Deflation vs. Inflation

Money Flows

Debt Overhang Will Reduce Consumption

In the U.S., consumer spending represents about 70% of GDP. After decades of an inflationary “crack-up” boom, people are stuffed to the gills with consumer debt. But it appears that its long build-up has turned down, which is a message businesses should heed.

Many consumer businesses have already received the new message of our times: Consumers want value for their money. The days of widespread upper-end fashion and lavish dining are largely relics of the past. Don’t believe me? Take a look at charts of bebe Stores (BEBE), Abercrombie & Fitch (ANF), Morton Restaurant Group (MRT) and Ruth’s Hospitality Group (RUTH). Consumers’ changing preferences are reflected in their charts, but we’re most likely only at the forefront of decreased consumption!

A review of the past 30 years of debt/disposable income and debt service payments in the chart below shows that they still remain at elevated levels (courtesy of Gary Shilling’s Insight www.agaryshilling.com). Back in 1982, consumers averaged 60% debt-to-income and debt service payments were only 10.5% of disposable income. We witnessed a substantial rise in debt from 1994 through 2006, but that trend has been in reverse for several years now.

The massive U.S. unemployment numbers also create an interesting dynamic. Typically when one loses a job, debt will initially ramp up as the unemployed use debt to offset the lost income. But for many, the loss of a job becomes a life-changing event: Their attitude towards debt in general and the desire to consume begin to wane. So while there may only be 15 million officially unemployed, there are many more that have gone through the unemployed experience lately, which should dampen their desire to consume for years.

Will we return to the early 80s and early 90s level of debt-to-income ratios? Or will it be even worse this time? Imagine the levels of corporate bankruptcies and job losses that would accompany a decline to below a 60% debt-to-income ratio. That would mean that consumers would reduce their outstanding debt by half. Such a scenario is one of the reasons why we at EWI believe that the current recession is not over yet -- and, in fact, believe that it has only just begun.

Commercial Real Estate

Tysons Galleria operator files record bankruptcy

General Growth Properties, owner of premier malls such as Tysons Galleria in McLean, filed the largest real estate bankruptcy in U.S. history Thursday, but analysts say the move is not a sign of retail Armageddon.

General Growth, like many homeowners, paid top dollar in a rush to buy properties earlier in the decade and now finds itself awash in debt with its asset values shrinking.

The company built up $27 billion in debt during its spending spree - which included the acquisition of Columbia, Md.-based Rouse Co. five years ago for $11.3 billion - and became the second-largest mall operator in the nation.

"This is a crisis of capital," said Malachy Kavanagh, a spokesman for the International Council of Shopping Centers. "And the inability to refinance debt really doesn't have anything to do with the slowdown in sales."

The move will not affect shoppers or residents of planned communities such as Columbia, which the company manages. The Columbia property is not included in the bankruptcy filing, the company said.

"Our shopping centers and other properties will continue to offer the same great visitor experience for which our company is so well known," Adam Metz, General Growth's chief executive officer, said in a statement Thursday.

The company owns more than 200 malls, including locally the Shops at Georgetown Park and Harborplace & the Gallery in Baltimore. Other properties include Faneuil Hall in Boston and South Street Seaport in New York.

Shop owners in Tysons Galleria said they remain upbeat and credited General Growth for its management of the upscale mall.

"What they did at this mall was practically a 100 percent face-lift," said Aram Itani, owner of exclusive women's apparel store Aram Boutique.

"The ideas they implemented, the type of accounts they brought in, it just became such a beautiful center. It's unfortunate the economy is under such stress," said Mrs. Itani of Potomac.

Deflation vs. Inflation (2)

Here is a series of real (inflation-adjusted) monthly close charts of the Nikkei225 and the S&P500 since 1970 with their respective annualized rates of inflation shown below. This series also includes an overlay chart with the two index peaks aligned. The overlay retains Japan's inflation to illustrate a point discussed later in this post.

Consumer Debt

Dollar Story (6): Wave Count

SP500 Bear Percentage

Commercial Real Estate

Although roughly half the size of the residential housing market, the commercial real estate market is still twice the size of the total U.S. stock market, so its problems are too large to ignore. They include:

Lower Prices. The commercial real estate market didn’t top until late 2007, about a year and a half AFTER the top in residential real estate prices. But, since the top, prices are now down close to the same percentage, as the chart shows. During May and June commercial real estate prices have fallen 16%!

