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SPX says "Pass Me the Binaca!"

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October 15, 2009 – Comments (15)

First, here is the EOD count. And yet another triangle to extended sideways today with no meaningful pullback --- TRIANGLE!! (shaking his fist)

.... continued in comments...

15 Comments – Post Your Own

#1) On October 15, 2009 at 9:03 PM, binve (< 20) wrote:



But another interesting upshot of this is that it shifts up the final wave's channel lines. We will come back to this.

Next lets look at some breadth. Refer to last night's post (Man SPX, Your Brea(d)th Stinks!).

Wow, talk about stinky. What did you eat, some Limburger? Let me guess, you went down to Gordon-Biersch and had a huge plate of garlic fries (which are awesome, BTW) followed by some raw onions?

Because brea(d)th this bad (<1) on a new high? You gave to be joking, SPX, come on.



INDU and SPX = new highs. NDX, COMPQ and RUT? Nope.

So lets get back to the topic of divergences and price action. The VIX divergence yesterday was bogus. It made a new low today as *some* of the markets made a new high. So +1 for the bulls. ... However, The NYAD (NYSE official Advance/Decline) was essentially flat (up 0.11%) while the the SPX was up 0.41% and the Dow was up 0.47%. While not technically a divergence, you can see on the chart below the NYAD has been leading the rally up (orange line on the chart background). Also this rally has had no pullback greater than 50% for the last 10 trading days (most have been 24% or 38%), despite the decreasing breadth. Couple that with about 5 large exhaustion gaps. Oh, and the daily RSI is testing the downtrend line for a third time with negative divergence.

I don't know about you, but I would expect a technically weak blowoff to behave in exactly the same fashion. Not saying it is one, just saying it has a lot of the earmarks.

Weak breadth, with unimpressive volume. I don't think anybody can rightly argue (and be taken seriously) that this particular wave, the one in which we are making new highs in the middle of Q3 earnings season, has strong internals.



I am not saying this is the top, I am not saying it is not. I am just asking you to ask yourself: If the bulls are still driving this rally, wouldn't we expect a better move in the face of this "good news". Wouldn't the internals be stronger as we made new highs, not weaker?.

Just a question.


Next is a great conversation between myself and kbmartin, that is worth sharing

kbmartin wrote:

I have trouble swallowing your placement of minuette 1. It's valid, but pretty odd in appearance. I think we have to consider the possibility, which I know you are not oblivious to, that another month (or more) of bullish madness remains, with a full 50% or even 62% retracement of P1/A.

Many of the EW blogs are still presenting counts that try to call the top as: soon. Using fifth-wave extensions, and double-double-zigzags, and what-have-you. (Pat and Kenny notable exceptions.) Feels to me like we're still climbing the wall of worry -- the last bear almost left the room at the 1080 high, but was enticed back in by the head-fake under the seven-month bottom trend line. (Ouch. I lost money on that one.)

So here's where I am now:
http://stockcharts.com/def/servlet/Favorites.CS...

Indeed, stocks are for renting, not buying and holding, but I think we have to be very careful about falling in love with counts where we get to short in the next week. Maybe we will, but boy have I been hurt by doing so. And also, this can't end until most come over to my point of view, right?.

binve replied

I have trouble swallowing your placement of minuette 1. It's valid, but pretty odd in appearance.

LOL! I hear you. I like the way this one channels, but there is the other count that Daneric has that I like too: http://4.bp.blogspot.com/_TwUS3GyHKsQ/SteHkdtRW.... This explains the price action and the market internals well too.

I think we have to consider the possibility, which I know you are not oblivious to, that another month (or more) of bullish madness remains, with a full 50% or even 62% retracement of P1/A.

Absolutely! My bullish count options are still on the table: http://marketthoughtsandanalysis.blogspot.com/2...

Many of the EW blogs are still presenting counts that try to call the top as: soon.

Yep, I hear you. I am not specifically trying to do that. But what I am doing is saying that the final wave of P2 should have:

- Low volume
- Low volatility
- Low breadth and decreasing breadth as it moves up
- Daily divergences of technical indicators (MACD, RSI, and TRIN more importantly)
- Lots of extension with little pullback and possibly a 5th wave extension for a blow-off, not because of a bullish move but because of little bearish resistance.

And so while I am not calling the top here, I am remarking how much this current wave from Oct 2 fits nearly all of the criteria above.

And I like your charts a lot. While the count is different, it has similar targets to my more bullish counts (Rally out to December possibly with a target of 1150-1200).

However, I would be remiss in not pointing out to everybody how un-bullish this current move even despite, or maybe even because of, the new highs.

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#2) On October 15, 2009 at 9:21 PM, lquadland10 (< 20) wrote:

What about hedgefund redemptions. Have they paid out yet>?

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#3) On October 15, 2009 at 9:21 PM, Tastylunch (29.24) wrote:

To be honest I'm not sure how useful EWP is predicting the end of a stimulus/currency driven rally. There's been so many head fakes. It's my understanding EWP is ony reliably applicable whne the market is allowed to work uninterfered with...

