05.15.2011 Weekend Update

By the look of the futures tonight, it looks like we are going to be on track to be heading towards the 1320-1325 target area on the cash market.

Below is a repost of Friday's chart, there's no changes at this time and look for a reversal in the target area. If we end up closing below 1320 on the cash, there may be need for some re-evaluation and the near term outlook could become significantly more bearish.

Friday's Chart;



For this weekends update, I'd like to talk a bit about where we might be going long term.

Dr. Robert McHugh of technicaltradingindex.com, most of you know who he is or have heard of him. He recently changed his long term outlook from the market having topped a very long term supercycle wave (that started after the great depression) and us being in the middle of that correction with one major wave down left, to a forecast in which we have not yet topped that wave and we have been a topping process since 2000. He theorizes that we actually are topping a Grand Supercycle wave, which is theory because while supercycle waves can be historically tracked, a single grand supercycle lasts hundreds of years, so the start of that wave occurred sometime around the signing of the declaration of independence. Topping a grand supercycle wave would be a very very dire forecast, as correcting a wave that is hundreds of years long would most definitely result in the stock market going to zero.

This is Dr. McHugh's recent view of the Dow Jones Industrials. This is a 24 year chart and shows a broadening bearish megaphone top that has been forming since 2000. We would be in the final E wave inside of that megaphone. This pattern would allow for the market to either finish and collapse at any time, or go as far as new highs before the break down hits. This is the pattern that allows for the possibility of new highs, but it is also the most dangerous pattern to confirm for the long term. Targets of confirming this pattern and breaking down out of it are in fact targets of Zero. My guess is either a breakdown of global fiat monetary systems or a global depression caused by the end result of all this debt in the global system would be necessary to cause such an outcome.

Chart of potential industrials megaphone top;



I don't really share this view with Dr. McHugh, although I must concede that it is possible. I think it is more likely that we have in fact topped the Supercycle wave and have been in the process of correcting it. In this scenario, we have completed 5 supercycle waves, and we have finished the A and B part of an ABC correction.

Chart of what is IMO the more likely path and was Dr. McHugh's original thesis;



That thesis also meshes well with the very long term trendlines of the market;



This all gives us a long term target of about 475-500 on the S&P 500 and 4000-4500 on the DOW. A tremendous decline that would practically wipe out quite a bit of middle class retirement accounts and would probably bankrupt quite a few pension funds. It would be ugly.

But as ugly as it would be, it would not be nearly as ugly as what Dr. McHugh is now predicting.

If you look around the globe, it's not hard to see where all this damage is going to come from. It's going to come from massive debt loads at the government level that is world wide and we have central banks around the world attempting to continually bail out and hide all of it. When practically every country in the G20 has the same problem, they are all currently in a race of who can devalue their currency the fastest.

There's one problem with this solution. You CANNOT fix a debt problem with more debt. This is like you putting your mortgage on your credit card. That works until the bank says you can't put any more money on your credit card or until the interest on all the debt exceeds your income. This is the state of the US, England, Europe and Japan.

The technicals say what is obvious. This ponzi scheme we currently are running to fund our tremendous deficit spending is unsustainable and the hangover from our over indulgence is going to be quite painful and potentially disasterous. Hopefully we just take our pain medicine soon and move on. If we continue to bury our heads in the sand the debt only gets bigger and the outcome worse.

05.13.2011 Short update

A quick update tonight because blogger was down since Wednesday. There will be full weekend update posted on Sunday.

We are still following the outlined path and I'm still expecting us to finish this correction in the 1320-1325 range.

After that we should head north on our final rally leg of the rally since March 2009.

As of this moment, I expect that the final rally will reach around 1410-1430, but it is possible that we see new all time highs before we head back down, but it is not the highest probability at the moment. Following that rally, the forecasts get pretty dire and I will get into long term targets for that this weekend, but the last scare we had may feel like a cakewalk compared to this one.

Here's the S&P chart showing us following the direction I had outlined and it looks like we will hit the bottom of the channel on Monday or Tuesday. That is our reversal spot. If we break below that channel (below the blue line), we have to re-evaluate the longer term Elliot Wave counts and consider that we may have already topped the rally from March 2009, but that is only an alternate view if we happen to collapse below 1320.

S&P 20 day / 30 minute;

05.13.2011 Blogger was down

I appologize that blogger has been down, so I could not post an update for yesterday.

They have also temporarily removed Wednesday's post.

I will try to post a short update tonight for Friday the 13th and post a longer weekend update for release on Sunday.

Thanks,
CJ

05.11.2011 We plunged... now what..

Turns out my analysis yesterday that we had some big downside coming today was right. Intra-day it was starting to look like our correction was over and we were on our way up in the last hour to start the final wave north.

After a closer look, I do not believe that to be the case. I think we'll head north a bit tomorrow (or maybe just float around flatish for a bit) basically just to burn off some short term oversold condition. Then we will continue to finish our corrective pattern all the way to the bottom of the smaller channel around 1320-1325.

* Note though that Initial claims, Retail sales and PPI are all reported tomorrow morning, so the results of this could trump any analysis here. Bad data could just plunge us straight to the bottom of the channel, good data could cut it out all together.

The small channel in the chart below is inside the larger channel that I posted last night as part of the long term S&P analysis (last night blog only for TF folks). We won't talk about targets for the larger channel unless we break below this small one. Which I don't expect at the moment.

The following chart shows my short term view on a 60 min chart;



I think we could run up as much as 6 or 7 points burning off oversold, then we should continue down to finish this pattern. That should complete this correction around 1325 or a little lower and then we will embark north to finish the rally from March 2009.

The following chart is a daily chart that shows the channel clearer and where our target is;



IF we were to plunge below 1320 (on the cash) and close there, then there are a couple alternate EW counts and views that I have for what may happen. They both involve targets to the downside of at least 1220. But I won't bring those up until/unless we close below this current channel.

GL tomorrow.. be careful with positions ahead of the data tomorrow

05.10.2011 Update Plunge tomorrow?

I want to preface this with the fact that I of course could be TOTALLY wrong and we have every reason to just rocket higher here. But the good news is that it would not take much north to blow my short term theory here and we just go higher. So it's not a bad spot to throw on a short and see where we are at in the morning.

If we get over 1365 on the cash.. my short term call here is probabl blown.

Based on the short term EW count, we followed my path north of the 2 options yesterday pretty exactly. We also ended at the trendline precisely where I thought we would. We also have what looks like 5 waves in the C part of a correction. (the correction of the correction from a few posts ago). So I think we do a 180 here and do a little plunge trip straight down to the bottom of our channel around 1312 or so.

Here is the short term S&P chart (20 day / 30 min.) it includes my current EW count and what I think are the important trendlines and the fact that we are at the tippy top of a rising wedge and the MACD and Stochs are overbought;



Long term... I've gone back and looked and it unfortunately (if you are a bear) is possible that we may in fact have not even topped the 3rd wave of Supercycle C wave. We could do quite a plunge for what could be the 4th wave and still be in the rising channel for Supercycle C. This is not my top count, and I haven't seen anyone really even mention it as a possibility, but to me, it has to be considered as a possible ALT.

So to offset the bearish enthusiasm that we might plunge starting tomorrow for a bit, i'm including this chart to illustrate that we may in fact be many months from completing this rally. We would have to fall below the large channel to discount its possibility.

Chart is a Daily / 2 year;



GL tomorrow.

05.09.2011 Update

Short update for tonight. Not a lot of new things happened today.

We pretty much followed the outlined path, although there's a chance that we may not go up as high as 1356 before completing the correction. I show that in tonights chart, which shows that we are at the tip of a pennant and the resolution to that pennant will happen tomorrow.

If we break upwards out of it, I expect we will complete the previously outlined path and head up to about 1356, maybe a tad higher, and then head back down to complete the pattern and fill the gap. If we break lower out of it, we'll just go ahead and fill the gap and hit the bottom of the channel and then be ready to start the final wave up.

The reason I give the pennant a chance to break south is because the MACD and Stochs are looking a little toppy here on a short term chart, but as usual we can break north and roll along the top to a very overbought state and then head back down.

We should know tomorrow by lunch.

Here is tonights chart; S&P 30 min / 20 day

05.08.2011 Weekend Update

We are still in a situation where there is no clear short term direction for the market. I suspect we are going to rally a bit more and then head back down to finish our trip to the bottom of the big channel. (see 10 week S&P Chart)

It is possible the correction is done and we'll just go ahead and rip higher to finish the rally from March 2009, but I don't think so. I think we finish our trip to the bottom of the channel and also make sure we fill the gap. (see 20 day S&P chart)

It is even still possible that we have in fact topped the rally from March 2009 and this rally is the first corrective wave of the trip down, but I definitely put this option as the lowest probability.

Here are the S&P charts;

10 week;



20 day;



The bank stocks have not participated much in this rally and are obviously still weak, as mentioned in the last post, this is not a good sign going forward and a sign of brewing problems.

I also took a look at IYR this weekend, which was weak on Friday despite the rally. If IYR starts rolling over, we will take yet another leader away from this market. Leadership is narrowing. Important areas like Banks and Semi's are not doing well. We are in a topping process, but it must be allowed time to play out. Tops can take awhile to form. The 2007 top formed for almost a year before the plunge finally hit.

Here's the IYR chart showing some weakness recently, that lower trendline is important for IYR.



Hope everyone had a happy Mothers Day!

GL tomorrow.