05.05.2011 Redo in Banks coming?

As everyone is aware, we had a pretty hard sell off in commodities today. Which oddly is arriving after we've seen the 10 year treasury yield continue to plunge, even on up days in the market. We also have the IRX almost down to a flat zero.

Something is afoot. It's not just today's commodity sell off either, it's a combination of many things lately that do not make sense.

But first, lets just look at what the market is telling us. I had to pull out to a 10 week chart, from the 20 day, but we can see that the S&P is still inside of a solid rising channel. We have a bit more room on the downside to reach the bottom of that channel and the bottom should be some strong support. I would look for us getting close to 1310. But, this is still a correction until proven otherwise. A break below the bounderies of the rising channel would obviously be cause for re-evaluation. Until then, we have finished 3 waves, are completing the 4th wave and have 1 more wave up to go.

Here's the S&P chart with the channel;



Now.. on to other things that are signaling trouble in the future. I'm sure you've seen all the good earnings and wonder where a top will come from or what the next crisis will be. I think we are getting hints right now in the big banks. As has been mentioned by Reggie Middleton of boombustblog.com, the banks have been pulling down their reserves to make their profits look fatter. It's left some of them with some lean reserves. You may have also noticed a lot of the real estate in this country is double dipping pretty hard right now. That could be a problem, a big problem.

I think we are seeing it in the bank stocks. When looking at the following charts, please keep in mind these are the same time period as the S&P chart with the rising channel. So obviously much higher over the last 10 weeks, despite the recent sell off.

The XLF is also sort of flatish.. here's the XLF;



Now look at some of the individual big banks over the last 10 weeks..

Wells Fargo;



Bank of America;



U.S. Bank;



Morgan Stanley;



Those charts are not trending up like the S&P .. in fact they are all trending down and down very quickly. The broader market may take another few months to notice while the S&P finishes it's EW pattern, but this type of action in the big banks is waving it's hand at us telling us something is very wrong.

GL tomorrow.

05.04.2011 Update Crossfire

We flirted today with breaking our important trendline, but ended the day closing above it.

The Elliot count could go either way right now, so it doesn't do us much good. We could be done with only A of an ABC and we started B this afternoon. Or we could be completely done with the full ABC correction. There's simply no way to tell, which is often the case with short term EW analysis.

We just have to watch the market here and see what happens. This is typically a good place to be flat and just watch and wait. Regardless of the above EW count, we should continue bouncing a bit into tomorrow. Whether we are finishing B or the the full ABC is over.

After that becomes a split decision, continue with the correction or we shoot higher to continue the rally. The decision will probably be made tomorrow and the next move up or down (after drifting higher a bit tomorrow), will be a pretty strong move either way.

First chart tonight is the S&P, showing how we closed above the important trendline, how I believe we will drift higher and then reach a decision point of where the market heads next. The important trendline will remain key;



Second chart is the Transports. They took a whacking today, about double the loss of the other indicies. Transports were up strong when oil was rallying and now today was very weak with oil down 2%. More than a bit confusing to me, and it's still important to track what the transports do here going forward;



A thrid chart for tonight is IYR (DJ Real Estate ETF), it appears that it has put in some type of top. It's definitely in a down channel now and below that down channel there is not much support on a 20 day chart;



lets see what happens next.

GL

05.03.2011 Update Correcting the correction

We are still in the middle of the expected correction. Looks like we finished a clean 5 waves down for A of an ABC pattern correction. We started B up at the end of the day. I think we might open down a smidge tomorrow as a fake out and then rip up a bit for B, that should about do it for tomorrow. After that will be C down.

C down gets a little dicey. In both the S&P and Trannies, the C wave of this correction must stop at the blue line in my charts. It would mean the C wave needs to be pretty weak. Below the blue lines get dicey and I will have to pull out further than a 20 day chart to figure out where we might go from there. We would have to close below those lines.

IF that happens, we'll re-evaluate and create new probably paths. For the moment though, I would assume we'll hold those lines, finish this correction and then head back up for another big wave north. I'm still targeting something around 1430 as the top of the rally from March 2009.

The charts for tonight are just updates of what I posted yesterday, the market pretty much followed the paths that I had outlined today.

2 things could happen tomorrow. We could follow the paths outlined in the charts, or we could just collapse below the blue line. If we collapse below the blue line, I will attempt to post an intra-day update with a quick update of where we might go and potentially how to play it.

