HypnoToad" posts whenever there is about to be a big move one way or the other?

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#7) On July 23, 2009 at 11:48 AM, outoffocus (22.89) wrote:

Oddly enough I'm "beating the market" today. I guess my few bullish calls are really bullish today.

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#8) On July 23, 2009 at 12:25 PM, CaptBS (96.89) wrote:

outoffocus: Same here, I logged in expecting to see my score cut in half, but, somehow, I'm in the green. Barely. Wacky times these are.

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#9) On July 23, 2009 at 2:33 PM, darroj (33.27) wrote:

I'm +140 today in caps... :) RL portfolio about the same (each stock ~1% point higher than S&P gain) Though that doesn't even compete with UltraLong's +425 though... haha

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#10) On July 23, 2009 at 7:18 PM, binve (< 20) wrote:



So, the point of this post was to call a temporary top: specifically the top of Wave A (third) of the triple zigzag of Primary 2. It looks like I was early, but I don't think grossly so. I think this phase of the rally is done tomorrow. I thought it was today, hence the call today, but close enough for government work :)

Just as a timeline with my calls and trades, so we can see the progression. These dates correspond with my last 4 blog posts, so they are public documented calls. And some of them show I was wrong, and I fully admit when I am wrong.

- July 09: stated were in large Wave B of P2 of my old preferred count. Still short since June 22. Trading the right shoulder / broken neckline sceanrio.
- July 15: S&P rallys hard of support. Head and shoulders pattern is almost broken, but I call it as broken. My preferred count is broken and I adopted new preferred count (the triple zigzag). I cover my shorts on July 16, as I said in comment #14 of my July 15 post. (For a loss) :(. But my count was broken and I am trading my count, so I covered. I said that the rally was going to continue for several days. I took a lot of flak for this call (see comments #29 and #33 of my July 15 post), but it has turned out to be right.
- July 20: Rally continues. I said we were getting close to the top but that there was still upside. Still 100% cash.
- July 23 (today): Called the top around 10 am. This was based on the first chart below, which in retrospect is not right and I have revised. But it is close to right, so I am still comfortable with my call. I think there is a little more upside tomorrow (S&P 985 as my max target). If the rally continues into Monday or exceeds 985, then my call is wrong. I established a short postion today (10%) around the same time as my call. Also I made some Caps picks at the same time so that I put my Caps points where my mouth is.

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

- Market Thoughts and Analysis: The Next Moves Jul 20, 09 - LINK
- 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

Okay, I am going to dispense with the normal rant. Just leaving this link for those who have not read it before. Regarding my analyis and Elliot Wave counts specifically: Read this RANT.

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..

Fundamentals

No update necessary as nothing has changed. This is pure greed buying (prices are getting higher becuase prices are high) in Q2 earnings season becuase earnings didn't stink up the joint as bad as expected.

Technicals

Since my last post the rally has continued.

Medium and Short Term Count for the SPX:

I will keep this one fairly short and sweet. Mostly charts as they tell the story. Here was the chart I was trading at the time I made the call. I thought we had an ending diagonal for Wave 5, which I now think is not correct. The diagonal appreared on all 4 indices (SPX, INDU, COMPQ, and RUT) so it looked very compelling. But this move today is too strong for an overshoot E. Here is the chart. The orange arrow is where I made the call at:



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Base on the strength of the move today, I don't think the chart above is right. I have revised the count. Actually, I am going back to a count that I discarded last night because it is UGLY. The orange 4 and green 2 of 5 have nasty overshoots. But everything is "technically" kosher. I also constrain myself to have the same count be on the SPX, INDU, RUT and COMPQ. It doesn't always give the prettiest count but I feel (just my opinion) they are the more compelling counts. Here is the count I think we are in. So today made waves 3 and 4 of 5 of 5 of A. I think we will get the last 5th tomorrow and it will be relatively short and spiky.



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Another reason why I think the rally is nearly topped out: On this particular run we busted through 2 long term trendlines from 2007 with no real pause and are just about to hit overhead lateral resistance. Move looks spent technically, there are bearish divergences on the indicators even after this run up today, for 30 min and 60 min, and we are getting overbought readings on the daily indicators.



