Tuesday, August 17, 2010

Relief rally

Volume poor, leaders close off their intraday highs. Looks like a bit of relief from the selling.

This was in the financial media:

"We've got a cornucopia of good news. We had upbeat guidance from the largest retailer on the planet, M&A activity is picking up, and economic data that blew away all concerns about deflation," said XXX at YYY.

Sorry, pal. Nothing new here. And WalMart closed well of its high for the day. Ditto for other big box retailers.

You know who did better?  Suppliers to WalMart and the others. The ISE WalMart suppliers index (WMX) was up over 2%.  I'd take this as WalMart selling a lot of crap and making no money. Unsustainable.


William said...

You can count an impulsive 5 wave decline off the 8/9 top... looks like a corrective zig-zag rally that topped at almost the exact 50% retracement level. Wave 3 down may be on deck... look out below.

Quick Takes Pro said...

Great observation.

Could you make a case for 5 waves down from April, some sort of flat 3-wave correction making the 8/9 top the start of the dreaded C-wave?

Shawn Severin said...

No way.

Take a look at some of the south asian ETFs (i.e. EWS, EWM, EWY). These countries are leading in terms of GDP growth and their respective markets are hitting new highs. FXI, EWZ and EWC have been basing for the past 6 months and are about to break to the upside. They will be at new highs by year's end. The S&P 500 and the DOW will be range bound at the very worst while the NASDAQ will be at new highs by the end of the year also. The new network / software based tech will continue to lead the US market (NFLX, BIDU, FFIV, NTAP, AAPL) not 80s and 90s tech (CSCO, INTC, MSFT, TXN, AMAT).

You heard it here.

William said...

That's exactly what I'm thinking actually. I think the rally from the July 1st low was the last leg of the flat, possibly an ending diagonal or a "wedge"; the expanding flat is much more visible in the Dow than the S&P.

That or a much rarer leading diagonal from the April highs ending July 1st, and the rally from the July lows being a double zigzag. Either way, the rally from the July low looks very corrective, lots of overlapping pivots. So at least another leg down.

Assuming the Rally since the March 2009 lows is impulsive and we are in a Bull market, and we assume that C will equal A, the next leg takes us down to the low 900's high 800s in the S&P, which is also near 61.8% retracement, and you can see some chart support there as well, the July 2009 low pivot. If we go lower than that... Prechter might be right calling for another huge decline.

On another note, Mike, have you ever seen this website?


They track the economy using real time purchases of big ticket items. It's a relatively new, so there isn't a lot of history, but it leads GDP, possibly the market, and it looks like the economy is really going off a cliff. In some ways this decline is worse than 2008.

Quick Takes Pro said...

I'll check the site but without history in at least a full bull and bear cycle, well, you know.


Good point about new/old tech. But when you say new highs I am assuming you mean above April 2007. If they are, I would be pleased to reference this call in my column.

JS71 said...

As for Tech: Mike I liked your piece on tech on the 16th.

The market will have the final say, however I see a tired, struggling market.

I believe that probability favors the late April highs do not get eclipsed anytime soon, and that there is more downside to come.

I am familiar with EWT and know what is predicted at this point in time. If so, then things will get ugly fast.

Best to all

Amalan said...

To repeat what I said on June 9, there won't be an armageddon scenario. At worst, the U.S. market will bounce off of a correction low later this year, and at best, we have already made the correction low (16% off the April top). By the way, a correction can also be range bound, which made your last survey a bit confusing.

I wouldn't say any of the indexes will be higher at year end than they were in April 2010, but they won't be at their lows since April either.

I agree that bonds don't lie - but they aren't telling us the sky is falling. The only indication now is that people are scared, which is good, because the fear will abate. Just look at the TED spread.

Shawn Severin said...

Hi Mike. I'm quite bullish on technology. Do I think we'll take out 2850 on the NASDAQ by year end? That's a very tough call for me to make. I do think it is possible that we simply continue to grind higher very gradually as all of the bad news dissipates.


JS71 said...

1010 here we come, time to test that level again I believe.

I think it breaks to the downside, but I am a cynic. Who knows, QE part 2 is certainly on the way.