Tuesday, June 8, 2010

The Waiting

The waiting is the hardest part
Every day you see one more card
You take it on faith, you take it to the heart
The waiting is the hardest part
- Tom Petty

That's what it feels like now. We are waiting for the May retail sales report due this Friday and if it is not really good I think that will be all she wrote. Until then, we are looking for setups.


Check out this chart. Everyone seems to be talking about a ginormous head-and-shoulders pattern and that means waiting for the right shoulder rally to peak before they start shorting. What everyone sees is not worth seeing.

If the retail report is bad then you can forget about the shoulder. If it is good, then the market appeased the masses. That happens all the time, right? And selling at 1150 is a gimme.

I hope you are getting the sarcasm.

10 comments:

MrWave4 said...

Hi Michael,
I like to make 2 points both are contrarian.
1/ TRIN - 4th highest level on Fri in 70 years - Dick Arms the author of this index makes a very good case that high numbers come at market bottoms (to read his article go to the big picture blog & search for TRIN INDEX)
2/ Could the current structure be a corrective decline of the impulsive advance from march.
swing A = 26 apr to 5 may, swing B = 5 may to 13 may , swing C = 13 May - 25 May
1040 - 1023 huge zone of support using fib geometery

MrWave4 said...

Hi Michael,
I like to make 2 points both are contrarian.
1/ TRIN - 4th highest level on Fri in 70 years - Dick Arms the author of this index makes a very good case that high numbers come at market bottoms (to read his article go to the big picture blog & search for TRIN INDEX)
2/ Could the current structure be a corrective decline of the impulsive advance from march.
swing A = 26 apr to 5 may, swing B = 5 may to 13 may , swing C = 13 May - 25 May
1040 - 1023 huge zone of support using fib geometery

Amalan said...

I too am becoming somewhat worried about the November '10 shakeout low that I anticipated for multiple reasons. In Feb this year there was only one ex-Goldman technician who mentioned it (that I heard), and since last month, there's been quite a few who have joined this bandwagon that I wonder if it will come to pass...

Gestion said...

Hi Michael

I share your view about the technical reading of the S&P chart. I have been actually wondering about the second shoulder as well for several days...

Keep it up
++

Quick Takes Pro said...

MrWave, not that I can argue with Arms over his own indicator but I just do not see the index that high. Further, all indicators based on net up or down days are questionable in the age of decimalization.

Does not this week's low negate the idea that wave C is complete?

Quick Takes Pro said...

Amalan, I am not quite getting your point. Please explain.

When you say worried do you mean there will not be a Nov 10 low or it will not last as a low?

Quick Takes Pro said...

Gestion - A hunchback formation? :-)

Amalan said...

Michael, I don't know which alternative scenario will play out, but just saying that the Nov low scenario might be in jeopardy if so many are predicting it. I am wondering if we might have something like 2006 - somewhat of a correction low in mid-summer and then higher from there, or a slow grind that finds a shakeout bottom only next year.

The 3rd year of a presidential term is usually a rallying year for stock markets - this happens because most of the legislation is pushed through during the first two years of the term allowing some cooling off period before they start asking for our votes again. So, in the third year the markets rally in relief. Further, the mid-term elections (like in Nov 2010) will also see seats lost to the Reps, which will even out the power in the house/senate, causing another relief that is good for the markets.

Separately, the economic cycle also usually lasts 3-5 years, so what began in 2009 might end in 2012. All these factors tell me that 2011 won't be a down year; of course, 2012 might be, and could send Obama back to Chicago, but I doubt if armegeddon predictions for 2010 would really lead to a secular bear bottom (predicted by some), or even just the end of a cyclical bear bottom (for a bear that might have begun in Apr 2010).

I personally think we won't exceed a 20% correction, but I ain't no expert...The correction so far of ~14% seems to have been based on technicals (overbought; 80% rise from the lows of 2009), if it has to exceed 20% we'll need fundamental issues to actually affect the U.S., and not just a fear of those issues.

William said...

MrWave4,

You do tend to see a high TRIN at bottoms, but you don't have a bottom just because there is a high TRIN. Context is everything, and this market has really changed character. Look at the rallies on 5/10 and 5/27, monster up days with very positive breadth, both retraced easily. Look at the vix and all the blown long setups.

In terms of wave structure, I'm assuming you've counted the rise from March 09 as an impulse. I think that should actually not be the primary count but a much lower probability alternate count. You can't see a clear 5 up in the 1,3, or 5 positions. It's so choppy. Second, there is no alternation in the wave 2 and 4 positions. Third, where is the spike in positive breadth and volume in wave 3? Obviously counting is subjective, but that just do not have the "right look" that Frost/Prechter describe in EWP. Last I would just say that for arguments sake, that was an impulsive move up, we have not even met the minimum retracement level or 38.2%. So you are betting on an extremely low probability correction amount.

If you think that count is right though you can just wait till the April highs are taken out, and that will confirm a primary degree wave 3 up. That is the best way to trade wave 3. Picking the absolute low in wave 2 is much more difficult.

MrWave4 said...

Hi William,
I currently subscribe to Prechter's daily update & follow a method of analysis from a T/A from Australia called David Vassallo.

According to Prechter (SPX Daily chart) we are in the start of a Wave 3 decline using Elliott counts. (march low was W1, April high W2 (61.8% retracement). (EWP p42 w2 was a triple zig zag)

David on the other hand does not use wave counts & likes to look at structures ie: impulsive (hh & hl without overlap & ll & lh without overlap) & corrective (the same with overlap). David's track record over the last 5 years has been truely amazing using this method. His non retail has been even better. If you look at a num of stocks in the SPX many of them seem to be setting up for a corrective buy which tells me this may not be the wave 3 decline Prechter is seeing ? The trigger for an entry is the overlap of the first swing down with some additional confirmation using other timeframes. Good trading!