Stainless Steel Chicken

Enjoy a delicious snack

2010-03-28T15:51:00.000-07:00

Not much time for stocks lately. Been thinking about a few longer term, bigger picture, philosophical things but don't have time to write them down right now. In the meantime, enjoy a delicious snack of intra-day readings on the Chicken Oscillator. Hopefully that will tide you over until I have time to write something more substantive. Short term trend is up within the ongoing secular bear market.

DOW coiling under Big Bear resistance line

2010-03-01T16:17:00.000-08:00

Please indulge me while I anthropomorphize the stock market.

A line on a chart is valuable only to the degree that price "respects" its authority. Price shows respect the same way a small time street hustler shows respect to a Mafia lieutenant - by doing what it's told and staying out of the line's face.

That means price runs away from the line when it gets too close, or it gaps over the line when it wants to get to the other side. In either case, price wants to quickly put distance between itself and the line, lest it receive a beat down. That's respect, and it makes for an orderly crime syndicate as well as orderly technical analysis.

On the other hand, price shows disrespect when it lingers all up in the line's business, jabbing a finger into the line's chest, saying, "Oh yeah? What are you gonna do about it?"

In technical analysis, some people call this "coiling." I call it disrespect, and it's often a sign that the established order is about to be challenged. And just like in a gangster flick, that usually means the shedding of blood... but whose?

Back to the Dow. On the charts below, you can clearly see that the Dow is showing nothing but disrespect for the orange Big Bear trend line. Like a crappy British pop band, it gets knocked down, but it gets up again and again and again. Ha ha, now that song is stuck your head.

Don Big Bear needs to address this situation immediately, and to do so with his characteristic ultra-violence, if he wants to keep his grip.

WEEKLY

DAILY

INTRA-DAY

Mind the fibs: Bearkill Edition

2010-03-01T15:55:00.000-08:00

If you mind 'em on one side, you gotta mind 'em on the other. This is a nice breach of 38.2% line on the $COMPQ's lifetime fibonacci fan, which I blab about from time to time.

Important Facts About Short Selling, The $VIX and Mole's Cat

2010-02-24T16:15:00.000-08:00

FACT: Short selling is what causes the market to go down. If it were not for greedy bears selling short, stocks would march forever upward in a calm, orderly fashion and we would all be rich.

FACT: Government can stop bears from tanking the market by imposing limits on short selling, like the SEC did today.

PROOF: The SEC ban on financial shorts in 2008 saved the day as demonstrated in this chart:

FACT: Anyone who sells a stock short is an inherently evil domestic terrorist.

PROOF: This is Mole's cat:

FACT: The market is driven by news and events. Since the market hates short selling, it will react favorably to the SEC's new restrictions.

PROOF: The $VIX looks like it's poised to... it's, um, about to... um.. oh sh-

Mind the fibs

2010-02-23T11:41:00.000-08:00

Just a quickie reminder to mind the bloody fibonacci fans. This one on $COMPQ (first mentioned in October) is drawn from the 1978 low to the 2007 high, and it's important, as it once again has marked a significant point in the wave structure.

Caw C-Caw, Caw C-Caw!

2010-02-23T09:43:00.000-08:00

Hey, isn't it a little premature to be doing a chicken dance over yesterday's call of an immediate drop? Technically, yes, perhaps. But I'm not going to be watching the market the rest of today, so I figured I'd just post this now.

That way if we continue to drop hard in the coming days, I'll look really cool. And if not, I'll just delete this post, move on and no one will be the wiser. That's basically what the TV analysts do, right?

In all seriousness though, a sustained downtrend needs to be confirmed by intra-day Chicken Oscillator readings and a clear wave structure. We don't have enough tape yet to make that determination.

Oh, hi Mr. Backtest

2010-02-22T12:27:00.000-08:00

Second waves end on a backtest. If this is a second wave, it will end nowish according to this set up on the STCO. A cross over means all bets are off.

$SPX intra day count

2010-02-11T11:20:00.000-08:00

C should be a 5 wave impulse. It may be complete already, but personally I'd like to see it push a little higher. I see this as (w) of 2, in accordance with Mole's blue scenario.

Score one for the little guys

2010-02-10T15:16:00.000-08:00

WAMU shareholders, stickin' it to The Man. Good for them...

I'm not a licensed social psychologist...

2010-01-28T14:20:00.000-08:00

...but I play one on The Internets.

Remember that time I got all philosophical about channel lines and the underlying psychology of social man?

I was totally just making stuff up.

Which is why no one will be more surprised than me if this actually holds.

If you don't know what these lines are go back and read the post linked above.

Backtest

2010-01-28T13:56:00.000-08:00

Last fall I postulated that a P2 peak would coincide with a backtest on the Chicken Oscillator (see here or here).

The chart below shows a clear backtest has occurred.

Assuming continued downward pressure in the coming weeks, the next challenge will come as the C.O. approaches the 20 line which can be viewed as a support/resistance line. A break below 20 would confirm ~~that the world is ending and we are all going to die~~ a long-term bearish scenario, while a bounce off 20 would put us in limbo (since the white trigger line will still be just above).

Old Skool

2009-12-29T21:18:00.000-08:00

I don't think I've ever posted an RSI chart. Don't get me wrong, I check in with the old school TA methods from time to time because they're proven -- I just don't post em that much because you can find that stuff in plenty of other places on the Internets. The Chicken tries to keep it fresh like Will Smiff. (Unless "it" refers to "his blog" during prolonged periods of boring market action).

So here's an old school RSI triple divergence on the $SPX:$USD ratio chart. It's self-explanatory. Enjoy!

See you kids next year!

Nothin's Gonna Stop Me Now

2009-12-21T13:30:00.000-08:00

When I looked at the $NDX today, I instantly heard a happy tune playing in my head. It took me a few bars to realize what exactly I was humming.

It was the theme to "Perfect Strangers." I'm totally not kidding.

I must confess that this is not unusual, since I'm a child of the 80's and happen to be obsessed with the campy pop culture of the era.

But why now, while I'm looking at the $NDX?

Perfect Strangers was, in every imaginable sense, a bull market TV show. A hopeful immigrant comes to America with nothing and achieves the American Dream -- what story line could better capture the optimistic social mood that was present when the show premiered in March 1986? (Pointless Trivia: over the next year and a half, the S&P exploded upward 44%. By the show's final episode in 1993, $SPX had posted a 91% gain).

Shouldn't I be hearing the theme to Dexter, or Six Feet Under, or Deadwood, or 24, or Flash Forward, or any of the darker shows that have flourished the last 9 years of this secular bear?

I guess a bull market theme is better suited for a day in which the $NDX breaks past this Great Bear trend line.

Bad news, Balki - it's not 1986. This time you're going to get detained by DHS, Jack Bauer will cut your eyes out with a butter knife and then Dexter is going to chop you into tiny pieces and dump you in the Gulf of Mexico. But not today.

Market: "I did it for the lulz"

2009-12-12T10:13:00.000-08:00

The most likely explanation for the market's painfully boring three-month stagnation is that it's doing it for the lulz.

Still hovering underneath the fib fan I mentioned back in October.

Updated look at the weekly Chicken Oscillator readings (discussed in more detail in the above link).

Chicken talk fancy 'bout this line, but do it come true or more lulz for market makers?

Here's a crappy zoom I had to rig up (b/c Prophet moronically makes lines disappear unless an anchor point is on the screen).

Sorry gang, this post is about as much interest as I can muster for the time being. Overall elliott wave count and projections remain the same.

Meh...

2009-11-26T20:17:00.000-08:00

Let's get right to the point -- I do not think this is the end of the 2009 rally. See my previous Elliott Wave count for where I think this is headed. However I do think this minute C wave has some more to go (the /ES is at 1085 as I write on Thursday night) before we head back up.

Here are the wave signatures on the Chicken Oscillator that form part of the basis for my reasoning.

First, we see the classic wave signatures on the impulsive wave that consumed the first half of November.

Now let's back out and look at some longer bars that show the classic corrective signatures for the current correction. In particular, note how grossly exaggerated the current move is compared to the preceding corrective wave. This suggests that it is a C wave, and not the start of a massive downward move like a P3 type of event. The wave signature rule is: "C is an exaggerated spike."

