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: