Saturday, September 26, 2009

Why am I just now seeing this?

I'm not a full time trader so most of the time I only have time to analyze the broader markets, not individual stocks. But man, I feel sick just looking at the Long Term Chicken Oscillator signal on RIMM. Clear as a frickin' bell.

The fib fan, by the way, is drawn from the 2000 high to the 2008 high. You definitely want to put it on your charts.

Since this is an LTCO signal, the long term trend is down. Short all rips for the foreseeable future - unless a new rally high is made or the LTCO miraculously achieves a bullish crossover (highly unlikely given the accuracy of the backtest and the corresponding drop through the floor).

I'm gonna go cry now.




Simplify.

I'm as guilty as anyone when it comes to trying to clutter my way to clarity. That is to say, when you're not sure what's going on the tendency is draw more lines in search of answers. Connect the highs, then the lows, switch to the weekly, add another channel, add some retracement levels, a time series... oh look, I've never tried a fibonacci arc before! Neato!

But that's the exact opposite of what we should do. In the search for clarity, we must always simplify.

Less noise, less clutter, fewer lines. Just the really important ones. The ones that have been around the longest, working in quiet consistency all those years, even as they faded from traders' memories, hidden beneath all that messy ink. So often they're the ones that will tell you the truth, just as they've done in decades past for those who were willing to listen.

There is perhaps no better example than the Great Channel on the Dow Jones Industrials, which I've drawn by connecting the 1929 peak to the 2000 peak and anchoring the third point at the 1932 low.



First, we examine the lines over the course of their lifetime. Have they lived a life that is worthy?









Answer: they are respected, so I will respect them.

Now that I believe them to be truth tellers, I'm ready to listen to what they want to tell me.

Ahhhh, look at that! They seem to divide the Dow into quadrants: the middle two comprise a zone of relatively reasonable fluctuation and stable expansion; the outer two appear reserved for times of great delusion, when social man has pushed greed or fear to its extremity. It's in these quadrants that one finds generational opportunities.



As I've said before, in my view a channel is more than just a pair of parallel lines -- it represents an era in history, be it 30 years or 30 seconds. The channel defines the limits of that era -- in terms of price, to be sure, but also in terms of that which drives price: social psychology. Behaviors, attitudes, beliefs, etc, that are accepted and considered the norm in one era (which is simply a wave defined by a channel) will be rejected and disdained in another. This is a fundamental teaching of the Elliott Wave Principle and Socionomics.

With that in mind, we can conclude that the current secular bear market is an attempt to correct not just overbought prices - but a pervasive and persistent social psychology that was and is recklessly optimistic. The 2007-2009 correction thrust social man from the realm of extremely overbought stocks and delusional optimism back into the zone of reality. The current rally is nothing less than an attempt by social man to reclaim and re-validate the behaviors, attitudes and beliefs upon which he built his house of cards.

Like Myron Forbes in 1928, modern social man believes "There will be no interruption of our permanent prosperity." His arrogance and stubborn insistence were evident in 2003 as he refused to be evicted from his overpriced home in the posh Delusional Heights subdivision. And for the next four years he proudly boasted that he was right - until, he says, he suffered a savage and unfair sneak attack at the hands of a "black swan" that nobody could have possibly foreseen.

And even now, as he races ever upward to reclaim his rightful throne it is with the same sense of unbridled arrogance and entitlement. He has learned nothing. He is the teacher of lessons, by God, not the one who is taught.

I wonder if he knows that bear markets correct more than just price.



On a practical level, the channel lines reinforce the message of EWP: we have reached the point where the minutiae of competing wave counts matter less and less. I'm told Prechter believes the top was put in last week. I've seen reasonable counts that suggest another push higher. Personally, I'm not sure who's right - and I don't really care.

It's become clutter. We need to simplify. And what we can simply say is that today we are extremely close to a significant peak, whether it lies just behind or just ahead.

Even if the Dow were to rally a mere 7% from here, it will run smack dab into the 50% retracement (the most common retracement for a second wave), the 161% extension of W of P2 (a very common length for Y), and the channel line that historically has divided delusion from reality.

And that is a simple, clear picture I can act upon.


Thursday, September 24, 2009

The news *is* good for something

UPDATE: Now this Businessweek article is a darn good contrarian indicator, courtesy of Steveo: "John Maynard Keynes ought to be named Man of the Year." Vomit...



The only time I really pay attention to news headlines is when the wave structure on something suggests a major turning point is near. Then I look for headlines that proclaim the current trend will last forever. It's a really simple way to confirm your wave count.

The crowd isn't always wrong. But it is always wrong at turning points. And the news is simply the voice of the crowd reaffirming what it wants to believe.

Dollar bears are at something like 95%, headlines galore pronouncing the death of the dollar, and a wave structure that looks near completion.

Are we there yet? I'm not 100% convinced. Either way we should be close.

Tuesday, September 22, 2009

Day early, dollar long?

Thanks a lot, Chartly -- I blame you!!

Actually I think Patrick nailed it in the comments of the previous post, which is that we were a few squiggles early in projecting a bottom on the $USD.

That's what I get for trying to count waves without looking at C.O. wave signatures for confirmation, which I can't do on the Dollar index as I don't have access to intra-day data. Why I didn't think to do it on UUP, I don't know. But continuing our theme of blame-shifting, I'm sure Chartly was somehow responsible for this oversight.

Anyhoo, let's take a look at the Euro/Buck pair since it pulls up so nicely in our preferred Prophet charting software.

The daily shows a 3-3-5 flat that is almost complete. Pretty good C.O. wave signatures seem to confirm this count.



Let's zoom in on this final Minor wave. Again, the C.O. wave signatures seem to confirm this count.


Minor 3 extended about 1.5x Minor 1, so I would not expect 5 to also extend beyond the length of 1. In fact, 5 is already pretty close to .618x of 1, so let's make that our target. Hey, that's also right near the center pink channel line!

Oddly enough, I think the count on the $USD which I've posted previously is just slightly different but with the same result. I don't see the complex Minor 4 triangle as in the Euro. Rather, I have Monday's spike as minute 4 of Minor 5. Makes no difference -- the result should be the same.

As always, I'll be watching wave form and momentum to confirm the count and a trend change. Until then, I'd keep tight stops to guard against further downside. You are betting against Uncle Ben after all -- and considering his sole purpose in life is the destruction of the dollar, that can be a dangerous game.

Sunday, September 20, 2009

Stopped Clock

Yippee! My wave count on the $USD got named one of the best charts of the weekend on Chartly!

You have to scroll all the way to the bottom of the post to see it, which I guess means it was the least best of the bunch.

But hey, considering the only other award we've ever won was a green "Participant" ribbon in the 5th grade science fair, we'll take it. In your face, Mrs. Hurta!

Of course, this virtually guarantees that the dollar will continue to slide just to make me look stupid.

Friday, September 18, 2009

Dollar MIGHT have bottomed

My primary EW count for $USD appears that it could be complete here.

The daily shows a well proportioned 5-wave structure for C that channels nicely and terminates at previous support. The last sub-wave looks good as a single thrust out of a fourth wave triangle, a fear-based "washout" event commonly found at the end of a powerful move (cf. Feb-March of this year on the indexes).



Here's a look at the intra-day structure of the final sub-wave.


It's far too early to know with certainty if this A-B-C correction is, in fact, finished. I can envision a couple of other scenarios in which the dollar continues to slide, but I think this primary count looks fairly decent. So we'll keep a close eye on the buck next week for confirmation.

Also, even if you are a "correlations" type trader (I'm not), please note that this does not necessitate an immediate drop in equities. Everything follows its own count. Sometimes they line up, sometimes they diverge.

DTG

OK, so a few folks have asked my opinion about DTG so I figured I'd post a couple of charts though I'm not sure how much help they'll be.

A monthly chart shows we are at an inflection point. The odds of a crossover after a 2200% increase seem low, but the odds of a 2200% increase seemed low a few months ago now didn't it? Keep in mind that monthly set ups take months to play out (obviously) so you still have to examine shorter-term time frames to determine exact entry points. (note: I should have made the yellow box another color - there is no confirmed signal here, just a warning of an inflection point).


This chart shows the most recent intra-day signals (Red = short, Green = long, Yellow = exit). Three nice high-probability, winning trades in the past couple of months totaling about 40% gains, but right now there's no signal in effect. It looks like we're consolidating for another push up, but that's just a guess.


As an aside, here are a couple of rules I follow: 1) Always know the reason why you are getting into a trade. Preferably a technical reason like a wave count, indicator reading, support/resistance, etc. 2) Always know what will invalidate your thesis. When it is invalidated, exit immediately - no matter what. 3) Always use stops. 4) Just because a stock has gone up a lot is never a reason by itself to take a short position. That's guessing/gambling.

Hope this helps the rats who asked.

BTW, this is the last time I'll be posting C.O. charts for a specific stock on someone's request. I really appreciate all the interest but I just don't have the time. There are instructions on the right side of this page that explain how you can request your FREE stock analysis going forward (ha ha, suckers!). Of course, I'll continue to post C.O. charts as I normally do from time to time - I just won't be taking freebie requests.


Wednesday, September 16, 2009

1121

Can't say for certain that we'll get to 1121 but there's a mass of resistance if we do.

Green = lifetime fib fan
Yellow = Primary 1 fib fan
Blue = 50% retracement of Primary 1
White = B-D line of Intermediate 4 of P1



I'll be a little disappointed if we don't make it. It would just look so elegant.


Friday, September 11, 2009

Dollar near a bottom

Not a coincidence that we see news stories like this just before a bottom...




Thursday, September 10, 2009

Jailbreak!

See this post for the implications of this breakout on $TRAN if it holds.

Transports can't stop now, they need to get to a safe distance away from the jail house before they rest. If they slow down too soon, the bloodhounds will sniff 'em out and the warden will throw them back in solitary.

Translation: the bulls need this wave to extend a little bit to allow sufficient room for a retracement without falling back below the yellow line. But intra-day, it looks like $TRAN is wedging pretty hard.






Wednesday, September 9, 2009

That Elusive P2 Peak

When will it come? Will it come? Technical Analysis is broken. Indicators don't work anymore. Elliott doesn't make any sense. Maybe Cramer's right. Maybe I'm missing the start of a new bull. How can people still be buying this crap?? WHY WON'T YOU JUST DIE ALREADY?!?!

Deep breath. Hold it for a sec. Now let it out.

Everything is OK. You're supposed to feel this way. You're supposed to feel scared, exhausted, angry, beaten, ready to quit. You're supposed to feel just like John Q. Buyenhold felt in early March right before he sold whatever was left of his decimated IRA.

This is the psychology of the herd, and it is a virus.



There is no immunization. We are all vulnerable. It even infects Goldman's trading bots because their metal minds were molded by fallible men.

The difference between you and the sheep that work in the adjoining cubicles is this: You know the psychological temptation that is crouching at your door, desiring to have you. But you will master it.

Sheep are guided by emotion; you are guided by the cold, unfeeling, visual expressions of mathematical relationships that we commonly call "charts." So let's take a look at a cold, unfeeling chart that will hopefully warm your hear with delight.

This is a long term, weekly chart of the Nasdaq.



I've expanded the LT & ST Chicken Oscillator frames so you can better see the detail. There are a couple of things I'd like to point out.

First, take note of the wave signatures (there's a refresher at the bottom of this post). As always, the LTCO captures larger degree wave signatures (in this case, Cycle waves) while the STCO shows a lesser degree.

The LTCO very clearly shows the signatures for Cycle A (breach) and Cycle B (backtest). Cycle C should be an "exaggerated" signature - meaning it should 1) be a sharp spike that is disproportionate to actual price movement or to the C.O. signatures of the preceding Cycle waves; or 2) get violently pinned in overbought/oversold territory. Conclusion: Cycle C's wave signature is incomplete, therefore Cycle C is incomplete.

Second, take note of the orange trend lines on the LTCO. We are but a few weeks away from a potential backtest. I believe this is where we will find the peak of Primary 2.

Third, there is a Bleed Off Set Up in the making. The LTCO is in a bearish configuration with blue below white, while the STCO is running upward. When the STCO crosses over, the dominant secular trend as defined by the LTCO will reassert its authority with vigor. If the ensuing move is not violent, it could be a sign that the secular trend is indeed changing.

Have a good night.

************

C.O. Wave Signatures
1 is a breach
2 is a backtest
3 gets pinned (in overbought/oversold territory)
4 is a false break (of the 80/20 lines)
5 reverses the false break

A is a breach
B is a backtest
C is an exaggerated move

The C.O. wave signatures are murkier for corrective waves because, well, the wave structures for corrective waves are murkier. So give correctives a little leeway. For example, you'll note that Cycle B is not a pure backtest because the blue momentum line crosses the white trigger line. However, after the breach there was never a successful backtest - a key indication that the breach was false and would probably not result in a sustained move.

Tuesday, September 8, 2009

Jailbreak coming

$TRAN's recidivism is becoming a real problem. It just doesn't know how to function outside the confines of a prison cell.