Here's the daily. The short term oscillator is still in a bullish configuration (blue above white) and on top of that it's pinned above 80.

So bottom line, I am not that impressed with this sell off from an intermediate term perspective. If bears can start pushing the Chicken Oscillator around I'll pay attention. Of course, I have that luxury since I have no short term positions to micromanage and I have very distant stops in place on my long term longs.

On the flip side, it's important to take note how the general balance of power seems to be shifting. If you look at the entire rally, the up moves are becoming more labored while the down moves are becoming more violent and retracing deeper and deeper. This is a simple indication of a sick market and an impending correction.

But delusion is a powerful thing. Human beings need hope to survive, and we will cling to it as long as we can, even if it is false hope. The more terrifying reality is, the tighter we will hold onto that hope, and turn a blind eye to the facts that stare us in the face. It's simply human nature. And that's why I try not to be in the business of calling tops - especially at this moment in history.

Naz / USD

2009-11-23T17:50:00.000-08:00

Plenty of ways to count this mess, but I like this one.

Bears: "John Doe Has the Upper Hand!"

2009-11-09T14:54:00.000-08:00

Bears were cocky after holding a gun to the bulls' collective head for the past few days.

Then today a mysterious package arrived. And like Morgan Freeman at the end of the movie Se7en, they had a sudden epiphany: John Doe has the upper hand!

This shouldn't be too terribly surprising. 1) I've said numerous times that this rally should end in an explosion of bullishness, not a whimper. 2) The bulls quickly and decisively reclaimed the One Line on the Transports last week - this is why I said bears needed to savagely kick the bulls while they were down or risk an ass kicking if they let them get up. 3) The Chicken Oscillator said as much as illustrated in the chart below.

The Dollar Index made a new low today by one penny. That's enough to immediately rule out my primary count (this is the beauty of Elliott - it gives you clear criteria that let you know the instant your hypothesis is wrong), so perhaps the alternate count in this post is what will play out.

If the dollar cannot find a bottom after another 5 wave thrust down then in my view, the near-term deflationist arguments will need to be reexamined. In any case, deflation is supposed to be a temporary phenomenon before inflation/hyper-inflation kicks in, so perhaps we'll switch gears early. Can't tell yet.

My posts will continue to be infrequent as I'm working on some other projects. But I'll chime in when I can. Suffice it to say that I won't be taking any short term positions until I'm back, but my long term portfolio remains long (non-leveraged index & mutual funds and some paper gold). Happy trading.

One Line

2009-10-30T12:31:00.001-07:00

How 'bout that, bears! An hourly, daily and weekly breach of the One Line to Rule Them All.

Daily

Hourly

But don't whizz your britches just yet. In early August when the channel line was first breached, I warned that bulls needed to extend the wave upward in order to allow sufficient room for a retracement without violating the line. That's exactly what happened.

Now bears are in a similar situation. They need to extend the current wave downward and build in some margin to allow for a retracement without letting bulls back into the channel. They do not need to mess around here. Kick them mercilessly while they're down -- or get ready for a nasty fight if you let 'em back up.

How powerful can one line be? This guy knows - that's why he's more gangsta than you.

Dollar count looks complete

2009-10-28T14:31:00.000-07:00

Turns out I was a couple of weeks early in projecting a bottom for the dollar, but (maybe) not that far off in terms of actual price. If you went long a couple of weeks ago you're in a winning trade as of today.

The crowd psychology is simply too one sided for me to believe that the dollar will experience significant downside from this point.

I suppose it could slide some more and I'd have to rethink the count, but the structure, proportion, trend line break, psychology, etc, suggest to me that the dollar has put in at least an intermediate term bottom. I'd still use a reasonable stop though -- as long as the FED wants to destroy the dollar, trading against them carries risk of cheating.

Daily count on $USD:

Closer look at Minor 5 of Intermediate (C) on UUP:

The alternate count - which is still very much in play - would be that the recent low marked the end of Minute iii of Minor 5. Expect a few more days of consolidation before setting new lows. A breach of 77.5 on the $USD invalidates the alternate count.

Bulls or steers?

2009-10-28T11:48:00.000-07:00

Time to decide. Coming up on our line in the sand on Transports. Approx 3630.

EOD UPDATE:
No surprises here - you can see that the Great Bull channel line marked the low of the day (3634.99) and bulls tried to bounce off it at the close. How this resolves in the coming days will be extremely significant to IT market direction. If you don't know why I think this, see this post among many others.

Are we there yet?

2009-10-11T16:57:00.000-07:00

In early September I postulated that our first crack at a P2 peak was still several weeks away based on the long term readings of the Chicken Oscillator.

So here it is a few weeks later, and this is where we stand. As you can see on the first chart, we did indeed pause at the first orange trend line. But for now, that's merely a point of interest until there's additional confirmation on the daily time frame and a clear 5-wave structure down.

Here's a closer view of the same chart. You can see clearly how the C.O. stopped just short of the trend line and began mirroring it's gentle downward slope for the past few weeks. Sometimes this turns into a "meandering" backtest, and sometimes it's just a pause to build up strength for an attempted breech. Whatever the case, it's not really actionable at this point. Don't forget, this is the first point of resistance on the chart - there is another orange trend line and of course the white trigger line.

As I've said repeatedly, I do not expect this rally to end in a whimper, but rather an explosion of bullishness. So to answer the question posed in the title: Probably not.

Aside from a possible 5-wave intra-day move down on the Transports, I don't see anything to indicate this bull run is finished. The Transports may indeed be hinting that some short term downside is in our immediate future, but I see nothing yet to indicate a long-term top is in place. And if short term downside does indeed materialize, don't forget the bulls' strategy will be the same one they've thus far implemented successfully under Operation Toto.

Codename: Operation Toto

2009-10-01T20:56:00.000-07:00

My intelligence agents have intercepted an encrypted message that details the permabulls' last ditch strategy for salvaging this rally.

It's so top secret, I can't even say what it is publicly. All I can do is provide one chart, one link and one live performance by Toto.

If the bulls fail in this mission, they will go the way of... well, Toto.

Why am I just now seeing this?

2009-09-26T20:13:00.000-07:00

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.

2009-09-26T13:00:00.000-07:00

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.

The news is good for something

2009-09-24T11:11:00.000-07:00

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.

Day early, dollar long?

2009-09-22T22:54:00.000-07:00

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.

Stopped Clock

2009-09-20T14:39:00.000-07:00

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.

Dollar MIGHT have bottomed

2009-09-18T15:35:00.001-07:00

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

2009-09-18T10:27:00.000-07:00

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.

1121

2009-09-16T21:07:00.001-07:00

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.

Dollar near a bottom

2009-09-11T12:10:00.000-07:00

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

Jailbreak!

2009-09-10T10:29:00.001-07:00

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.

That Elusive P2 Peak

2009-09-09T14:13:00.000-07:00

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.

Jailbreak coming

2009-09-08T19:14:00.000-07:00

$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?

2009-09-08T17:16:00.000-07:00

...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!"

Smashy Smashy?

2009-09-07T22:05:00.000-07:00

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.

Transports Balrog FAIL

2009-09-03T08:59:00.000-07:00

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...

The line in the sand

2009-09-01T16:25:00.001-07:00

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.

XRT overhead resistance

2009-08-29T10:25:00.000-07:00

Retailers facing pretty much the same Confluence of Death as everyone else...

Notice the responsiveness to fibonacci retracements, particularly the 61.8% level.

XLF Ending Diagonal

2009-08-28T13:40:00.001-07:00

It appears we are tracing out the final few sub-waves on our primary count for the financial sector.

This final fifth of the fifth looks like it might want to form an ending diagonal, which should be expected at the end of a huge rally like this. ED's represent one last fit of delusion. They form whenever the trade has become one-sided -- in this case, more and more people are buying and fewer are selling, forcing the channel lines to contract. They typically end with blow-off moves that overshoot the leading boundary.

Personally I always like when diagonals and triangles are formed by trend lines or fib fans -- they seem more important and frankly their formation is easier for me to anticipate because I've already got the lines drawn. If you look at the second chart below, you'll see that the Minute v ending diagonal would be formed by trend lines that originate at the end points of the previous two Intermediate waves, which would be kinda cool.

