Market Wave - 09/29/2009

1.7 points on September 25 saved market, so my primary count is still valid.

I label 1080 high as (b) of Expanded Flat wave [4], so it looks more consistent with wave [2] from both proportion and time duration perspectives. Also wave [2] is ZigZag and wave [4] is Flat, based on EW Guideline "wave 4 will almost always be a different corrective pattern than wave 2".

Today's high 1069.62 is Minuette (i) up of the Minute wave [5], and it has a clear small Subminuette 5 waves up from September 25 low 1041.17. We are now in Minuette wave (ii) or maybe (iii) up already. Minuette wave (iii) through (v) will carry the index to new high over the next week or two. Once we reach Minuette (iii) top, we can get more clues on the final target high for (Y). A break below 1039.47 (9630.20 in Dow) will force me to eliminate my primary count.

The alternative count (EWI's primary count):
We topped at 1080.15 on September 23. We finished Minuette (i) impulsive down at 1041.17, and we are in Minuette (ii) corrective up now. A break above today's high 1069.62 will jeopardize this alternative count.

BTW, EWI has an Expanded Flat as Minuette (ii) up. The problem for this count is:
a of (ii) = 1053.47 - 1045.85 = 7.62
c of (ii) = 1069.62 - 1041.17 = 28.45 > 2.618 * 7.62
Wave a of (ii) looks like too small, comparing with c of (ii).

Game Over? (2): S&P500 Future Under 1039

At 11:30 PM EST Sunday night, pre-market S&P500 future down to 1038.10 . Nikkei 225 index down 246.69 and 2.40%, Hong Kong Hang Seng index down 300 points and 1.47%.

The open bell at Monday morning could be very interesting. We do not have major economic or earnings reports on Monday. If we gap down and can not regain 1040 support level quickly, some technical indicators will be triggered to be bearish.

There will be a lot of noise this week starting from Tuesday. We will have September consumer confidence index and Case-Shiller home price index report due on Tuesday. Do we still remember one year ago that day? Dow crashed 777 points when government rejected $700 billion bailout plan. 2009 Q2 GDP will be due on Wednesday. On job market, we will have ADP jobs report on Wednesday, weekly jobless claims on Thursday, and September jobs report from the Labor Department on Friday. Could be a very challenging week for bulls. However, any upside surprise from those numbers, such as GDP, could push the market higher as well.

Game Over? (1): 1.7 Points Away

Here is my short term primary count for this bear market rally started from March 2009. I have been talking about this count for a while. My previous post "Bear Market Rally Top" has the count from Oct 2007 high to Mar 2009 low (this chart does not label it correctly). At this moment, we are in 4 of C of (Y) and we need a last 5 of C up wave to complete this more than 6-month bear market rally.

In terms of proportion and wave pattern, B of (Y) seems smaller than 2 of C. Normally we expect waves of larger degree to be larger. The potential problem on this count, again, once Dow comes under 9630.20 (1039.47 in S&P500), the previous wave 1 high from August 28 on this interpretation shown on above chart, I have to eliminate this primary wave count from consideration. "Wave 4 never moves beyond the end of wave 1", that is the rule. This kind of overlap has already occurred in Dow Transports ($TRAN) and Dow US Financials Index ($DJUSFN). I am not sure that these two are leading on the downside, or will "catch up". If more and more major sectors show same wave 1- 4 overlaps, the odds will favor the scenario that we have seen the top already. That alternative count will change B of (Y) to where the 2 is in the chart, and C and (Y) to 3.

Friday, S&P500 hit the intraday low at 1041.17 ---- 1.7 points away to call "GAME OVER!".

Dollar Story (3): Silver Triple Negative MACD Divergences ®©

Until early this week, as Dollar traded down to find its bottom, Silver had risen sharply into the resistance zone at $16 to $18 range. Investors became very excited about the prospects for Gold breakout a symmetrical triangle to new highs. The process became very overbought on Silver's daily RSI indicator shown in the chart. Traders seem to forget the pain when Silver declined 61% last year. I am not sure that Dollar has already bottomed out, but Silver's top seems already in.


I started to build short position this week as MACD cross down signal got confirmed. You can clearly notice a 15% to 20% decline after MACD cross down in early this year from 9-month daily chart. More important, as Silver price marched three higher highs from $14.45 to $15.78, and to 17.26, MACD just could not make a higher high at all. This is my favorite "Triple negative MACD divergences". Another negative technical indicator is that Silver's price is way ahead of its 50-day moving average.

From Elliott Wave perspective, Silver's wave pattern seems to be completed at 17.26 high with a three (W) (X) (Y) corrective waves: wave (W) ended at 15.78 with a clear ABC in it; (X) = 12.27 and (Y) finished at 17.26. It is not a text book perfect wave shape. But combining with above mentioned other technical indicators. I pulled the trigger!

BTW, just found out that there are only 4,880 results when I search "Triple negative MACD divergences" on Google. So I decided to trademark it. Here we go! :)

Triple negative MACD divergences ®© by Elliott Waver

Market Wave: 09/24/2009

Here is Dan's count and he called the top yesterday. That is my alternative count.

My primary count: we are at or near the end of minute [iv] of C at today's low 1049.80. Wave [ii] is a ZigZag ABC. Based on Elliott Wave Guideline, "wave 4 will almost always be a different corrective pattern than wave 2". So wave [iv] are most likely to be a Flat, Triangle, or combination. Dan's [iv] wave is a ZigZag. Also, time wise, it takes 5 days to finish wave [ii], therefore wave [iv] probably will have a similar "size" -- 5 to 7 days.

However, "wave [iv] never moves beyond the end of wave [i]". The high for wave [i] is 1039.47. Today market found some support at 50% retrace level for wave [iii], 10 points above wave [i]. If SPX goes under 1039.47, it will invalidate my primary count, meaning the market already topped at 1090, yesterday's high.

We will know very soon, maybe Friday, how it will play out......

Market Wave: Dow Down 170 Points in 90 Minutes

Today's last 90 minutes (22 September) should not be ignored. Stocks were up before Fed announcement and extended gains afterward. However, there gains were short-lived as Dow lost 170 points, 20 for SPX, in last 90 minutes.

It's just like that everyone was heading toward the exit at the same time right before the door was closed! Some already called "IT'S OVER!"

It might. However, I am not very convinced that the top is in. I would rather call it a rehearsal. Why? The wave C of (Y), started on Aug 17th, seems missing one last wave [v] up thrust. I think we are still in wave [iv] of C of (Y), and it will take an additional 2 to 3 days to finish before the final wave [v] of C.

Also Dow reached 9917.99 today, only 92 points to 10000. That psychological number will work like a magnet to attract index up. CNBC will declaim victory there: "Recession is over!", "A new bull market!" blah blah ... ...

Giving market a little bit more time also fits into my US dollar wave count. Dollar made a new intraday low $75.83. But Gold remains beneath last Thursday's $1024.20 high. Gold and Silver diverged with dollar. I would like to see dollar's new low and Gold's new high to be synchronized with stock market.

Another interesting point: Dow Transports ($TRAN), Financials (BKX) and Utilities did not confirm today's intraday high neither.

Dollar Story (2): Bottom is Imminent

[update: first chart is updated version of the second one]
Dan just updated his count. haha...... did he read my blog?! :)
My primary count: the green (i)(ii)(iii)(iv) will be followed by a small green (v) to finish 5 of (C)
My alternative count: the pink (i)(ii)...... play out to lower target $74

---------------------------

Let me use Daneric's $USD daily chart to show you why I am saying dollar's reversal is imminent. The primary black [2] correction wave has 3 intermediate subwaves, red (A), (B) and (C). Once intermediate wave (C) finishes, so does the primary wave [2], and then we will start a upside primary wave black [3].

We are in the final stage of minor 5 of (C), blue 5 in chart. The minor 4 is a symmetrical triangle, green [a]...[e]. I explained how to calculate targets for the symmetrical triangle breakout.

Conservative target price
= 78 - 0.66 * ([a] - [b]) = 78 - 0.66*4 = $75.36
Check my "Gold and US dollar" post for details

Today's low is $76.00, and we can easily reach $75.36 this week considering we had a gap down this morning on UUP (Dollar ETF), which opens a more down room for next few trading sessions.

My primary count:
Dollar is going to reach $75.36 target and maybe a little lower this week, or early next week, to finish minor 5 of (C), and then starts to go up. The major reasons for this count are: (1) we have seen 3% dollar bulls since last week, bears are too crowd; (2) minimum down target is met; (3) the minor wave 5 of (c) may be completed, or very close to end. You can count 5 minute impulsive waves down inside this minor 5 of (C) wave: start from green [e], you can see one black OHLC bar for minute wave [2] bounce up and 3 bars for minute wave [3] retrace up, where Dan has (ii) for his count.

My alternative count:
Minor 5 of (C) wave will decline lower to reach normal symmetrical triangle breakout target:

Target price = 78 - ([a] - [b]) = 78 - 4 = $74.00

You can see $74 is also a long term support price, green line in chart.

Conclusion: dollar's bottom is imminent with target range $74 - $75.50. Keep in mind bullish US dollar is not good for stock market.

Dollar Story (1): Gold and US Dollar

I agree with Kenny's count for Gold (ETF GLD). Gold breaks up a symmetrical triangle pattern, green [a] [b] [c] [d] [e] in chart.

Based on pattern expert Bulkowski's research: symmetrical triangle is one of the reliable patterns in stock market. The percentage meeting price target for up breakout is 66%.