This is the S&P chart, following the projected path so far;



This is the DJT chart, it broke down out of the megaphone top and should follow a path similar to the S&P;




GL

05.02.2011 Update .. Pullback time

Looks like a pullback is upon us. Pay attention to the strength of the selling for tips on where we go after this. If the rally from March 2009 is over (which I am not advocating, but must consider as a possibility) it will show up in very impulsive moves (Fast, hard, high volume) and signal distribution (large institutions selling to mom and pop buy the dippers).

First stop seems to be around 1348 or so, but I don't think that would be the bottom of this pullback, but it could be.

I've done some simple Elliot Wave labeling for a potential forecast of how this pullback might play out in the form of an ABC structure. This is just a guesstimate of course. Short term elliot wave labeling is very difficult and often guessing.

The first chart is the S&P 500 30 minute / 20 days. I show how we lost the trendline, regained it this morning and then obviously lost it, so now should be in pullback mode. As mentioned over the weekend, the trendline was just too steep and proved to be too much to keep up with as the day went on. It has the simple EW count going forward for this pullback;



This second chart is the DOW Jones Transports. They are putting in a megaphone top and also lost an important trendline today. I'm curious to see what the DJT does here after putting in an intra-day all time high but only by a smidge and looking sort of double toppish on a 5 year chart. The Russel 2000 is in a similar situation. As mentioned before the Industrials are still the most bullish looking chart, but it also lost it's short term trendline, so it joins the S&P and DJT as having lost recent uptrend lines. Trannies chart;



EDIT: On second thought, it looks pretty clear we started 3 of A down for this pullback. So it should be a half decent sell off.

GL

05.01.2011 Weekend Update

Late update this weekend, not feeling very well.

It looks like we have finished up the first wave of the final rally leg of the March 2009 rally. Next will be a corrective wave. We may pop up a bit tomorrow, but I expect there's a high likelyhood that the market closes down.

There is a tiny tiny tiny chance that this 5 wave structure is all there was for the last leg of the rally, but I doubt it. If that was the case, impulsive selling and distribution will become very apparent very soon.

Otherwise, I expect a pullback to the 1340 range for the 2nd wave correction and then to embark on wave 3 up.

Tonights chart is a 30 minute / 10 day chart of the S&P. I've labeled what I believe is the EW count for this rally and I more importantly I show the trendline for this rally that looks broken which is key to my guess that this part of the rally is over.

S&P chart;



Meanwhile tonight, somethings going on in silver. Probably just a result of the parabolic blow off it recently went on, but keep an eye on whether it starts to spread into other assets. It could be the start of a waterfall of sorts.

I will have more tomorrow night after I feel better. (I hope)

Thursday April 28th, 2011 Cooked bears with bear sauce

Today traded as expected. Higher.

I'm not going to get into elliot wave analysis in this post, but I do believe we are in a wave 3 of the final cycle wave 5 of this rally. Cycle wave 5 would be = to cycle wave 1 around 1367. But since I believe we are only in wave 3 of cycle 5, obviously I believe we are going higher than that.

Moving on to other issues/factors, I widened my view and looked at some 3 year charts of the Trannies, Russel and S&P, I think i've identified some very very near term resistance in the trannies and Russel and potentially where the S&P is heading.

Points;

1) The DOW Jones Transports made a new all time closing high today. It is within 40 points of an all time intra-day high. Once DJT has all time highs both intra-day and closing, we will have a long term DOW Theory bearish divergence until and unless the DOW makes it to 14600.

Long term though, it kinda looks double topish. We'll have to see what happens there next, to kill the double top look, DJT will need to really launch up a couple hundred points.

DJT Chart;



2) The Russel 2000 is in a similar situation. It made a new all time high today, but only by 7 points. So on a 3 year chart. It kinda has a double topish feel to it. IWM (The russel ETF) actually flash smashed straight up for 10-20% today. Those types of things are becoming more common. Unstable flash moves like that in large ETF's like IWM for such large percentages just can't be good.

IWM chart; (I didn't mark it, but that crazy line today straight up was the flash move)



3) The S&P looks like it's in a big wedge and rising slowly to what I think is likely to be resistance and will time out well with the potential EW count. I do think we are getting close to a short term top here, but only for a 3-4% move back down to the bottom of the wedge. That will be the correction for wave 4 of cycle 5. Then one more surge up to my target area and line of resistence in the following chart. Somewhere in the low 1400's.

