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biotechmgr (36.35)

Market Top 2009

Recs

14

September 01, 2009 – Comments (10) | RELATED TICKERS: SDS , DXD

The top is in and already confirmation has been made. Several important features of stock market action and investor psychology point to the initiation of Primary Wave 3 down.

At the outset I declare my intentions: I wish for as many people as possible to avoid the disastrous consequences which lay ahead in the next leg of the bear market. I will take no delight in what is to unfold as it will mean misery for many. I still have some copies of the book "Conquer the Crash" to give away to those who are yet uninformed but interested in avoiding the problems of the next economic phase. Post your email if you want one of the copies remaining or buy at www.elliottwave.com

Now on to business at hand. To review with brevity, in Elliott Wave Theory a major market top formed in 2007. This began Primary Wave 1 down to the low in March, 2009. Characteristically, Primary Wave 2 rebounded strongly from there and likely ended last Friday. Whether or not that was top tick is not important, rather that a turn has or soon will be made. The next, Primary Wave 3 down, will the the longest and strongest taking prices to unimaginable lows. Only when the wave pattern unfolds will a price projection be made. Several paths down are possible, to be discussed in subsequent posts.

 Technical and social indicators of a top:

Social: The mass feeling that it's all ok now. People talking more and more about investing again. This is contrarian and requires seeing things as such. Other measures will support this quantitatively.

Media: Bullish pronouncements of a new bull market. Kudlow, Kneale, but also magazine articles such as the case for optimism. The Twain aphorism about switching sides when with the majority holds true here.

Sentiment: At the 2009 bottom the Daily Sentiment Indicator was 2% bulls. Robert Prechter called to cover short positions two weeks before that. The rebound was astonishing but could be read by this indicator - no one left to sell. In the last 2 weeks, the DSI reached 88% then 89%. At the Oct 2007 top it was 88% bulls.

Waveform: A double zig-zag was completed up in Primary wave 2. Although robust in rebound, overlapping waves signified the corrective nature of the advance. This won't convince EW skeptics, but when the bottom comes maybe it will, and I'm not here to convince everyone.

Today's smaller degree wave 3 down reminded us of how fast points can evaporate to the downside. The form is tracing out a nested 5 wave pattern down which would be followed by 3 up or a series of 3 wave corrections.

Breadth: Up moves in Wave 2 started with better A/D ratio and withered as rally moved on, indicating the exhaustion of the advance. Bull market behavior is with strong breadth plus volume.

 S/R and Trendlines: Coming under 1016 then 1004 today were key indications of a trend change. 

 Fibonacci: Rally retraced 50% of 2007-2009 decline.

Other technicals are rolling over such as McLellan Summation Index crossover of its moving average.

 Put/Call ratio: Super bulls in the last 2 weeks bought 2 calls for each put, a super high ratio of bullishness (again an extreme of optimism).

VIX: Fear is starting back, VIX Friday low of 24.28; 28.47 high today.

Friday's spike top followed by an immediate reversal plus subsequent downdrafts make this no longer corrective for the upside, but are forming an impulse to the downside.

Once further confirmation of a 5 wave down pattern and corrective up waves follow, further remarks will be in order to discuss the path of another multi-month series of declines.

Raise cash, protect capital, good luck to all.

 

 

 

10 Comments – Post Your Own

#1) On September 01, 2009 at 2:14 PM, IIcx (< 20) wrote:

Rec +1

GoodVibe4ever has a great VIX reference chart you might be interested in: http://stockcharts.com/h-sc/ui?s=$VIX&p=D&yr=1&mn=0&dy=0&id=p25492019853&a=160068691

VIX just broke the BB to the upside so you may see the markets move up for a few more days but I agree with your call. A correction is long overdue and the S&P should be in the 880-900 range.

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#2) On September 01, 2009 at 2:33 PM, chiragpatnaik (21.57) wrote:

I wouldn't mind reading a copy of the book, if you have one.

 madgeek at hotmail dot com

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#3) On September 01, 2009 at 3:10 PM, binve (< 20) wrote:

biotechmgr: Great post ! In total agreement. I put up several recent posts on my other blog (http://marketthoughtsandanalysis.blogspot.com/) that I think you would enjoy. Thanks!

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#4) On September 01, 2009 at 3:59 PM, biotechmgr (36.35) wrote:

Binve, I must have been channeling you :) Good blog!

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#5) On September 01, 2009 at 5:07 PM, binve (< 20) wrote:

Thanks biotechmgr !! :)

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#6) On September 01, 2009 at 10:29 PM, RieskeKR (< 20) wrote:

Hi,

I would like a copy of the book "Conquer the Crash". Please send to:

Kent R. Rieske

5086 Cottonwood Drive

Boulder, CO 80301

Thank you very much.

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#7) On September 01, 2009 at 11:42 PM, Tastylunch (29.42) wrote:

Didn't know you were an ewave practioner Bio

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#8) On September 08, 2009 at 9:22 PM, checklist34 (99.72) wrote:

what about wave 1 was down from 2000 to 2003

wave 2 was up until late 2007

wave 3 was the main event here with a long brutal downward slide to march 2009

wave 4 was a corrective up

 

what about if the jump just seen was wave 1 of a new bull?

 

the odds of new lows are so slim that i have publicly offered my favorite car to one CAPs game player if the S&P simply breached 800 again... 

What fundamental reason will cause a new wave of selling?  and how are we going to ge tlower than march when march represented all time low levels of investment and all time high lvels of shorts?

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#9) On September 09, 2009 at 6:23 PM, trimobile (< 20) wrote:

BIOTECHMGR and all - Out of curiosity, what inverse ETFs would you leverage to take advantage of primary wave 3 down?

Or maybe I should ask, what securities are available and reliable enough to take advantage of P3 down?

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#10) On September 10, 2009 at 11:25 AM, biotechmgr (36.35) wrote:

trimobile,

The challenge would be if there is a systemic problem where the system locks up. This is what concerns me about trading too aggressively. I use SDS for 2x leverage. Another could be a "bank holiday" that could keep your money from you for a time. Another risk is counterparty. Winners could turn to losers if the other side can't pay. So as much as I will be bearish, the question is how much when there could be a high level of systemic risk. Only trade with what you could lose completely. Have most cash in safety, it will be worth much more at the bottom of a deflation.

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