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Sectors and US Dollar:

The dollar is the key item to watch here. The weak dollar has fueled this equity rally. But as soon as the dollar rallies for a little while (DISCLAIMER: I am *NOT* a Dollar Bull, and think it is doomed long term. I am talking about short term technicals here), this overdone leg of the rally will stop. The dollar bounced of weak support 3 times this past week, then bounced hard of stronger support. It recaptured the next support line back up. On 30 min terms, the dollar looks to be putting in a pretty convincing short term bottom.



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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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#11) On July 23, 2009 at 7:27 PM, outoffocus (22.89) wrote:

I'd comment but theres no tinfoil hat area.  How am I supposed to comment?

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#12) On July 23, 2009 at 7:30 PM, jatt22 (45.82) wrote:

aprreciate  all  da  hard  work  .  an  agreed  there  is  not  much  upside left  but  yea  only  question  is  how much  is  down side .

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#13) On July 23, 2009 at 7:50 PM, binve (< 20) wrote:

SolarisKing, LOL! yep, getting reamed here. Not much fun :(

sohumtrader, Hopefully this is useful!

outoffocus, Hey outoffocus! LOL! I agree, all glory to the Hypnotoad :)

Yeah, my score didn't go up too much today :(, but I am very glad yours bullish calls did!

And LOL!, yeah I left this "tinfoil hat area" off today because I was trying to be more concise. I will bring it back next time :)

Thanks :)

StopLaughing, I agree that we will get there (before heading back down in a major way), I just don't think it will happen on this run.

darroj, darroj! Hey bro! I was in cash during most of the rally the last several days (I was short a the beginning, playing the Head and Shoulders setup). But I am now 90% cash, 10% short. Ahh, green portfolio, nice. I need to make some winning trades again, my recent ones have mostly stunk :(. Some good, but a lot that were nicht so gut.

And congrats on being up +140! nice man! I am -190 myself, so almost as good ... :) Take care man :)

CaptBS, That is the coolest name ever. You are now one of my new faves just because of your name :)

jatt22, Thanks! Yeah, I think the downside for Wave B is maybe ~900 on the SPX. It will be volatile. I will play it short but only with a portion of my account. Thanks!.

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#14) On July 23, 2009 at 8:27 PM, StopLaughing (< 20) wrote:

I would expect some short run profit taking by traders tomorrow unless another dose of good news hits.

I think this run today was up inspite of a stronger $. The $ may bounce for a few days and that could weaken the rally but it seems to me that it looks like housing may have bottomed and that puts us in a regular recession recovery where housing starts to lead out of the bottom. The banks and tech have been leading. Both are mixed and a little weary to carry the run much beyond 1000 on the S&P.

The other big positive is the postponement of health care. The longer it takes and the more details that are provided the less likely one of the bills pass or the less fouled up the bill will be.

Health care and cap and trade are large weights of uncertainty and debt that hang over the rally like vultures. If one or both are shot down or postponed until after the 2010 elections the market will rally and the $ could also rally.

We need some other sectors to assume leadership.

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#15) On July 23, 2009 at 11:21 PM, madcowmonkey (< 20) wrote:

No telling where the S&P is going in the next few days. Everything is off and there seems to be a disconnect on both bull and bear views.

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#16) On July 24, 2009 at 8:52 AM, amassafortune (29.48) wrote:

At this level (975), both shorts and longs can make money. If the S&P tops near 1,100 during 2009, that's barely one S&P point per trading day upside potential, on average. I see the 125 bullish points potential vs. about 50 points of downside potential (short-term), with 50 down being the more likely direction over the next two weeks.

I don't think the B wave down can get to 910-920 because the force has been so strong with the bulls. I see ample opportunity for both long and short potitions to be closed out at a profit over the next month. (on aggregate.ETF erosion and individual company results excluded)

At 975, this market is ahead of the economy and that leads to second chances for buying and selling decisions for both bulls and bears. 

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#17) On July 24, 2009 at 9:09 AM, binve (< 20) wrote:

StopLaughing, Those are all valid observations. Thanks!

madcowmonkey, LOL! Yeah I am guessing. Hopefully my charts make it a somewhat educated guess, but I fullly admit it is a guess :)

amassafortune, Thanks! I agree with your first paragraph 100% and that is my thinking as well.