For the past month the Transports have been locked inside another trading range that is defined once again by the controlling lines we have been monitoring throughout 2009. If you don't know what those lines are, just click this handy link -- although I'm sure most of you lazy rats won't bother because recent blog traffic suggests that you don't like clicking links, if you know what I mean. >:-(

The fractal comparison between this range and the two-month range earlier this year is uncanny. The good news is that this one is much tighter (200 points compared to 500 points) and is pinching tighter every day.

Hopefully I don't need to stress the importance of this range. The lines that mark its boundaries are significant - we've seen their accuracy proven out many times this year. When it breaks, pay attention. It probably will be saying something important about market direction.

If bulls lose the purple channel line, I expect a retrace to The Alamo at 3100. If the bears lose the upper resistance, well, there sure is a lot of open air up there. The last chart shows a strong confluence of fib retracement levels around 4250.

The wave structure from March is unsatisfying. On the whole it looks incomplete. The past month looks like consolidation for another push higher. At the very least I don't think it's possible to say that it's been putting in some kind of ones and twos downward. You'd have to waterboard the tape to get it to say that.

At the same time, it's important to remember that the Transports can and do diverge from the broader markets. You don't need to look any further than the top of Cycle Wave B -- $SPX put in its top in October of 2007. The Transports peaked 7 months later in May of 2008. We shouldn't be too surprised if something similar plays out again this time.

But let's not get too far ahead of ourselves. Before any of that happens, there first has to be a Jailbreak!









Did you not see the question mark?

...in the title of the previous post?

Just posted this update at Evil Speculator:

For raised_by_wolves re: my post from yesterday...

There was little change on the C.O. - the lines just got a little closer together. I was probably irrationally exuberant in thinking that something would need to occur today. This always happens when I try to guess what the C.O. is going to do - I'm extremely impatient and I hate that it always forces me to be patient. ;)

In any case, we are still at an inflection point and I see no compelling reason to have any short-term position in the market until the picture is clearer, but that's just my style. I do think that will happen in the next couple of days.

In fact, I had a phone conversation with the market and this is what I said: "You chop around, I launch the gas. You form a triangle, I launch the gas. You've got forty hours, till noon, day after tomorrow, to make new highs or new lows. I am aware of your GS trading bot countermeasures. You know and I know it doesn't stand a chance. This is the Chicken... from Alcatraz. Out!"


Monday, September 7, 2009

Smashy Smashy?

The chart below of the e-minis shows that it (as well as $SPX) needs a very powerful up day on Tuesday or it's smashy smashy time (i.e. backtest on the Chicken Oscillator). I can't project how many points it needs to gain, but it will need to be strong enough to surprise and piss off a lot of bears. If that doesn't happen odds are pretty good that I'll be scooping up some short term SPY puts.




Thursday, September 3, 2009

Transports Balrog FAIL

There seems to be a big buyer lurking at our line in the sand on the Transports. I think I figured out who it is...









Tuesday, September 1, 2009

The line in the sand

If I were allowed to watch just one line, this would be it.

The purple line on the chart below is the lower boundary to the channel that contained the entire 33-year Great Bull. I'll spare all the philosophical mumbo-jumbo as to why I think it's important - you can read more here if you want.

Ah, what the hell. A little mumbo-jumbo won't hurt. Here's a quote from the last time I warned (correctly) about this line:
In my view a channel is more than just a pair of parallel lines -- it represents an era in history, be it 30 years or 30 seconds. The channel defines the limits of that era. When you're in the channel, the era is ongoing - in this case, an era of unprecedented prosperity, growth and optimism - the most powerful bull market in history.

And that's why I think it's such a big deal - by reclaiming this channel line, the bulls are essentially making the case that the Great Bull is still ongoing. They are saying that in the grand scheme of things, it's as if nothing has happened. There was no 18-month death plunge. By golly we're still in the same channel we've been in for 3 decades, aren't we? So everything's fine! In fact, we're at the bottom boundary right now -- what a great time to buy!

If bulls lose this line they will lose their argument.



I will be honest - I'm not ecstatic about the intra-day wave structures on anything at this point. It's choppy and it looks corrective at this point, but perhaps it will evolve into something a little more clear. Maybe I've just forgotten what bearish impulse waves look like - it's been awhile, hasn't it?

Is there more downside coming? I think so -- and I hope so since I'm still holding a good chunk of XLF Sept puts after covering 1/3 today. I have some Octobers as well.

But is this the start of Primary 3? Dunno. Maybe. That's why I'm watching the line.