Financing Trouble. Almost 40% of the financing for retail, industrial and office space flowed through the securitization market. The securitization market has largely been shut down, effectively turning off liquidity for purchases and refinancing. As a result, in the first quarter of 2009 the delinquency rate on commercial properties rose 43%, and sales volume in the US fell 83% year-over-year in the second quarter of 2009.

Rising Supply. General Growth Properties, the second-largest shopping mall owner in the country, became the first large-scale bankruptcy in April. Vacancy rates are at a 20-year high, which is putting additional downward pressure on prices and rents.

Many loans that lenders hold on commercial property are classified as “whole loans,” so it behooves the banks to keep them out of foreclosure. A “whole loan” is carried on the banks’ books at par until it actually enters the foreclosure process. But, because the prices of properties have fallen so far, the underlying collateral is now likely to be less than the banks’ exposure should the loans sour. As a result, banks are attempting to delay foreclosures by modifying commercial real estate loans through interest rate reductions. Unlike the residential market, commercial properties have multiple tenants, so there’s at least some cash flow coming in. This cash flow is one reason banks are willing to modify troubled commercial loans. This stalling suggests that there are significant unrecognized commercial real estate losses currently hidden on banks’ balance sheets.

Bank Assets

The above chart is Treasury Holdings as a percentage of US Chartered Bank Assets since 1952.

"Today, banks hold federal agency securities, backed mostly by mortgages, mortgage-backed securities, plain old mortgages they financed themselves, and a few business loan contracts."

Deflation Has Been Averted?

Deflation indicators:
"Are the sources of credit (banks) lending more, and are the receivers of credit (consumers) taking on more debt? "

FHA Delinquency and Default Rate

Off the wire this morning:

FDIC Deposit fund had negative $8.2B balance in Q3

FDIC is broke. Bankrupt!


Let see the follow table:Will FHA be the next broken government agency? If you see my last post about Home Values projection chart, you probably know what the anwser would be.

116 Years History of Home Values

If we go back to 110, there will be another 21% drop from current 140 level. If we over shoot down to 90 level, there will be 35.7% decrease in next 5 to 10 years.

Prechter Goes All-In - 200% Leveraged Short

Prechter Recommended 200% leveraged short in his today's 2 page Interim EWT Report:

"Today's excitement fits into the time/price grid published on Thursday. This morning the Dow reached 10,495.60, precisely the level at which wave (Y) = (W) on an intraday basis"

"Today is the day on which the entire rally from March has lasted half as long as the preceding decline"

"After 8 months of rally and a 52% retracement, I believe I have seen enough to recommend that traders move to 200% short."

He also warned the risk on this trade as well in his report.

It seems a little bit aggressive to me. He might be too early again, but he is winning this bet so far today. You have to give him enormous credit for sticking with his analysis despite the slings and arrows of outraged unfortunates.

Riding The Waves

Time magazine article: Riding the Waves of Irrational Behavior

http://www.time.com/time/magazine/article/0,9171,1940667,00.html

"Prechter, a soft-spoken, thoughtful, engaging 60-year-old, believes that the bull market of the past eight months that pushed the Dow past 10,000 will inevitably give way to a crash that will drag prices well below the level of early March. He believes this because theories of market behavior put to paper by a guy who died in 1948 tell him so. Yet he makes it all sound perfectly plausible."

That guy is "Ralph Nelson Elliott, an accountant who, while bedridden in the 1930s, charted stock-price movements and found intricate patterns based on the Fibonacci number sequence (in which, after 0 and 1, each number is the sum of the previous two: 1, 2, 3, 5, 8, 13, etc.). The Fibonacci series, like pi, appears frequently in nature."

"Prechter republished Elliott's books and in 1979 went into the forecasting business for himself at what he dubbed the Elliott Wave Institute. In 1981 he moved his operation to Gainesville, Ga., an hour north of Atlanta, and he's been there ever since. His accurate forecasts of a stock-market boom in the 1980s and a crash in the autumn of 1987 made him, for a time, one of the most influential Wall Street gurus. After the market started its 1990s bull run, though, Prechter seemed to lose his touch. In 1995 his book At the Crest of the Tidal Wave predicted the onset of a ‘great bear market.’ The bear arrived, but not for five years. In 2002's Conquer the Crash he predicted the onset of a ‘deflationary depression.’ Again, he was years early."

"In other words, he's wrong a lot. But so are conventional economic forecasters, especially at the market turning points that can have the biggest impact on investors' portfolios. This is because, Prechter argues, standard economic models of financial markets depict prices as reflections — imperfect, perhaps, but still reflections — of true value. He believes instead that "waves of social mood are the driving factor" of both market moves and, to a certain extent, economic reality. He calls this approach socionomics, and he's doing what he can — his Georgia operation now includes a socionomics institute — to push it onto academic curriculums."

This Time Is Different ?

"THIS TIME IS DIFFERENT"
http://www.amazon.com/This-Time-Differen...

Chapter 14 - The Aftermath of Financial Crisis, is the most important to a stock trader; for it attempts to create benchmarks for the aftermath of the present crisis based upon past historical examples. Although other banking crisis are given coverage, particular emphasis is placed upon what the authors consider “The Big Five”...

1) Spain 1977
2) Norway 1987
3) Finland 1991
4) Sweden 1991
5) Japan 1992

The take away isn't very pleasant. On average, housing has declined in price for 6 years by 35.5%. Stocks declined for 3.4 years by 55.9%. Unemployment increased by 7 percent taking 4.8 years to bottom.

Note: the US started at 4% unemployment, so don't be surprised to see 11%. As we know, that is only the “official” rate.

GDP drops of 9.3% in 1.9 years. Public debt increases 86% mainly due to higher expenditures and lower tax income, and not due to bank bail-out costs.

So, if the start of the crisis is 2007; unemployment should bottom in 2012, and housing in 2013. Although, the vast majority of the pain has already been felt; except for the debt which will likely continue to soar.

That being said, the current crisis is not average. It is somewhere between “The Big Five” and “The Great Depression.” Maybe attempting to compare it to an average anything is wrong-headed. After all, Japan is one of the five and it has failed to conform to the average.

Deflation vs. Inflation

Charts from: www.dshort.com


The October 2009 Consumer Price Index for Urban Consumers (CPI-U) is 216.177. The annualized inflation rate computed from this number is -0.18%, which marks the eighth consecutive month of deflation.

Why does Fed so desperately want inflation? Because our economy can not recover in deflation. But even with so much stimulus money we put into the market, we just can not boost the CPI up enough.

There is no inflation yet, and we are still in the deflation nightmare. Investors have been told to buy gold to fight inflation. If there is no inflation, why do we fight it? And if we are in inflation, why only gold price made new high? Platinum, Silver, Copper, and agricultural products are still below last year's high, and oil and the CRB index are still below their highs of October 21.

We may see a little improvement in next few months, but the overall economy has a long way to come out of the deflation.

S&P500 P/E Ratio

TTM P/E ratio = 47.6
P/E10 ratio = 20.4

Again: "A more cautionary observation is that every time the P/E10 has fallen from the first to the fourth quintile, it has ultimately declined to the fifth quintile and bottomed in single digits. "

Previous post: S&P500 P/E Ratio October 7, 2009

Gold Bull

Gold made a new all time high today. Gold bull percentage has been at, or above 90% for the last 10 straight days, and today this reading reached 97% extreme.

Here is an example as one blogger said: "I called my dad to wish him happy birthday last night. He asked me if I knew how to 'short the dollar'. I asked him why he wanted to short the dollar? He said that CNBC says it's the easiest trade out there......"

Market Wave, Price and Timing - 11/13/2009

Cobra summarizes all the wave count, price retracement and time in his SPX weekly chart:

Market Wave: 11/13/2009

T-bone's Expanding Ending Diagonal count on SPX:

Here is the internal structure:

Expanding ending diagonal is rare and I can not remember we have any examples on Dow at any degree larger than daily level, at least from Prechter's book. But it seems to be a valid count for now. $VIX seems to have similar expanding triangle pattern as well.

Wave 5 of C in first chart could be truncated already, or it is going to make a new higher high around 1121 level.

From price wise:
1121 on SPX would be 50% retrace from the entire decline from October 2007.
10334 is the equivalent point on Dow.

Time relationship on Dow:
The entire decline from October 2007 to March 2009 takes 512 days.
50% retrace the time duration: 0.5 * 512 = 256
256 days from March 6 low would be November 17, next Tuesday !!

Time relationship between wave (W) and (Y):
If wave (Y) in time = 1.618 * wave (W) in time, the date to end the wave (Y) would be November 15, this weekend !!

Next week could be interesting ......

India Market Wave Count

Wave Chart from EWI:

"The October 25 Asian-Pacific Short Term Update presented the following close-up of India's Nifty Index (on the LEFT hand-side) and raised the urgency of its analysis with this message:

"India looks especially vulnerable to the downside. This market has had a good run higher and now shows signs of momentum loss. With five waves completed at multiple degrees, it's time to step off the bull train in India, if not time to outright explore bearish opportunities."

Now, the right-hand side of the above picture shows the massive selling that has taken place in the Nifty since."

Elevated Optimism

Chart from EWI:

Spring 2009: "Dow 5,000? A Bearish Possibility?" (Wall Street Journal) "The bear market is tightening its grip. No one is taking a back seat approach. Everyone is selling. We're collapsing in on ourselves." (New York Times) "I don't want to sound like the grim reaper, but it's possible that one of the [major] averages could come down by another 50% drop from here. This is a slow-drip, slow-death decline." (LA Times) "It's going to continue its easiest path, and that path it sees is down. That's where we're stuck right now andwho's going to get out in front of it?" (AP)

November 2009: "Government Policies saved the big banks from imploding..." (Forbes) "We have a lot of room to run. The advance [in stocks] shows that the recession is over. I don't know how you could wish for better circumstances." (Bloomberg) "Dow Above 10,000: The milestone caps a stunning 53% comeback for the Dow since early March. It's almost like an announcement that the bear market is over." (AP) "Today's market rose in spite of the unemployment numbers. It's a sign that the Bull Market Is Back." (CNBC)

February 23, 2009 Short Term Update:

"If one is aggressively bearish the stock market, having a planned out exit strategy now is not only prudent, but necessary in light of some of the sentiment readings we see."

Namely, a 3% reading in the Daily Sentiment Index, the lowest level in the 22-year history of weekly figures.

February 23 Elliott Wave Theorist:

"Ideally, the S&P should continue down into the 600's. When it's finds a bottom and rallies, it will be sharp and scary for anyone who is short. I would rather be early than later."

February 27 Short Term Update:

"The turn will come on or near March 10, 2009. Anywhere in this period may mark a turn, which will obviously be a market low."

The S&P bottomed two weeks later at 666.79 on March 9.

April 2009 Elliott Wave Theorist:

The rally "could carry the Dow as high as 10,000. Regardless of its extent, it should regenerate substantial feelings of optimism... the government will be taking credit for successfully bailing out the economy, and investors will be convinced that the bear market is behind us. Be prepared for this environment."

Institutions vs. Retailers

According to the Commitments of Traders report:
(1) Look at the red rectangle, see how retailers kept buying on the last year’s sharp sell off while sold too soon once indeed the rally came.

(2) Look at the green rectangle, how there was a sudden buying surge from the institutions when the market pulled back sharply in July.

(1) Recently, tt looks like institutions are selling while retailers are buying, see the two red lines.

Wave [ii] Retracement - 11/06/2009

[Edit: Dan's blog regarding wave 2 retracement]
An updated wave 2 retrace theory
SPX wave 2 retracement

In EW Theory, wave 2 will retrace 61.8% of wave 1. Dan calculated this retracement percentage numbers for all the six minute [ii] waves starting from 2007 October.

Here are the numbers:
[ii] of 1 of (1) = .726

[ii] of 3 of (1) = .737

[ii] of 5 of (1) = .581

[ii] of 1 of (3) = .652

[ii] of 3 of (3) = .741

[ii] of 5 of (3) = .668

"All had very deep retraces past 61.8%. In fact, the numbers generated kind of proves that Fibonacci retrace 'targets' are much overrated. The average retrace was .654. If you discard the quirky 5 of (1) of P1, the average of the remaining 5 is actually .70."

"So what does this mean? It means that so far, the Wilshire 5000 has only retraced 56.4%, which is still way below average."

If S&P500 topped at 1101 on October 21 and we are in minute wave [ii] retracement to minute wave [i] decline from 1101 to 1029, the target for wave [ii] would be 1073 to 1080 level.