Regarding 950 vs 930 vs. 900 S&P for the B wave: I agree with all of your observations on the strength of the move. That 3rd wave just kept extending and cannot be ignored. But we do have a gap beckoning at 930 and a long term trend/channel line that is broken and needs to be retest. And we also have the dollar bouncing off some fairly strong support. All these things could make a pullback more severe than first thought based on the strength of the move the last few days. My $0.02

But for disclosure, I agree with your thoughts. And even though my paragraph above has good observations, I am not banking on them. It will play B wave short down to maybe about 950 and with only a portion of my account because the move was strong up the last 2 weeks. I would much rather wait for the correction in cash and get positioned for the C wave up. I will probably be fully in cash / starting to buy longs in about 3 weeks in anticipation, pending how the correction goes.

Thanks!..

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#18) On July 24, 2009 at 1:27 PM, CaptBS (96.89) wrote:

binve -- Glad you like the name! As it turns out, the credit for that one goes to my 6th grade science teacher... some combination of my initials and classroom clownery. :)

 

BTW, I'm following this post, your analysis is quite interesting. I'm curious to see how it plays out in this strange, strange market.

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#19) On July 25, 2009 at 10:46 AM, CrackerHockey (< 20) wrote:

http://1.bp.blogspot.com/_goypolxEFd4/SmmKN0lWIdI/AAAAAAAABWs/PTMfherPwdE/s1600-h/SPX60min.png

http://1.bp.blogspot.com/_goypolxEFd4/SmoR_3apjSI/AAAAAAAABXM/sd68dY9W33c/s1600-h/spx1min.png

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#20) On July 25, 2009 at 10:55 AM, CrackerHockey (< 20) wrote:

http://4.bp.blogspot.com/_goypolxEFd4/SmmKBFXcQEI/AAAAAAAABWM/jzuPIKHxLU4/s1600-h/SPXUUP.png

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#21) On July 25, 2009 at 11:27 PM, CrackerHockey (< 20) wrote:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2393449&cmd=show[s123834437]&disp=P

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#22) On July 26, 2009 at 12:32 AM, starbucks4ever (97.62) wrote:

That was a gutsy call. Let's see how it plays out.

I see more upside, potentially all the way to Dow 14000. Those bears who survive it should then see a nice correction. 14000 by December, 12500 by March.

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#23) On July 26, 2009 at 1:34 PM, binve (< 20) wrote:

**ANALYSIS / CHART UPDATE**

I still stand by all the analysis in comment #10 above. I think the breakdown and run up on Friday finished subwaves 4 and 5 of 5 of 5 of A. I think A is complete. There is one other variation, which is that the 5th wave is truncated (though it looks complete in structure). We may get a a gap up to complete the final 5th subwave and then a fairly quick selloff so that the final subwave is more proportional / less truncated. The gap up should not exceed 985 per my prediction above.

Other thoughts on Friday's action: The volume was exceptionally low. And the impulse up (subwave 5) after the breakdown (C of subwave 4) was technically very week. The internal divisons look like a 5 and the CCI on the minute scale show a pretty clear Wave 3 within the 5th subwave. Move looks down IMO. Here are updated charts for Friday's action.



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#24) On July 26, 2009 at 1:41 PM, binve (< 20) wrote:

CaptBS, LOL!. That is a great story! nice :) Yeah this market keep throwing curveballs left and right. I have had to revise my analysis more than once, I doubt that I won't have to do it again :) Thanks!

CrackerHockey, Thanks for the links!

zloj, Was it a gutsy call? I don't know. It was a call. Based on my analysis of the patterns and counts, that was my call. Is it right? Is it wrong? We will see. And if it is wrong, then I will admit it, as I have done with all my wrong calls. Gutsy has little to do with it. My call is the probable outcome assuming my count is correct / mostly correct.

As far as the Dow at 14000, man I don't know. I really don't think so, but I could be wrong. I think the market (after a pullback from these levels) will be going higher. I think the SPX will go to 1000-1100 (1050 is my approx guess) by mid Fall. I think a Dow move of 11000 is likely. This is per the 6th chart in comment #10.

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