My alternate count remains that this is merely Minor 1 of (C). Expect a retrace to $13.75 before exploding back up. If that plays out I'd project the end of (C) of {2} to be around $17.50.

But most importantly -- both counts suggest a significant retrace is imminent. That's actionable information! At the very least, mid-term puts on XLF seem like a good idea at this point. I've begun acquiring a few and will add on subsequent rips. I'm also partially hedged with FAS since I expect additional upside -- and I don't expect Primary 2 to end with a whimper.

Confluence of Death

2009-08-26T22:08:00.000-07:00

These charts are self-explanatory...

Supersized short play

2009-08-26T13:36:00.000-07:00

According to the wave count I laid out for MCD a few weeks ago, we should be close to completing a contracting triangle that will finish off Primary Wave B as well as a massive 2-year diamond top pattern. Primary C will then commence taking MCD down to at least $40 and in all likelihood substantially lower (T2 = $30, T3 = $10.50).

On the chart below I project MCD turning at around $58.50, which would allow (E) to be a 61.8% retracement of (D) and also fill the large overhead gap from July. But there is no reason this has to happen - it is already at the point where the minimum requirements are met, meaning Primary B could end at any time. The highest this rally can go is $60.88. Any higher means this wave count is invalidated and something else is going on.

As I've said numerous times I hate triangles and I never try to position myself early -- too many whipsaws and fakeouts. So I will be watching this one closely for a high probability short entry. Let me know if you've got ideas or recommendations on month/strikes.

Possible Bleed-Off set up

2009-08-26T11:55:00.000-07:00

Another example here if you're not familiar with this set up on the Chicken Oscillator.

Please note this set up is not confirmed until the STCO issues a bullish crossover. Until that happens there is risk of more downside.

Also, just FYI I am not preparing to enter any new long trades based on this signal -- this is just an FYI of what may play out later today or tomorrow.

Ratio charts

2009-08-22T17:12:00.001-07:00

One thing I like to do occasionally is to price things in $USD or $GOLD. It gives you a different perspective - sometimes one that is clearer because it dampens the effects of the dollar's fluctuations. Or something. Anyway, it's a valid tool in TA.

This chart of $SPX shows a significant resistance zone is fast approaching.

Same story for IYR. But look at the far left of the chart -- notice how it coiled underneath the line for a few weeks then gapped above. Shortly thereafter it put in its lifetime top.

Of course, the catch with ratio charts is that there are multiple ways to move the trend because there are two variables at play. So you technically you can't bank on the real price of $SPX dropping if it turns away from the resistance zone on this chart -- a strengthening $USD and a flat $SPX would produce the same result.

Cheers.

And now... the end is near...

2009-08-21T14:37:00.001-07:00

...and so we face... the final curtain...

But how near? I can't say exactly but we are nearing a significant correction of some sort, perhaps Primary Wave 3 down (or C if you prefer), or perhaps something else altogether.

Bullish sentiment is hitting extreme levels not seen since the 2007 top as evidenced by this chart of the Put to Call Ratio.

If you're unfamiliar with $CPC, it is a decent gauge of investor sentiment. When it goes up investors are buying more puts, when it goes down they're buying more calls. As you can see over the past few days there has been a dramatic surge in call buying. Perhaps everyone is expecting higher prices because Bernanke has "saved the world".

As a contrarian this makes me absolutely giddy and terrified at the same time. I am not willing to say that the top is in yet, but good God, this is insane. In any case I'm glad I got rid of those XLF calls today.

Lots to examine and carefully consider over the weekend.

I'll let Frank sing us out. Have a good weekend.

Good enough for government work

2009-08-21T09:15:00.000-07:00

The minimum requirements for our wave count on $BKX have been satisfied and it is likely that I will be exiting my long position (XLF Sept $15 calls) before today's close.

This chart shows what I think is a conservative count for the last few squiggles of this fifth wave. We could certainly go much higher from here but I'm happy with this trade and I want to avoid the trappings of Wave 2 psychology.

I'm really happy with how the Chicken Oscillator delivered throughout this rally. Aside from one whipsaw in the midst of that 4th wave triangle (which I think had more to do with my mistake at reading it properly) it performed brilliantly, giving a crystal clear buy signal at the bottom of 2. As I type $BKX is up 33% since then!

Apple's monthly close will be important

2009-08-18T21:00:00.000-07:00

A doji candlestick is a sign that the market can't make a decision. But the Chicken Oscillator says a decision must be made. The monthly close this month will determine what the C.O. does on the next candlestick - i.e. crossover or backtest. As you can see, the C.O. signals are valid on all time frames and ones that occur on monthly charts are important.

$BKX triangle?

2009-08-18T13:49:00.000-07:00

This is why I hate fourth waves and especially fourth wave triangles. Yesterday I was ready to write off my primary count on the banking index. Today I'm not so sure.

The triangle subwaves are a little longer than normal but still seem to be consistent in their relation to one another - roughly 78.6%.

XLF, on the other hand, is clearly not tracing out a triangle as it set a new low at the point I have labeled "c" in the chart above. This divergence between $BKX and XLF should be expected in the fourth wave, because they also diverged in the second wave.

A couple of weeks ago I wrote:

One thing to note is the divergence between $BKX and XLF in the second wave position -- $BKX had a very deep retracement, while XLF moved sideways. Based on the principle of alternation, the two should diverge again with banks moving sideways and XLF dropping sharply. However I would not be at all surprised to see them both move sideways (oh yay, could we have another triangle please?!?!) because they both have support from key fibonacci fans nearby.

So maybe that is what is playing out here - a triangle on the banking index, and a slightly sharper double ZZ or whatever on XLF. Or perhaps, as Alphahorn has pointed out, the fifth wave truncated and we head down from here.

Either way, I hate bloody triangles and I refuse to trade them, so I'm out until this pattern resolves. Additionally, if we do get a 5th wave up, it could very well be the end of Primary 2. Potentially being this close, the risk is too high for my taste to play much to the long side so for the most part I plan to fade it. Whether it's the end of P2 or something else, there will still be a correction so the R/R will be good either way.

UPDATE:

grednfer wanted to see my fib fans, so here you go mate. The yellow fan runs from the Feb 2007 high to the March 2009 low. The green fan runs from the July 2007 low to the March 2009 low.

Normally I would have chosen the yellow fan as a logical target for the end of Minor 5. However, if this is also the end of P2 I would expect some overthrow. P2 should end in a final burst of delusion, one would think.

UPDATE #2:

raised_by_wolves wanted to see the latest readings on the C.O., so here you go mate.

This is the time frame I've shown in my previous postings on $BKX. It shows the wave signatures of the Minute degree waves. As you can see it's stuck in mid-range chop at the moment.

Quick review on C.O. wave signatures:

1 is a breach
2 is a backtest
3 gets pinned
4 is a false break
5 reverses the false break

This is a longer time frame that exhibits the wave signatures of the Minor degree waves.

$TRAN trying to hold that channel line

2009-08-17T09:17:00.001-07:00

No surprise that bulls are trying to hold the 33-yr channel line on $TRAN, it's the exact LOD so far. A close below or even a breach is a very significant event in my book.

Looking for banks to top in low $50's

2009-08-14T17:21:00.000-07:00

My primary count for $BKX continues to looks good. I know there were a lot of people who were trying to short banks today and frankly I cannot imagine why when the overall wave structure is this clear. We have a 1, 2, 3, and what looks like a completed 4. So what's missing?

I'll be looking for $BKX to top around $50 or so. There should be a meaningful correction that immediately follows the end of the fifth wave, but as of now we cannot be sure of what degree. As I've mentioned before I believe this would be satisfactory for the end of Primary 2, but it certainly isn't required to be. More discussion of that to follow in the coming days.

Compare the wave structure on $BKX above to this idealized Elliott Wave (courtesy of Elliott Wave International). Pretty darn close.

Also, XLF managed to defend the magic fib fan line it claimed yesterday. That's a weekly close, too. Good sign for the short term bullish case.