In above chart you can also see:
(1) Volume has been decreasing for past 5 trading sessions during minute wave [ii] retracement
Target for wave [iii] if minute wave [ii] ends at 1075:
wave [iii] target = 1075 - 1.618 * wave [1] decline
= 1075 - 1.618 * (1101 - 1029) = 959

(2) 8-day decline vs. 5-day retracement: another pair of Fibonacci ratio

(3) Head and Shoulder pattern if minute wave [ii] tops at 1073 to 1080 level.
Target for this HS pattern = 1025 - (1101-1025) = 949

So we will see the target zone at 950 to 960 if this wave structure and Head and Shoulder pattern unfold in next few weeks.

Liquidity Flows 11/04/2009

Fed. Liquidity and Foreign Liquidity Inflows from www.stocktiming.com:

If liquidity breaks below the July low, the blue line in the chart, we will have another indicator that the top is in.

Dollar Story (8): New Record High Volume

Look at the tremendous volume today on daily UUP chart. Similar situation happened when dollar bottomed at $22.64 one year ago.


If we count wave [ii] as an expanded flat a-b-c wave correction, wave c is 1.618 of wave a in length and wave [ii] retraces exactly 0.618 of wave [i]. If the count is correct, next major move will be a powerful third-wave rally.

The alternative count would label wave [i] at $22.81 high, and we are in first wave a leg correction of wave [ii].

Gold made a new high to $1063 yesterday and carried the gold bulls to 91%, fueled by the news that India's Central Bank bought 200 metric tons gold from IMF. However silver failed to confirm gold's push.

To play on the dollar, gold and silver, I would rather short silver or go long on UUP than directly short gold. Why? I think Chinese will buy the left 300 metric tons of gold sooner or later.

Institutional Money Flows 11/02/2009

Institutional Buying and Selling Trending from www.stocktiming.com:

Dollar Story (7): 5 Impulsive Waves Up

Dollar ETF UUP reached its low $22.26 on October 21, which is closer enough to my target price, 22.34 to 22.40, calculated in my blog on October 8, Dollar Story (5): We Are Close.

Since then UUP bounced up in a very clear 5 minuette impulsive waves, and is correcting in its minute wave [ii]. I have its larger degree wave count in previous post: Dollar Story (6): Bull Percentage Sentiments

I think in current market condition, the dollar is the only safe place to be bullish on. I am pretty much bearish on everything except the dollar.

Third Quarter GDP = 3.5% ?

Yesterday's headline news:"Real gross domestic product increased at an annual rate of 3.5% in the third quarter of 2009"

Wow, not bad. Hold on, wait a second ......

"Motor vehicle output added 1.66 percentage points"

That is "cash for clunkers", isn't it?

"Real federal government consumption expenditures and gross investment increased 7.9%"

OK, here comes the simple math:
3.5% - 1.66% - (7.9% * 30%) = -0.53%

Game Over? (5): Topped Secondary Indexes

I put six indexes in above chart, as well as the US dollar index and Gold. Today Dow closed under 20 DMA but above 50 DMA. However all the other indexes closed under both 20 DMA and 50 DMA, the blue circles in the chart.

Russell 2000 Index, Dow Transportation Index, and Dow Jones Financial Index broke their October 2 lows, the red circles in the chart. If the double top pattern in these three indexes are confirmed, prices will turn much lower. I think the major indexes will catch up the secondary indexes, such as $TRAN and $RUT, on the downside to confirm that the trend has changed from upside to downside.

The US dollar index is tracing out a small but very clear 5 impulsive waves up, which can not be seen in daily chart, the green circle. The stock market has been fueled by weak dollar, so a turn up in dollar shall add more downside pressure on equity market.

Also S&P500, Dow and NASDAQ have all closed beneath the up-sloping log scale trend line connecting the March low and the July low. That gives us additional evidence that Primary Wave [3] is likely underway.

Three Bear Markets Comparison

Interesting chart from Virginia Jim


The chart shows the three big bear markets from "significant low", the red arrows, which may not be the absolute lows in bear market. The green arrows are the followed bear market rally tops.

Institutional Money Flows 10/27/2009

Charts from stocktiming.com: Institutional Money Flows Chart

Institutional buying decreased and selling increased and those two lines crossed over into distribution mood. As institutional selling goes up, the market goes down.

Buying and Selling Climaxes

Chart courtesy of Investors Intelligence:
www.investorsintelligence.com

See how those climaxes happen at market bottoms and tops.

S&P500 Daily Chart - 10/23/2009

The last two trading sessions form a Bearish Engulfing pattern and the last three trading sessions are another bearish pattern called Stick Sandwich, see the last three candlesticks in above chart.