A lot more may depend I think on when the stimulus runs out if Japan's past is any guide...

Still considering the remarkable overvalution/momentum agreement the risk of a very bad ending is growing with every tick upward.

We need to correct soon or we'll probably crash.

I have hard time seeing the market due that before the banks are done "pirnting" their earnings.... JPM killed it I expect Citi and MS to beat as well. GS might miss but they have the highest hurdle...

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#4) On October 15, 2009 at 9:23 PM, Tastylunch (29.24) wrote:

Never mind I guess Goldman and Citi were today. Looks like GS destoryed it and Citi was well Citi

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#5) On October 15, 2009 at 9:35 PM, MattH42004 (30.15) wrote:

Tasty, the Fool actually had a couple of nice front page articles on Goldman and Citi today. They're short and worth a read, the guy who writes their banking articles seems to know his stuff. 

http://www.fool.com/investing/general/2009/10/15/inside-goldman-sachss-earnings.aspx

http://www.fool.com/investing/general/2009/10/15/poor-citigroup.aspx

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#6) On October 15, 2009 at 9:35 PM, binve (< 20) wrote:

lquadland10, That is a good question, and I don't have the answer.

Tastylunch, Hey man :)

To be honest I'm not sure how useful EWP is predicting the end of a stimulus/currency driven rally.

Fair point. But to be clear, I will repeat what I wrote above:

Many of the EW blogs are still presenting counts that try to call the top as: soon.

Yep, I hear you. I am not specifically trying to do that. But what I am doing is saying that the final wave of P2 should have:

- Low volume
- Low volatility
- Low breadth and decreasing breadth as it moves up
- Daily divergences of technical indicators (MACD, RSI, and TRIN more importantly)
- Lots of extension with little pullback and possibly a 5th wave extension for a blow-off, not because of a bullish move but because of little bearish resistance.

And so while I am not calling the top here, I am remarking how much this current wave from Oct 2 fits nearly all of the criteria above.

.... However, I would be remiss in not pointing out to everybody how un-bullish this current move even despite, or maybe even because of, the new highs. .

I am just saying that the internals of every bullish advance since March 9 has been strong. They have been getting weaker as time was moved on (the one in July was very strong, but the ones in Aug-Sept were much less strong). This is the first bullish wave that looks positively weak from a look at the internals.

That is really the point of this post: making people aware of those observations.

Because I think the market will give some warning signs before breaking down. If I didn't think that was true, than I would spend so much time looking at this stuff :).

I have hard time seeing the market due that before the banks are done "pirnting" their earnings.... JPM killed it I expect Citi and MS to beat as well. GS might miss but they have the highest hurdle.

That is a very fair point and I tend to agree with you, which is why I still have bullish count options on the table, you can see the link to them above in my reply to kbmartin.

Thanks for the comments man!.

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#7) On October 15, 2009 at 10:13 PM, Tastylunch (29.24) wrote:

MattH42004

they are good, thx for the linkage. TMFHousel did a nice job as usual. The hard part is guessing of course when the market will actually demand actual revenue improvement results from. All the bellwethers I care about are sill negatvie so far despite easy comps.

kinda odd that now the fact they've had free money to play with matters when everyone knew they had that same free money the last two quarters. Still it's nice to see the market actually care about the fact that the free money is going bye bye soon. I thought they wouldn't care at all until Q4 prints but whatever :)

Maybe after this banking nonsense is over we actually revive the real heart of the economy and not just line the pockets of the lobbyists errr bankers.

binve

all of which makes one have to the hard question I suppose, if EWP isn't reliable in predicting turns enough to trade why bother to use it?

I've gotten to like EWP since learning it a bit over the last 18 months, but I'm not at all convinced it's useful for actually making money unless you plan to trade e-minis or stuff like that :(

Not intended  to be critical of course (I think mots people have respect for WP practioners if for no other reaosn than it's very difficult to do well comapred to FA and TA) just thinking aloud about a tough question. In my eyes You do it as well or better than any EWP practioner I've witnessed so I figure I ought to throw this bone out into discussion here.

EWP has taught me a lot of things, but the one thing it hasn't done is make me any money. I do find it useful for gauging the "weather" if you will, but I also find it to be about as reliable as meteorologists. I'vebeen using EWP as more a bear/bull determinant and then using other methods to tarde/invest.

hope that didn't come across as combative (it's meant that way), just been thinking about this forawhile now and I value your opinion.

btw IBD is still calling this a rally and they've been  really on it so far this year...

 

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#8) On October 15, 2009 at 10:37 PM, Varchild2008 (83.69) wrote:

Commodities and Currency are not pushing stocks UP.

It's simple... People are TIRED of losing money....with high unemployment....The Stock Market is essentially the only game in town.

I don't expect a pullback until we see some extremely positive jobs data showing DROP in unemployment.  Get unemployment back to 6% from 17.5% and the stock market will peak.

Course by then.... Varchild2008 will be a millionairre and forced to retire early.  Which is better than counting dots on a chart.