If all goes as planned I will be exiting FAS late next week and begin scaling into short positions, primarily September puts on XLF and some individual banks. Unlike the indexes the wave structure on banks is clear, and that knowledge provides an advantage and opportunity that must be seized.

Banks look on track

2009-08-13T14:58:00.000-07:00

My previous forecast on the banking sector appears to be on track.

My downside target for this 4th wave was hit almost exactly and we've rallied about six percent since then. I think 4 is complete but it's a little unclear at this time - the intra-day waves are choppy and messy, a sign that they could be corrective, so it's possible we may head back down a bit or consolidate sideways. But I have a good entry on FAS and will continue to hold for now.

Look how the Chicken Oscillator helps you navigate the wave structure by giving nice wave signatures that I've talked about before. The long term oscillator shows the wave signatures for this entire rally, while the short term oscillator shows smaller degree waves - and it also seems to confirm that the 5th wave has begun.

Also, note that XLF managed to close above one of our magic fib fans, which is now important support.

Like a thief in the night?

2009-08-12T21:02:00.000-07:00

You know things are messed up when you can see a count that calls for substantial upside, like the one I pondered shortly before the FOMC announcement, and another count that calls for the Apocalypse to begin at 6 a.m. PST tomorrow.

To be clear, I don't give the chart below more than a 10% chance of being right - but it's a good reminder that we need to check our heads every day to make sure we aren't swept away by the psychology of the second wave.

What would piss me off the most is that I saw this count as it unfolded and even allowed myself a congratulatory booyaka! as Minor A completed on schedule. How is it that we see something unfold like we planned, then just disregard it? Stupid.

Like I said, I consider the odds still quite low for this to be the end of Primary 2. Bulls will continue to get the benefit of the doubt until bears prove otherwise. No sense in trying to call the exact top of a major, major trend change - trust me, there will be plenty of time to jump on the bear bus when 2 is over.

One thing I will be watching closely however is whether this 33-year Great Bull channel on $TRAN gets violated. In my view that line is a very real, physical representation of the bulls' entire argument -- which is that Great Bull is ongoing and nothing significant happened these last two years. Lose the line, lose the argument. It's just a hunch but perhaps that will signify that sanity is returning to the market and the Great Bear is reawakening.

Anyhoo, lending some credence to this count would be the fact that Minor C = 59.28% of Minor A (fyi for any noobs out there, 0.618 is an important fibonacci relationship and a common relationship b/w A and C). Also, Intermediate Y (the rally off the July low) would be 60.00% of Intermediate W (March low to May high). Finally, the time length of Intermediate W was 42 days. Intermediate X was 42 days. Intermediate Y was 25 days. 42 x 0.618 = 25.96.

Minor A was an impulse. Minor B retraced 23.6% which is satisfactory. Minor C would be an ending diagonal.

EDIT: I see that Dan beat me to the punch with a similar post on the Dow, although his count has one more tiny pop higher left to go. I like Dan's stuff a lot - he delves into the psychology and philosophy of Elliott probably more than any other blogger. Check out his site if you haven't already (but shhh, don't tell anyone at home base that I'm pimping other sites!).

Minor B complete?

2009-08-12T10:34:00.000-07:00

I can't be sure about this count yet, but I feel like there's at least a decent shot that Minor B is already complete. As I mentioned previously it's important for bulls to hold the Point of Recognition gap.

We also may have put in the first "1" wave (of unknown degree at this time) of Minor C.

Caution is the order of the day until the structure is clearer.

Banks not done yet

2009-08-10T22:22:00.000-07:00

Last week I pointed out that banks and financials appeared to be in the midst of third wave - "lagging", if you will, the broader markets which seemed to be in a fifth. Here are a few charts that make it abundantly clear, at least to me.

Here's $BKX intra-day. I simply see no other way to count this except as an extended third wave.

I took a crack at labeling the subwaves on XLF. Frankly I'm not sure the minutia even matters. The general idea is the same - three clearly defined moves thus far, not five. As a side note, look at how almost all the second waves are sideways corrections while the fours are sharp, the opposite of what we'd normally expect.

One thing to note is the divergence between $BKX and XLF in the second wave position -- $BKX had a very deep retracement, while XLF moved sideways. Based on the principle of alternation, the two should diverge again with banks moving sideways and XLF dropping sharply. However I would not be at all surprised to see them both move sideways (oh yay, could we have another triangle please?!?!) because they both have support from key fibonacci fans nearby.

So where does this put us in the grand scheme of things? As I've mentioned before, I believe banks are tracing out an ABC zig zag for Primary 2, much simpler and clearer than the double or triple ZZ (depending on who you ask) that the broader markets seem to be tracing.

Therefore we should expect five waves of equal degree to the ones we got in the initial rally off the March low. See the notes on the chart below. Personally I still think $59 is a good final target for $BKX.

WFC @ major resistance

2009-08-09T09:11:00.000-07:00

I'm Lovin' It!

2009-08-08T20:33:00.000-07:00

No, not the food at McDonald's -- but rather the Diamond Top pattern that's been two years in the making on MCD.

Bulkowski gives the pattern a decent ranking (#7 out of 21) but also notes that pullbacks occur frequently after the pattern breaks (the classic shakeout) so use some caution.

If a pullback does occur, this may be the wave count that is unfolding.

Meh

2009-08-07T13:34:00.000-07:00

Hey, remember those cheat wave scenarios I was warning about?

Anyhoo, I'm still not that impressed with today's EOD sell off. The $TRAN chart below shows the LTCO still pinned after yet another classic bleed-off of the STCO that played out today (see this example of the Bleed-Off set up for more info)

On a hummingbird chart the C.O. looks slightly more enticing and I think I can count 5 waves unfolding down on 1 minute bars. It could very well be the beginning of a larger move. But being conservative and chickenly has served me well thus far, and I saw no need to change that this afternoon.

Don't pay too much attention to the Wave labels on this chart -- there are a number of things that could be playing out here per my previous post and I'm not married to any of them. I will point out however that this puts $TRAN in a much better position to defend the 30-yr channel line that I believe is significant.

Serial killer on the loose?

2009-08-06T13:28:00.000-07:00

Damn. That's the third one this week, chief. Another oscillator, methodically and meticulously bled off just like before. Looks like we've got a serial killer on our hands - one with horns on his head and a ring in his nose.

I can't believe these guys have once again bled off the Short Term Chicken Oscillator! (See here or here for more info on this set up).

The chart below of $TRAN shows that the STCO has already lost a lot of blood but price barely dipped. Not particularly encouraging for bears hungry for a big meal right now after a month-long famine. I will point out however that all hope is not lost for the bears. Note that the long term oscillator has crossed over, which is a sign of weakness, but it remains pinned well inside overbought territory. We need a good drop on Friday to pry it loose.

What we're waiting to see is where the LTCO goes from here. If it crosses back over, the bulls will have played the same funny prank they've done numerous times throughout this rally - apparently it never gets old. If however we get a backtest, that will be just the short signal we're waiting for.

In another market, I might have jumped in earlier on the STCO signals - if you did, congratulations for being a balls-out bear and I hope you banked some coin. Me? I'm a chicken. A dumb little bird can get trampled pretty bad in a bull stampede. Best to wait until the coast is clear. All the more so with the bulls on a month-long parade.

I've given a lot of thought to figuring out who it is that keeps bleeding off the STCO like this. It's obviously someone who's inherently evil, probably obsessed with blood, and compelled by uncontrollable desires to ritualistically commit the same crime in the exact same way. I think I've found our suspect.

I gotta start trading currencies

2009-08-05T20:40:00.000-07:00

I look at currencies maybe once a month. Maybe that's a mistake. Because there's no other way to describe these C.O. readings besides sick!

I mean even if you just took the signals and then set a trailing stop, that's pretty sweet coin.

Please note that I haven't taken an in-depth look at this pair on multiple time frames, so I wouldn't necessarily presume that it's headed down based on the current C.O. readings. I'd have to do a more thorough analysis for that. And I don't even have a forex account -- yet.

Bullish Dilemmas

2009-08-05T15:20:00.000-07:00

Bulls charge ahead without thinking. It's their nature. That's why they're called bulls.