The Triple MACD negative divergences [TM] is triggered on Friday because the daily default MACD crossed on downside. Daily Slow Stochastic already crossed down one week ago.

Buying and Selling Climaxes

InvestorsIntelligence.com explains a technical indicator called "Buying and Selling Climaxes" as following:

"Investors Intelligence uses this term to describe a more specific event which occurs over a one week period.

• A buying climax is where a stock makes a new 52 week high but then closes below the previous week’s close.
• A selling climax is where a stock makes a new 52 week low and then closes above the previous week’s close.

The reason that we use such a rigid definition for climaxes is that this enables us to classify accurately and consistently what is and what isn't a climax. This is important as we maintain historic records of the climaxes generated each week and have noted that important market turning points are often accompanied by a sudden rise in the number of buying or selling climaxes.

A great example of this was in October 2002 when the Dow Industrials made its final low. At this point, our US Market Timing Service observed a massive increase in the number of US stocks generating selling climaxes. By communicating this to subscribers, we were able to provide a good early indication that a bounce was on the cards."

Cobra presents this indicator in following chart based on above definition. The same indicator is also used by EWI to help them support their wave counts.


Too many stocks in SPX reached Buying Climaxes this week, see the red bars in the chart.

Stock and ETFs - COF

Capital One popped up on Friday due to the "better than expected" earning report. The entire daily candlestick jumped out of 2 standard deviation Bollinger Bands. The same situations happened twice, but not very bull friendly based on the chart, the two red circles.

Friday's price closed below 61.8% retracement, which is $40.66. Friday's intraday high reached upward trend line from May 2009, and it is the 4th time. Price has been cornered between two upward trend lines - something big is going to happen!

And also the negative divergences are forming on both MACD and RSI.

An Email One Year Ago - Wave 3 of 3

This is the email I sent to my friends on October 04, 2008, when the most powerful wave 3 of (3) of Primary Wave [1] kicked off.

"Just checked some charts. I think we are in BIG trouble now"

"Dow will go under 10000 in next few days, if not on Monday. S&P500 will be under 1000 this month, if not in next week. We will see 1000 points down in one single day on Dow, and S&P500 will hit to 950-970 low this month."

"The worst case on financial side: C, JPM, BAC, GS, MS should be cut in half. I hope that C can keep alive longer after it decided not to merger with WB, and I believe that finally C can not keep it current status as it is now. It maybe gone forever or downsize into few small ones. Buffet's holding WFC will go down as well due to the WB merger, then the whole financial will collapse. It may take longer than I think. It also possible that the whole insurance industry collapses earlier than the left gigantic banks. So far 12 regional banks have gone, the number should go up to 10 times at least, and that is why FDIC needs UNLIMITED backup from congress, like Fannie and Freddie. FDIC is holding up taking over more bankrupt banks only because itself needs the bailout bill to get passed first."

"Watch it closely and at least keep 100% of your 401K in bond, if you can not short the market"

Looking back, I think I was right for most of my projections. And now, one year later, I think we are right at another critical point similar to that one. What you need to do is the same: "Watch it closely and at least keep 100% of your 401K in bond or just in money market fund, if you can not short the market"

US Debt in Real Time

Check this website out: www.usdebtclock.org

Institutional Money Flows 10/21/2009

Charts from stocktiming.com:

Institutional Money Flows Chart:

Institutional Accumulation / Distribution Chart:


Previous charts:
Institutional Money Flows - 10/15/2009
Institution Money Flows - 10/02/2009

Market Wave - 10/21/2009

Beautiful charts from Kenny.



If it is indeed an expanding ending diagonal here to mark the Primary Wave [2] top, it seems we need one more up move to complete the wave structure. The last hour sell off today reminds me the 170 points down in Dow on September 22. Is today's drop just a pull back or trend reverse? We will know very soon.

Triple negative MACD divergences are shown in both charts above and MACD will cross down if we get another down day or two.

Advancing / Declining Volume Ratio

This is advancing to declining volume ratio chart I posted in "Market Wave: 10/05/2009"

Here is the updated chart for today. As the price makes higher highs, the advancing to declining ratio goes lower lows. Yesterday's reading was only 2.8 :1

Wave Count on Gold

Everything is in the chart ... ....

When everyone is bearish on the dollar and bullish on gold, I probably need to sit on the other side.