Now let us calculate the target for this symmetrical triangle up breakout pattern:

Triangle Height = [b] - [a] = 96.97 - 84.92 = 12.05
Breakout price = ~ 94.50

The breakout price is the price when stock breaks up triangle's [b] [d] line, and in GLD case it is also the gap up price, making the breakup more impulsive. Now we can calculate the target price:

Target price = Breakout price + Triangle Height = 94.50 + 12.05 = 106.55

In Bulkowski's website, he also adjusts the target price by multiplying "percentage meeting price target", making the Adjusted Target Price more conservative:

Adjusted Target price
= Breakout price + Triangle Height * percentage meeting price target
= 94.50 + 12.05 * 66% = 102.45

Keep in mind, one share of GLD is 1/10 OZ of gold. So Target price for gold is $1065.50 and conservative target price is $1024.50. If you check gold price, you will find out that gold price reached $1024.20 on last Thursday, September 17, 2009, only $0.30 point shy of my conservative target price. Amazing, ha? Math works fine on stock market as well, right? At least for this case! :)

Will it go up to $1065.50? It may, if dollar has one more down leg, or it may not if dollar's bottom is already in. We will see soon.

I will update a dollar chart later this week. I am pretty sure dollar is at a critical turning point right now. I am not bearish dollar at all, at least at this moment.

Good Luck!!

China Shanghai Index

Here is Cobra's Shanghai index daily chart. I think we started (A) wave down from 3478.01 to 2761.39 while most people think (A) wave down is from 2478.01 to 2639.75.

Wave (A) = 716.62 points down from 3478.01 to 2761.39

Then the (B) wave up is an expanded flat (B): from 2761.39 to 3068.03
A of (B) = 243.51 points up from 2761.39 to 3004.90
B of (B) = 365,15 points down from 3004.90 to 2639.75
C of (B) = 428.28 points up from 2639.75 to 3068.03
Here we got C = 1.75 * A within the flat expanded (B) wave, that is reason I count wave (A) ended at 2761.39, instead of 2639.75.

Wave (C) first target:
(C) = (B) - 0.618*(A) = 3068.03 - 0.618*716.62=3068.03 -442.87 = 2625.16

So our first down target will be close to 2630.75 low happened at 9/1/2009 and we are going to retest it to see if that low will hold.

Question About Financials

Question:
Do u really think I can short COF? If all financial stocks are worth to short, how about BoA and BCS? Those two seems still has room to surge...What do u think?

Answer:
Yes, I think COF is one of the good short candidates after this bear market rally is done. Financials may go up a little before the trend reverses. BAC, C, JPM, WFC and etc, are a little different, because they are "too big to fall". Remember I said on Oct 2008 to you: "C will be gone in next 3 to 4 months". It was not totally gone, and it would have been if government did not bail it out. So my point is: all the financial prices are over-valued and they still have a lot of over-valued toxic asset on their balance sheet. But short those big guys will not be more profitable than shorting smaller ones because government will bailout them again, and SEC will ban short selling on their stocks.

Didn't pay too much attention on BCS, but $29 - $32.50 seems a good stop range for BCS.

S&P500 Reported PE = 142 !!!

Up to 9/18/2009, over 99% of S&P 500 companies have reported for Q2 2009. Based on Friday's closed price 1068, S&P500 Operating P/E = 27, and Reported P/E=142. Yes, it is 142, not 42.

SPX goes down to 1069 from record high 1576, why PE gets more than tripled. The reason is our earnings declined too much. The chart provides some long-term perspective to the current earnings by focusing on 12-month, as reported S&P 500 earnings. The chart illustrates how earnings declined over 92% since peaking in Q3 2007, the largest decline on record since we started to track the data back to 1936. It took us 70 years to get to the high and only 2 years back to the start point, and even lower.

How soon do you think we can climb back from this nosedive? If you ever played cliff climbing, you know the answer.

Market Wave: Bear Market Rally Top

This chart shows where we are now. Bear market rally started from Mar 2009 from 666 is close to its end. Based on current pattern and Fibonacci retrace ratio, the target could be 1090 to 1121. 1121 is exactly 50% retrace the decline from 1576 to 666. But market can turn down any time before it reaches to 1121.

NASDAQ already passed 50% and marches to 61.8% retracement.

I expect SPX will consolidate in next few sessions at 1040 to 1060 range, and then launch the final up leg to bear market rally peak.

Get Started !!

It is not a good time to start a blog right now at current market condition, because we are almost at end of the bear market rally after THE worst financial and economic crisis in our lifetime. It will last much longer than what the media is telling you.

However, do not forget, after the crisis is over, we will run into another bull market which we can enjoy for the rest of our lifetime. And if we are lucky enough to catch that bottom, we may still have chance to retire early. A wonderful dream? Yea! At least at this moment, please allow me to keep this dream to start my first ever “market and trading blog”!

I hope I can keep doing it. Good luck to everyone!