Most of the time they end up OK. I mean, with the FED and Goldman Sachs on your team it's hard to lose these days, right? And after all, the most basic wave structure is 5 up, but only 3 down - nature's way of ensuring progress and growth.

But sometimes the bull's bull-headed bullishness creates serious dilemmas. Like obliterating the 13 month EMA last week. Or the one we find ourselves in today.

I'll use $TRAN as an example, but it really applies to the broader market as well.

The first chart shows my preferred count, which is that Minor A of Intermediate C of Primary 2 completed on Monday and we find ourselves in the midst of a B-wave correction (spare me the critiques about why this is Z of a triple zig zag or 4 of P1, etc, etc. I don't care about minutiae. This is clearly a 3 wave move thus far off the March low and I'm calling it A-B-C for simplicity).

I like this scenario b/c it's well proportioned, has a decent channel and would make sense with the overbought readings on every indicator. Note the 2-4 line violation and failed backtest today.

If this count is correct, we would expect a B-wave correction to retrace about 38.2% which also just so happens to be the spot of the previous 4 of one lesser degree. Double bonus!

Now, here's the problem. See that purple line? It's the channel line for the entire 30+ year Great Bull. I have a hard time imagining that the bulls are just going to give it up that easily. It's too important.

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, because soon we'll be headed to the upper boundary!

Defending this line is essential in defending their argument.

Who knows? Maybe I'm wrong about this. I mean, I'll admit I'm getting pretty philosophical about something as silly as a little purple line on a chart. Maybe we'll retrace without any problem, violate that line on the way down, then violate it again on our merry way back up.

The thing is we know for a fact that it's important. It's marked some pretty significant turning points (including when I first pointed it out to you rats back in early May and recommended a short that banked 13%, and then said it would keep us range bound for weeks - oh yeah, I'm going to keep patting myself on the back for that one for a long time, bitches!). So it's just hard to imagine that it will be disrespected so flippantly this time.

All of this makes me wonder if A will continue to push a little more to the upside to allow sufficient room for a B-wave retracement without violation of the channel line.

Or even another stupid scenario like this:

There's even a fib fan line (from the 2008 high to the March low) that would form a nice triangle boundary.

Whatever happens in the short term, I'll just say it one more time: intermediate trend remains up, and bulls remain firmly in control until the bears draw a line in the sand and say "By God, no more!" I haven't heard that yet, have you?

XLF approaching speed bump

2009-08-04T14:36:00.000-07:00

XLF stopped just shy of one of our magic fib fans (here's a wider view if you'd like to see where they're drawn from).

Before you get all short crazy, ask yourself: does it look like we are completing a 5th wave of Minor A, or does it look more like we're in the midst of an extended third wave of Minor A? Just raising that as a possibility and perhaps someone with more insight will help us clarify.

Daily

Intra-day. Bulls would love a repeat performance of July 16 and I wouldn't be surprised if they tried.

Still Pinned

2009-08-04T13:44:00.000-07:00

Yes, the trend is getting tired and yes it looks like we're wedging a little, but that doesn't mean much at this point.

Oscillator divergence plays out

2009-08-03T13:11:00.000-07:00

Update on my Sunday post...

The divergence played out as expected, issuing a long signal (for scalpers) at around 985 on the /ES in the wee hours of the morn.

I still see no reason to be short at this point. My short term account remains in cash, long term still long. Booorrrrrinnnggggg.

Oscillators appear to be diverging once again

2009-08-02T19:41:00.000-07:00

I did not re-buy those SPY puts as I pondered I might on Friday. Here's one of the reasons why.

We appear to have a divergence setting up between the Short Term & Long Term Chicken Oscillator. The STCO is bleeding off while the LTCO remains pinned in overbought territory. This is a set up I've mentioned a number of times including this recent post.

Many times I see this occur during a sideways consolidation as price is preparing to make another lurch higher. It doesn't mean there's not some downside to come on Monday - it just means I'm on guard for classic cheat waves to the upside until I see the long term oscillator get un-stuck. When that happens, the signal will be clear and the risk of entry will be more suitable for my taste. I never mind being late to a party - or anywhere else for that matter since I live in LA.

Here's what it looks like on the /ES.

Mission Accomplished

2009-07-31T13:06:00.000-07:00

Hooray for bulls, Mission Accomplished! The S&P closed July at $987.48 -- almost a buck above the 13 month EMA at $986.60. Now all they have to do is NEVER CLOSE BELOW the 13 month EMA or it's straight to hell! (Ok, maybe that's an overstatement - after all this set up has issued a number of false signals throughout history - but you get the idea).

Frankly this was stupid in my opinion -- why not retrace now, build up some strength then mount an attack next month when we're not so ridiculously overbought in the short term and it might be easier to defend? But in typical bull fashion, they just charge straight ahead.

I really want the market to go as high as possible before the next wave of destruction -- I would be fine with another year or more of insanity. But it's stupid things like this that make me question whether these guys are already too insane for that to actually happen.

Whatever -- this is just idle speculation. It doesn't change my allocation strategy which is bearish for the coming days, bullish for the coming months.

Elliott to the Rescue

2009-07-31T08:35:00.000-07:00

Since we seem to be chopping around today, thought I would share just one tiny example of why I find the Elliott Wave Principle so useful.

As I mentioned yesterday I bought Aug 97 SPY puts around lunchtime on Thursday when $SPX was about 994 (first blue box). I thought it was possible that Minor A had peaked and we were close enough to my target of 1000 that I figured I'd start scaling in. Here's where Elliott comes in.

If A had indeed peaked, we would expect price to start descending in 5-wave patterns. Sure enough, it looked like that's what we were doing as we went into the close. On the chart you can see the count I favored at the time. My puts showed a good profit and I was happy.

But lo and behold, what do I wake up this morning to find on the e-minis? Overnight, price had risen above the bottom of wave (i), which I have marked with the green line on the chart. This is a violation of an EWP hard rule -- fourth waves cannot overlap with first waves. Therefore, I knew my count was invalid and something else was occurring.

I sold my puts on the open for a reasonable profit (second blue box). I understood that price could indeed continue to drop -- but my reasoning for entering the trade had been invalidated. And if I can't justify why I'm in a trade, I immediately get out. Anything less is gambling on hope.

(Even as I type this, I'm watching what looks like an X wave triangle forming, in which case I just may pick up those puts again. If I do I'll post another chart).

$984.84

2009-07-29T19:05:00.000-07:00

UPDATE:At the end of July, the 13-month EMA was $986.60. Mission Accomplished!

*****

Hopefully this chart will clarify the significance of that number on the S&P.

This is a monthly chart of the cash index with 13 period B-bands and a 13 EMA down the middle, which currently stands at $984.84.

As you can see over the past couple of decades this little set up has been surprisingly accurate. A single monthly close below the 13 EMA in 2000 started a multi-year death plunge. In 2003, a single monthly close above brought resurrection. One close below in 2008 and it was a free-fall into the abyss.

Whether you place any value on moving averages or not (I pay attention to very long term averages like this one), you can count on the bulls trying like hell to hold $984.84 by Friday's close.

In any case, my long-term portfolio remains bullish until the bears prove the IT trend has changed (although to be honest, this alone makes me want to short the crap out of every stock possible but I will resist the temptation for now). My short-term portfolio is mostly cash in preparation of shorting the B-wave correction.

Clucking the Waves

2009-07-28T20:42:00.000-07:00

The more I study, test and trade with the Chicken Oscillator the more secrets I unlock about its mystical powers. For example, each wave seems to have a distinct signature on the oscillator. I mentioned this briefly in a recent post -- however it is much clearer on $COMPQ than it is on $SPX.

The signature isn't always the same, but then again, neither is the wave structure. In any case, keeping an eye out for these signatures really helps me to follow the wave and stick with the trend.

1 is a breach (blue crosses white)
2 is a backtest (blue bounces off white)
3 gets pinned (in oversold/overbought territory)
4 is a false break
5 reverses the false break

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

Here's what it looks like on $COMPQ.

EDIT: Almost forgot to mention, these signatures appear at all degrees on all time frames. In fact, note how at the end of today we have a Wave 5 signature (a reversal of the Wave 4 false break) as well as a smaller degree Wave 2 signature (backtest). If this is accurate, tomorrow should begin with an upward impulse into (iii) of 5 of Minor A.

Playing divergences on EAT

2009-07-27T23:06:00.000-07:00

Here's another type of set up I like using the Chicken Oscillator. This chart of EAT shows a nice divergence between the short term and long term oscillators.

The short term oscillator is "bleeding off" -- bouncing lower and lower while price is relatively flat (or in this case, a contracting triangle). Meanwhile, the long term oscillator is holding steady in a bullish position after having completed a crossover and backtest. This set up typically occurs during sideways consolidations as an issue is refueling to make another blast higher.

In this case, a long entry is taken when the short term oscillator gives a bullish crossover (blue line crosses above white line). Do not buy now -- additional downside may occur in the immediate future. When the short term oscillator bleeds off it often concludes with price making a quick stab lower followed by an even quicker reversal. Blah blah blah, bottom line is wait for the little blue line to cross the little white line and then go long.

$TRAN insanity gauge

2009-07-27T06:43:00.000-07:00

I've often referred to this line as the broader market's insanity gauge. I'm looking for it to be violated today in a fit of bullishness. I'll be watching momentum for the start of a B-wave correction.

EOD UPDATE:
Booyaka! Looks like we could be putting in an ending diagonal for 5 of Minor A so I'm looking for a blow off top on Tuesday. In my short term portfolio, I've trimmed long exposure and am preparing to short B, then will reposition long. Long term portfolio remains bullish. Don't try to be a hero if you want to short B - wait for it to turn first, and be quick to take profit. It could easily consolidate sideways rather than giving us any kind of decent retracement. After all the resistance A has fought through I doubt any of the indices will allow a deep retracement until Primary 2 has run its course. Trend remains up.

Updated wave count

2009-07-23T14:30:00.000-07:00

My primary count is that Wave iii of 5 of A completed today. The alternate would be that A completed today and we start a retrace into B tomorrow (actually, with the futures gapping down right now perhaps we are starting B as I type).

I will continue to beat the dead horse about caution. Bulls are in control -- the onus remains on the bears to prove that a trend change has occurred, and thus far they have been absent. I view the upcoming B wave as a buying opportunity more than a shorting opportunity (although you know I'm going to short it because I have to, it's in my bearish nature).

One thing I noticed about the channels during this move is that they all seem to work best when drawn from third subwave to third subwave instead of the traditional 1 to 3 -- just look at the charts, it should be apparent. That's another reason for my primary count.

$COMPQ target

2009-07-22T10:06:00.000-07:00

The top of the unfilled Point of Recognition gap intersects with the B-D line of Intermediate 4 of Primary 1 at around 1950. That seems like a good point for the end of this current Minor 1 (or A). Even better would be an extension above that point that would allow room for a 2 (or B) wave correction without falling below that level. Once taken this will be a critically important support level throughout the remainder of P2.

Whirlpool Repairman about to have work

2009-07-21T18:56:00.000-07:00

Mad props to Osso for pointing out WHR as an excellent short candidate.

Looks very similar to this old setup on $TRAN which was very profitable.

UPDATE: Wow, this worked out to a great day trade with the stock taking a massive 10% dump before finding support. Thanks again to Osso!

Intra day count

2009-07-21T13:12:00.000-07:00

This is very reminiscent of the initial move off the March low - the third wave just keeps extending to ensure that there's plenty of room for Minor 2 to retrace without falling below key resistance levels.

Earlier today I said:

You know what would be hilarious is if we just completed an ugly wave 4 and are now going to put in 5 of Minor 1.

That might be what's happening here - frankly it ain't easy to count. The alternate would be that EOD spike was B of 4 and C will take us to 930 or so. It's really academic at this point. If you're short, you're stuck until 2. If you're in cash, you're stuck until 2. If you're long, stay long but prepare to trim and reposition at the bottom of 2.

Here's what the Chicken Oscillator looks like. The long signal issued at around 878 remains in force. That's where the blue line emerged from oversold territory and then successfully backtested the white line. As I've mentioned before, backtests immediately precede sharp and powerful moves. That's why backtests occur almost exclusively at 2 waves, B waves and X waves.

One thing I really like about the C.O. is that each wave has a distinct signature. The waves don't always show up the same way but it seems to be fairly consistent.

For example, third waves tend to get pinned in oversold territory for the entirety of the move. That's exactly what we've seen.

Fourth waves typically result in a false crossover that is quickly reversed by the start of the fifth. Again, that's exactly what we saw today. It's difficult to see on this chart but the EOD spike resulted in the blue line once again breaching the white line which makes me think that 4 is finished, although it's quite possible that this is simply a very powerful B of 4 trying to fake us out.

Psychological Characteristics of Primary Wave 2

2009-07-20T17:55:00.000-07:00

Wanted to share a few thoughts with you rats on the psychological characteristics of a second wave. I stole this from Wiki (it was originally written about second waves in a bull market, so I made the appropriate changes like substituting "high" for "low"). I re-read it every so often - it helps to remind me that what's happening right now is exactly what should be happening in a second wave.

Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still good. As prices retest the prior high, bullish sentiment quickly builds, and 'the crowd' haughtily reminds all that the bull market is still deeply ensconced. Still, some negative signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% of the wave one loss, and prices should rise in a three wave pattern.

Now, here are the psychological characteristics of a first wave (with my comments in parenthesis). This is what it would be like if we were at the start of a new bull market. It sounds absolutely nothing like today:

Wave one is rarely obvious at its inception (sharpest rally since the 1920's is kinda conspicuous). When the first wave of a new bull market begins, the fundamental news is almost universally negative (green shoots, baby!). The previous trend is considered still strongly in force (every day another "expert" says the worst is behind us). Fundamental analysts continue to revise their earnings estimates lower (LOL); the economy probably does not look strong (green shoots, baby!). Sentiment surveys are decidedly bearish (LOL), put options are in vogue ($CPC near yearly lows) and implied volatility in the options market is high ($VIX down 70% in 9 months). Volume might increase a bit as prices rise, but not by enough to alert many technical analysts.

I have to remind myself frequently that we are in the midst of the largest bull trap in modern history. I do think there is more upside to come and I will continue to trade it -- but I will do so with caution because I believe I know what's in store.

And I also have to remind myself that like the other blogger Mole mentioned - a trader far more successful than I will ever be - I too am subject to the psychological forces of the second wave. The inescapable truth is that when the peak of 2 comes, I will be tempted to buy, to hold onto my longs just a little while longer, scouring the charts for any reason to justify my greed. I know the trap is set - I'm counting on you guys to help me spot it! I'll do my best to do the same.

Originally posted at Evil Speculator.

The ______ case for banks

2009-07-16T19:57:00.000-07:00

Today's action is the kind of crap that feeds cognitive bias. Are you short banks? Good news, you're on the right side! Just scooped up some XLF calls? Good news, you're going to be rich! That's why we have to back up and take a broader view, or use friggin awesome indicators like the Chicken Oscillator to identify longer term movements.

Yesterday I posted a bullish case for banks and a bearish case for banks. Today's action offers something for everyone.

For the bulls: A successful backtest of the yellow breakout line and an intra-day wave count that favors more upside.

For the bears: We're still being choked down by that green fib fan. And I do not like the action on the short term chicken oscillator one bit. It needs to hurry up and cross over or it's smashy smashy time in the immediate future. The long term oscillator remains in bull mode, so any drop would simply be a continuation of Intermediate B (or X if that's what you want to call it).

Bottom line: if the short term short side materializes, scalp it if you want (but be cautious) or use it to unload any short positions you got stuck with. The intermediate term (weeks/months) trend looks up to me. If/when the short term oscillator crosses over and if/when we cross that green fan, it might be best to turn your brain off and buy the dips.

There. I said it. I'm going to go throw up now.

Updated wave count

2009-07-16T17:07:00.000-07:00

Updating my count from mid-day...

Alphahorn pointed out a minor flaw in the count I posted this a.m. and turns out he was right, so many thanks, Alpha.

Here's my latest crack with wild-eyed and purely speculative price projections included. Don't get hung up on the time frames, I'm just looking at price.