100 Failed Banks

"Spotlight: Bank Failures" from Time.com

"Even as the Dow Jones Industrial average returns to the 10,000 mark, the financial crisis is alive and kicking in the banking business. In the next week or so, the U.S. will reach a somber milestone: 100 banks down the drain in 2009."

"The worst is far from over. The FDIC says 416 banks are at risk of failure, up from 117 a year ago. Soured commercial real estate loans alone may generate a fresh $600 billion in losses by 2013. Veteran bank analyst Gerard Cassidy of RBC Capital Markets expects as many as 1,000 lenders to go bust in total."

"Two years ago, the FDIC had about $52 billion in its deposit-insurance fund. Today that fund is technically broke."

" 'bad banks are more like fish than wine,' says Bert Ely, a bank-industry consultant and an FDIC critic. 'They get smellier with age.' "

I would say that the number of failed banks would easily reach 250 to 300 early next year. Also pay attention to the Triple Negative MACD divergences in Dow Jones US Financials Index chart.

100-year CRB Index Wave Patterns

From Elliott Wave International:


"First up: 'Bubble' gumball in Commodities? According to the mainstream experts, the powerful run up in hard assets is set to continue. 'The commodities boom is not over and the bull market has several years to go,' writes one October 8 Bloomberg."

"Well, before you hop aboard the bullish bandwagon, you might want to consider this historical close-up of the Reuters-Jeffries CRB Index. "

"This version, though not complete, does provide a clear picture of a 100-year long, five-wave rally since the 1890's. "

Institutional Money Flows

From www.stocktiming.com:


The trend is clear that institutional accumulation is less and less as the market trending up. We need the participation of the most institutions to sustain this kind of rally.

Last time I posted this chart in 10/2/2009: Institutional Money Flows

Dollar Story (6): Bull Percentage Sentiments

NASDAQ and SPX confirmed Dow today by pushing new recovery highs. This places the next target for SPX at 1121, which is 50% retracement of 17 months decline from 2007 October (Dow's 50% retracement is 10,334). Wave counts on major indexes are still not very clear.

The US dollar index made a new low today and has now breached the September 2008 support level on a close basis. This may open the way for further losses down to 74.71 level.

I also show you the "Bull Percentage" numbers, red circles in the chart, all the way back to 2008 January lows. Even though the current price is still above 2008 January low, the sentiment has been already approaching to extreme level.

As Elliott Wave International analyst Nico Issac wrote, “It’s crucial to understand that markets don’t necessarily respond to sentiment extremes immediately. But, such extremes do indicate exhaustion of the trend — which is usually the opposite of what the mainstream expects.”

Apparently shorting the dollar has become extremely popular, and it’s just too crowded!

The wave counts I put in the chart are the same as I posted before. The dollar ETF UUP seems to be in the last small wave down, but the dollar index $USD (or .DXY) seems to need another "up-down" movement to finish its pattern. Also, the daily default MACD has a bearish cross down and the MACD histogram bars are increasing negatively. We need some positive technical indicators and signals to confirm the dollar bottom.

Market Wave - 10/13/2009

Dan summarized everything in his SPX daily chart today. I labeled the rally to September 23 high as (W)-(X)-(Y), and he counts it as (A)-(B)-(C), but they mean similar thing.

This is one of the bullish wave counts, and remember that 1121 in SPX is 50% retracement level for the entire decline from 2007 October to 2009 March. You can see the Fibonacci retracement in Cobra's weekly chart below.

This chart also shows you the Fibonacci relationship from timing perspective.

• The rally from SPX 666 to 1080 high on September 23 is a Fibonacci 0.382 of the previous decline in terms of time.
  
• Inside the bear market rally, wave (C) is a Fibonacci 0.618 times wave (A) in time.
  
• Wave (A) takes 14 weeks and wave (B) and (C) together takes the same time.

It seems 1080 is a good stop point for SPX, but we will know soon whether market can make a new high to 1090 to 1121 level.

HongKong HSI Index

Clear five waves impulsive down from 2009 October to 2009 March on weekly chart, and negative divergences on RSI, Stochastic and MACD .

On daily chart, you can spot three corrective waves (W)-(X)-(Y) up from March low. Wave (Y) is an ending diagonal and we already finished subwave a, b, c, and d. Subwave e may or may not have a new high, sometime wave e in an ending diagonal could be truncated. But once subwave e is done, the whole structure will be completed.