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#9) On October 15, 2009 at 10:45 PM, MattH42004 (30.15) wrote:

Tastylunch

Agreed on all points. I don't care about the trading profits for JPM and The Squid, they are almost meaningless. Trading profits used to be valued with incredibly low multiples, like 1, becuase they are inherrently unreliable. Now they are the holy grail. It's an illusion. I mean Citi's equity is priced at 110 billion right now! Seriously? One hundred and freaking ten billion! I've been watching CNBC lately to bask in the warm and fuzzy glow of the DOW 10,000 group orgasm. I saw Cramer on there referring to Citi's stock falling and screaming about it as a buying opportunity. He said it was on its way to either 12 or 15, I forget which. That's 250-300 billion dollars!!! Yea, and I've got a winged unicorn tied up in back yard that sh**ts gold bricks. You know what really sucks though? There's some guy out there with a wrecked IRA whose gonna buy that and throw what little is left into Citi becuase, "It was over $50 a few years ago, now it's only $5, it's only got one way to go, up up up!"

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#10) On October 15, 2009 at 11:05 PM, Tastylunch (29.24) wrote:

MattH42004

There's some guy out there with a wrecked IRA whose gonna buy that and throw what little is left into Citi becuase, "It was over $50 a few years ago, now it's only $5, it's only got one way to go, up up up!

hah too true. Retail investors are getting shafted harder now than they have in several generations

what's even more amazing is how little these guys are getting with free capital.

Give me free money from the Fed and Treasury and watch what I'l do with it. I gaurantee you I'll lose less of it than Citigroup. :)

I almost feel bad for that Saudi Prince who owns what like a couple billion of C. Who the heck is he going to sell that to?

That's got to be one shallow dark pool. :)

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#11) On October 15, 2009 at 11:12 PM, herztical (27.93) wrote:

Great article binve...as a "bull" I agree I need a nap. Need some more fear mongoring and a good bear raid before I step back in from long side 

 

It's simple... People are TIRED of losing money....with high unemployment....The Stock Market is essentially the only game in town.

huh?  Lose your job and roll the dice in the market? That has nothing to do with rally.   

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#12) On October 16, 2009 at 1:11 AM, awallejr (85.41) wrote:


Tastylunch

Yet if you bought C at $1 you made overt 400%. How often can you do that?  I've advised many times to buy C when it was in the $2 range.  Told people to sell 12/09 $3 December puts too.  The reasoning was not because, hey it once was $50, the reasoning was hey the Fed said we aren't letting it go under.

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#13) On October 16, 2009 at 2:40 AM, Tastylunch (29.24) wrote:

awallejr

you could have also made the similiar returns on Wamu and GM after they went bankrupt.

That's just the Wall St casino in action. It doesn't mean C, Fannie, Freddie or AIG really is actually worth anything to stockholders in the long run.

I wouldn't short C right now with the banks still so strongly in favor, but it's tempting.

If you can't turn a profit with free TARP money when can you make money?

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#14) On October 16, 2009 at 8:37 AM, awallejr (85.41) wrote:

When foreclosure pressure stops and unemployment turns.  Hopefully 2010. 

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#15) On October 16, 2009 at 9:26 AM, binve (< 20) wrote:

Tastylunch,

all of which makes one have to the hard question I suppose, if EWP isn't reliable in predicting turns enough to trade why bother to use it?

It is a good question. And it really depends on your timeframe.

I started writing a long response, but I don't have time to finish it right now. I have a few good examples and sceanarios that have worked for me in a past and I believe will continue to do well in the future. I will try to post this weekend.

hope that didn't come across as combative (it's meant that way), just been thinking about this forawhile now and I value your opinion.

Not at all man! I definitely did not take it that way. No worries. These are good critical questions asked between friends who have had great discussions in the past. I am approaching my answer in this fashion too. :)

btw IBD is still calling this a rally and they've been  really on it so far this year

Yep, they have made good calls like that. And like I said, I still have bullish count options on the table, and so I can see a technical avenue for the rally to keep extending.

--This is asked to anybody, not just Tasty: So if you are a dip-buyer, you would have made a killing the last several months. And if you did, good for you! (honestly).

But at some point, the trend will change. And maybe it will be obvious at first and maybe it won't. In that case, how many dips will you buy at lower lowers only to see lower highs on the next advance?

Any strategy, simple or complex, has its flaws. I am just saying that easy rallies up, like we have seen the past 8 months, with strong internals that kill bears millions at a time, seem like they are getting harder to come by.

Just sharing my perspective, right or wrong as it may be :)

herztical.,

Hey man!

Great article binve...as a "bull" I agree I need a nap

Thanks man!. And LOL! Yeah, every advance needs a pullback. And what I am saying is this one is ripe for one. Is this wave the top? I am not answering that question, like I say above. Not the point of this post. But yes, I would think the bulls need a break for a few days :)

Need some more fear mongoring and a good bear raid before I step back in from long side

I suppose that's where I step in right? :)

LOL! Take care man :).

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