Intra day count

2009-07-16T10:14:00.001-07:00

Be on guard for a wee bit more upside surprise... I wouldn't be surprised to see this count play out. Bulls need to extend this initial wave as far as possible so that the 2 wave can sufficiently correct without falling below the breakout line.

The bullish case for banks

2009-07-15T17:46:00.000-07:00

Yes, I know, the banks are insolvent pieces of crap and many will implode in the coming years. Yes, I know, their balance sheets are inflated with tax dollars and they're zombies and blah blah blah blah. I don't trade fundamentals, so I don't care about the fundamental state of the banks. I care about investor sentiment towards the banks, regardless of how misguided it may be.

So let me make a technically bullish case for $BKX. Notes are on the chart.

I'm sure there are plenty of problems with the specifics of the count. I care less about count specifics and more about the bigger picture. The point I'm trying to make is that we have two very clear moves thus far on the chart. The first was powerful and up, the second was/is meandering and down. They are roughly equal in time. The corrective wave has already retraced 40%. Could it retrace some more? Sure -- but from an E-wave standpoint, it looks satisfactory to me as it is.

Price target would be (gasp!!!) $59 - that's A to C equality, the 161.8 extension of A and the location of a green fib fan line. It would also be a 40% retracement of Primary 1, far more acceptable than the paltry retracement we have achieved thus far.

The bearish case for banks

2009-07-15T17:16:00.001-07:00

I will certainly allow for the possibility that the corrective move (Intermediate B or X or whatever you want to label it) isn't over yet. Today we stopped right at a green fan line. Maybe this was a fake out, and we head down from here.

On the chart below, the Short Term Chicken Oscillator is threatening a backtest - if it happens, it will happen very soon. As you guys know, a backtest usually results in a hard and fast move. It's no surprise then that backtests are typically associated with 2 waves, B waves and X waves. This is true at all degrees.

If the backtest is successful, it would likely result in a hard move down of at least several days and possibly weeks. That's why I have no worries about not shorting today's close -- there should be plenty of time to jump on that bus. I'd have to relabel the chart -- it would likely mean that the entire $SPX correction off 956 was Minor W of Intermediate X, and the last 5 days of rallying were Minor X of Intermediate X, with Minor Y about to blast us to new summer lows.

One concern I have about this is that A and B are already pretty even in time length, and it would just look better if C kicked off right now. Also, I have to point out that the long term oscillator is in a bullish configuration. Note how it completed a backtest at the point I have labeled as B -- right where we would expect the backtest to occur, which lends credence to the bullish scenario.

Notes are on the chart.

As I've said for some time, this is Primary 2. The bulls are in control until it's done. And as someone who's a long-term bear, that means I'm playing defense - conservative defense - until then.

I demand to know who's in charge here!

2009-07-08T14:35:00.000-07:00

Is it $SPX, which looks terribly bearish with 2 consecutive daily closes below the 50% fan line? Or is it $COMPQ and $TRAN, which have bounced off key support?

$SPX fails, others must confirm

2009-07-07T14:34:00.000-07:00

Updated look at "Must Hold" levels... $SPX has lost it's lifetime fib fan but the others have yet to confirm. Hence I'm cautious for now, i.e. still playing it small and not (yet) going on a liquored-up shorting binge.

$SPX - I guess this is now a "Must Recover Immediately" level.

Will we get to visit an old friend?

Transports can shed another 100 points before panic sets in among bulls.

$COMPQ has about 35 points of wiggle room.

Bulls need to get their act together ASAP if they want to push the tape higher before the Great Bear reawakens.

$VIX wave count

2009-06-29T21:58:00.000-07:00

$COMPQ approaching B-D line

2009-06-29T18:41:00.000-07:00

Don't forget about the B-D line from Intermediate 4 of Primary 1...

AAPL getting ripe

2009-06-26T11:56:00.000-07:00

Would like to see it push a little higher...

I just Googled in my pants

2009-06-25T22:00:00.000-07:00

I really have no comment to add to this besides WTF?!?!?!?!

But I guess I'll explain what I've done with this chart of GOOG in case anyone is wondering. I drew a channel line from the all time high to the June high. Then I anchored the third point at the all time low and added the 25, 50 and 75% lines. What you get is the pink channel.

Then I further subdivided each pink section by overlaying additional channels on top of the pink lines. The yellow dotted lines are the 25, 50 and 75% lines.

Now start at the very left and follow the price action over time. See if you can count the turning points and gaps that occur at one of these channel lines. It's simply a thing of beauty.

Here's a closer view of the most recent channel section.

If we turn lower, it seems like the channel lines provide reasonable guidance for price targets. If we break out, I guess I'll just add a new channel section and repeat ad infinitum.

PALM at resistance

2009-06-25T21:23:00.000-07:00

If you like jumping in front of freight trains, the yellow line is a pretty good place to give it a try. Stop or flip positions on the other side.

SPX pinch play

2009-06-25T14:40:00.000-07:00

**Updated Chart below**

I love it when we get pinched like this. It means something is going to happen, and we all hate boring ass choppity chop triangle days, don't we?

The yellow line is important - a close above is great news for the bulls. The green line is extremely important - take it out and it's ridiculously bearish. The blue one... meh... good gauging short term movements.

UPDATE: Bulls just couldn't get above that yellow fan, but they didn't run away scared either. All in all a boring ass day, just the kind we hate. The good news is the pinch is still on and it should resolve one way or the other next week.

Expecting a little more upside tomorrow

2009-06-23T13:24:00.000-07:00

Here are a couple of $SPX intra-day charts that show why I expect today's counter-trend move to continue on Wednesday before the larger downtrend reasserts itself. Hopefully they are self explanatory.

This is a hummingbird chart.

This one is a little longer timeframe.

It's important for me to point out that these charts simply show where price momentum was headed as of today's close - of course that can be changed overnight by the futures or by an opening gap.

But assuming that doesn't happen, how far do I expect to retrace tomorrow? I honestly have no idea. So as usual I'm not going to be in the business of trying to call tops, but will simply follow wave counts, momentum and lines.

And of course I will be keeping an eye on these levels for clues about the trend's strength.

"Must-Hold" levels for the bulls

2009-06-22T18:48:00.000-07:00

I consider all of these levels of critical importance for bull and bear alike. Note that $SPX has very little wiggle room while the $TRAN and $COMPQ are a little higher above their do-or-die zones. I would consider a close below on any of these as ungodly bearish and I expect there to be a fight (one of the reasons I closed shorts today, no reason to tempt fate).

$SPX -- 880ish = Lifetime Fib Fan (1932 low to 2007 high)

$TRAN -- 2950 to 3000 = The Alamo (i.e. Too many important lines to list, see this for more info)

$COMPQ -- 1710 = Initial descending channel, lifetime fib fan (1978 low to 2007 high), current decline fib fan (2007 high to 2009 low)

$TRAN headed back to the Alamo

2009-06-21T19:08:00.000-07:00

Transports should continue to consolidate to perhaps the 2950-3000 range but our trading range should continue to hold. That would be A=C parity of this latest downward move and, oh, it also just so happens to be The Alamo for the bulls.

As I've said before, I don't expect this support to be broken and sustained until P3 -- it's simply too significant, in my view. The bears may surround the garrison this week, but Col. Travis is already preparing his response to their demand for surrender.

I plan to enjoy the ride down but will be ready to cover / get long.

Here's a stab at the short term wave count.

Chicken Oscillator says trend is down.

Evil Speculator Complaint Desk

2009-06-17T14:31:00.000-07:00

This is the (un)official complaint desk for Evil Speculator, a blog run by morons for morons (especially morons who believe in Elliott Wave voodoo nonsense).

If you have a complaint, please register it here. Don't waste your time whining and crying at Evil Speculator - you will only be ridiculed with fancy logical arguments or, even worse, ignored - and that's the last thing you want!

I'll get us started by listing a couple of my biggest complaints.

First of all, there is no sense of community despite pathetic platitudes to the contrary. Everyone is in it for themselves and if you're a noob no one will ever try to help you get better.