S&P Chart;



I'm curious to see if the Trannies and Russel find big resistance here and sort of grind to a halt while the S&P finishes it's patter along with the DOW (which is the most bullish looking).

With QE2 expected to end in June and "sell in may and stay away" coming, I expect the bulk of these moves to come over the next month and potentially finish just as Ben is winding down QE2.

If the trannies and IWM break out and really launch higher as the S&P and DOW finish patterns, we will have to re-evaluate their charts and even potentially think about everything in this market heading to all time highs. The bubble to end all bubbles.

I think there's room to keep rallying tomorrow, but a short term pullback is near.

As always, keep an eye out for impulse selling and volume that would signal distribution. Until we see that, the robots will remain on buy.

Guess who's back...

So.. I had a baby. Time for blogging sort of went into the toilet for a while, but now that I have a better handle on the whole parenting thing and I've been doing nightly charts on tickerforum.org, I've decided to start this back up again with more detail that I normal insert into my trading thread on tickerforum.

Here we are almost 2 years later at 1355 on the S&P, 2 trillion dollars added to the FED's balance sheet and rates STILL at 0%. Sort of makes you go.. WTF?.. but that isn't the point of markets, asking why things are the way they are or if it makes sense. Markets rarely make sense.

Everything is on a buy right now. DOW made new highs, NAS made new highs, S&P made new highs, the Trannies finally confirmed the DOW and made a new high. We do have 1 holdout at the moment though in the SOX. The SOX is struggling here. Which is important because the SOX is a good look at future manufacturing demand. Semiconductors are in a lot of products and you need them to manufacture your product. So a strong SOX means businesses are expecting strong demand for products in the coming months. Right now, the SOX is lagging. But besides extreme bullish sentiment and such, it's one of the few bearish things I see at the moment.

Looking at the S&P, we have blasted out of an inverse head and shoulders pattern over the last 2 days. The target for this breakout is 1410-1430.

You have to go with the continuing uptrend here until something happens to indicate distribution or that there's another hidden problem looming.

Eventually of course all this money printing will come back to hurt us very very badly, but we do not know when, and we shouldn't guess. Just watch and follow for now and right now, just about everything is pointing up.

Here's the S&P inverse head and shoulders;



(Update 6:44 p.m.)

Since I haven't posted in awhile, I want to talk a bit about what Bernanke is doing and why we are going higher and why profits are doing so well despite the fact that most of us probably feel a little tight wallet right now and job security is mildly good at best.

Bernanke's main goals are to devalue the dollar, force interest rates down, force everyone into assets, which is to drive up asset prices. If you have a 1 million nest egg, if you had a CD available paying 5%, you could return 50k a year to live on. But at these rates, you'll be lucky to get 1.25% in a CD, giving you only 12,500$ to live on in order to not reduce your balance. That forces you into other assets, you have no choice. So extend that to corporations, pension funds, etc. Everyone that normally needed that 5% or more stable to functionally and safely operate. Those people are all forced into dividend paying stocks or whatever yield they can find.. seen REIT's near all time highs lately??

A bubble is being blown in anything with a yield.

In order to do what he's doing, he's expanding the FED's balance sheet at a tremendous rate with these QE programs. The resulting devaluation of the dollar is driving up commodity prices including oil. Eventually at some point, inflation will spark out of just food and energy and start creeping into general prices. This will start as a spark and very quickly flood into a wildfire. What would eventually cause this to happen is if wages began to rise. If people start making more money, they will pay more for things. Watch carefully for rising wages, it will be a spark to ignite the wildfire.

You might ask why profits have been so good, while things like real estate are still falling and making folks net worth fall. Well, it's a product of a falling dollar in 2 ways;

1) International conglomerates like IBM and CAT will greatly increase their sales overseas as the devaluation of the dollar makes their products/services cheaper and more competitive on the global market. Some companies have actually recently crossed some incredible lines where Asia and Europe now account for more than 50% of their revenue. I believe that was the case with 3M's report.

2) As dollars are devalued, companies are going to be paid more dollars where each is worth less for their products and services. Just as inflation drives asset prices higher, it will drive profits higher.

The key to all of this will be spotting the point at which Ben Bernanke loses this game. I suggest watching the market, it will see it coming. And it will show up in the form of heavy selling and increased volume in the stock market, but if you want to watch for yourself in the data, I would specifically watch average wages for consistent increases.

If you made it this far.. good work. :) Future blog posts will have many more charts and more technical analysis.