Secondly, the proprietor of Evil Speculator, a shady character by the name of "Mole" who's prone to diva-esque outbursts, constantly makes ridiculous forecasts based on his interpretation of a magical theory called the Elliott Wave Principle. LOL, as if market direction were determined by something other than news and fundamentals! Not only is EWP pure hocus-pocus, but Mole particularly sucks at it (although he occasionally makes a lucky guess).

Finally, what's up with the constant demands to "obey"?!? It's way too much hassle - as if I have 2.5 seconds to spare! I want to enjoy the fruits of other people's labor for free, and spending a couple of seconds "sharing the love" every day is an exorbitant price that I'm just not willing to pay.

So those are a few of my many complaints about Evil Speculator -- please feel free to share yours in the comment section below and a customer service rep will get back with you shortly!

$TRAN falling back in line

2009-06-17T10:08:00.000-07:00

Judging by this intra-day pause, it looks like the Transports are learning an important lesson about being disrespectful.

$SPX in a pinch

2009-06-16T07:16:00.000-07:00

Let's see which way $SPX breaks out of this pinchy pinchy. The yellow fan is drawn from the 2007 high to the March low. The blue fan is from the November low to the May high -- essentially mirroring the B-D line if you count Intermediate 4 of Primary 1 as a triangle.

If there's one thing I know, it's that you have to be careful when dealing with a pinchy like this or things could end up in tragedy. (Disclosure: most of my knowledge comes from The Simpsons.)

via videosift.com

Euro-trashed

2009-06-15T17:06:00.000-07:00

I don't look at currencies much - not smart enough to be a forex or bond nerd so I stick to the basics of equities. But with all the yammering about the Euro and the Dollar I figured I'd take a peekiepoo.

Here's a long term fan worth watching.

That fan line just so happens to make the neckline of a pretty clean H&S pattern.

Does the Chicken Oscillator work on currencies? Hell I don't know, but I see no reason why it shouldn't. Let's all find out together -- I'll make a forecast, then we'll see if it comes true.

Quick look at RIMM

2009-06-14T23:17:00.000-07:00

Here's a fibonacci fan drawn from the 2000 high to the 2008 high.

When price behaves like this around the lines of a particular fan, it's um, best to pay attention.

It's easier to see on the weekly chart that price fell through the fan line on Friday. I would not consider initiating a long position until it has established itself on the north side of the line.

The Chicken Oscillator shows the up-trend remains in force for the time being but is quickly approaching an inflection point. As of now, the signal it's giving is "stay long" (but this is assuming you took the initial long signal at around $45). It can run hot in this "pinned" position for a while, but it won't take much force to trigger a crossover.

IMHO, at this point the risk is to the downside.

4 Seconds, $INDU-ser!

2009-06-14T19:58:00.001-07:00

Yeah, the title is completely derivative of this post and yeah, I really just wanted an excuse to repost the MacGruber video below. Nevertheless, these charts of the Dow 30 make it clear that one of the lines is about to give way -- by Tuesday at the latest -- and which one wins tells us which side has the mo-mo.

Apple takes a crapple

2009-06-14T14:53:00.000-07:00

AAPL complied with last weekend's analysis and to date has shed 5%.

Importantly, last week the Long Term Chicken Oscillator confirmed an initial sell signal (blue line rejected by white line). This week, if the Short Term Chicken Oscillator falls below 80 the downside will accelerate. In fact, I consider this a "short and hold" signal (of course we still use stops, don't we, because we're not maniacs. Right?)

Anyhoo, if we get the "short and hold" signal it would likely mean a deep retrace before embarking on the third and final wave of P2. I'm skeptical it will occur, well, just because I'm always skeptical. But I'll be watching and waiting to pounce if it does and I'll be sure to let everyone know.

On to the charts.

These are the lines I think are pertinent:

Here's the Long Term Chicken Oscillator. Last week the box was yellow. This week I painted it pink -- if/when the STCO breaks 80, I'll change it to red. See how my mind works? Just like a 3rd grader with a coloring book.

This one shows both oscillators and what we'd like to see happen.

$TRAN range still holding... for now

2009-06-11T14:41:00.000-07:00

A few weeks ago I postulated that $TRAN would be locked in a wide and tradable range in the near term. It has thus far played out that way, though I didn't realize it would be this mind-numbingly boring.

Here's the original chart from May 20.

And here's where we are today.

Ranges don't exist forever, so when will this one break? Well, to me it looks like $TRAN is starting to show some signs of "disrespect". Here's what I mean:

The two shaded areas show two distinct types of behavior. In the green box, $TRAN is "respectful" of the fan lines' authority:
1) When it touches a line, it is immediately sorry and begs for forgiveness by quickly retreating, often the same day (note the long wicks on many of the candlesticks).
2) Movements across lines are swift and powerful. It doesn't linger on the other side of a line it just crossed -- it runs the heck away from it out of fear.
3) Looking at the closing prices, you can see how $TRAN is getting bullied and pushed around by the fan lines like a kid on the school playground. Significant price turns occur almost exclusively at or near a fan line (the seven numbered points on the chart).

But more recently in the second shaded area, $TRAN is acting like maybe it's grown a pair. First of all, it turned back up without having to retrace all the way down to a fan line - that hasn't happened since the range was established. Secondly, it's not running away from resistance - in fact, it's brazenly getting closer and closer, poking it's finger in the bully's chest saying "oh yeah? what are you gonna do about it?"

What the resistance zone is gonna do about it should be known fairly soon. As I've said for months, the bulls are in control in this Primary 2 wave and they must be given the benefit of the doubt -- although I would be surprised if they shot through the upper boundary without completing a modest retracement.

To me, the Transports continue to provide key clues about broader market direction. IMO the market will not be able to continue to rally without the Transports, and frankly I don't think the Transports have the energy as of today to bust through the resistance zone. That means a jog lower to regroup & refuel before blast off.

Side Note: I've been trading this range very simply -- just going long and short IYT (options for IYT suck). Pretty boring but thus far profitable. I'm open to better ideas if anyone has them.

Updated look at XLF fib fans

2009-06-10T08:52:00.000-07:00

Keep an eye on this green fan line (approx. $12.26). A close below is good for ST bearish case, while failure to breach keeps the bulls in control.

A wider look at these fans can be found here.

Stainless Steel Chicken

Enjoy a delicious snack

DOW coiling under Big Bear resistance line

Mind the fibs: Bearkill Edition

Important Facts About Short Selling, The $VIX and Mole's Cat

Mind the fibs

Caw C-Caw, Caw C-Caw!

Oh, hi Mr. Backtest

$SPX intra day count

Score one for the little guys

I'm not a licensed social psychologist...

Backtest

Old Skool

Nothin's Gonna Stop Me Now

Market: "I did it for the lulz"

Meh...

Naz / USD

Bears: "John Doe Has the Upper Hand!"

One Line

Dollar count looks complete

Bulls or steers?

Are we there yet?

Codename: Operation Toto

Why am I just now seeing this?

Simplify.

The news *is* good for something

Day early, dollar long?

Stopped Clock

Dollar MIGHT have bottomed

DTG

1121

Dollar near a bottom

Jailbreak!

That Elusive P2 Peak

Jailbreak coming

Did you not see the question mark?

Smashy Smashy?

Transports Balrog FAIL

The line in the sand

XRT overhead resistance

XLF Ending Diagonal

Confluence of Death

Supersized short play

Possible Bleed-Off set up

Ratio charts

And now... the end is near...

Good enough for government work

Apple's monthly close will be important

$BKX triangle?

$TRAN trying to hold that channel line

Looking for banks to top in low $50's

Banks look on track

Like a thief in the night?

Minor B complete?

Banks not done yet

WFC @ major resistance

I'm Lovin' It!

Meh

Serial killer on the loose?

I gotta start trading currencies

Bullish Dilemmas

XLF approaching speed bump

Still Pinned

Oscillator divergence plays out

Oscillators appear to be diverging once again

Mission Accomplished

Elliott to the Rescue

$984.84

Clucking the Waves

Playing divergences on EAT

$TRAN insanity gauge

Updated wave count

$COMPQ target

Whirlpool Repairman about to have work

Intra day count

Psychological Characteristics of Primary Wave 2

The ______ case for banks

Updated wave count

Intra day count

The bullish case for banks

The news is good for something