Friday, June 21, 2013

Market Update

Not really much to add today as the market has the same count as yesterday despite a lower low at 1577. The market seems to have started its counter rally so we'll see how the market deals with resistance as it goes up. Should the market put in one more bearish wave then it will just mean the bounce today was a W4 but at this point I favor a rally. Also, as regulars on this blog are aware, I only follow counts that have the highest probabilities in materializing based on the trends I track as many of us are trading these waves. So I wanted to address the most bearish count out there, which is the one by Elliott Wave International. First, I'll admit that anything can happen in the stock market as nobody really knows the future. With that said, the long term bearish bias by EWI is based on some deflation scenario that Prechter (Psychologist by training and NOT an economist) came up with in order to justify his DOW 400 target which is 50% less than the DOW's annual earnings and less than 1/10th of the DOWs book value (Why would you sell your belongings, your house, your car, etc. at a 90% discount?). Which economically speaking, it is a delusional target as the lowest book value ever recorded on the DOW was 1.7. Secondly, the Feds will not let that happen in this lifetime, this is why we have all those QEs in the first place. But many traditional EW folks follow the EWI scenario and keep on betting on some market crash that is very unlikely to happen anytime soon. So I am going to take a guess on this one and say that bearish count they have with a W1 that looks like a zig zag and the supposedly W3 currently taking place will end up like every single major bearish nested 1-2 count they have posted since August 2009 (which have been so many I've lost track already). And once we see new highs, they will move the bearish count one notch up and tell people to keep shorting. This crazy type of advice has led many people over the last 4 years to lose a fortune and this is the reason I've pulled all their ads off my site. So yes there is a probability the market is going further down but chances are pretty close to 0% on the DOW reaching 400 by 2016 as predicted by Prechter.

Here is a link for a good laugh:

June 2010

"The topping process is over for the countertrend rally that started in the first quarter of 2009. The next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 sell-off. ... Gold poked to a new high, but in doing so, likely completed a pattern in mid-May that will lead to a multi-month selloff. ... The U.S. dollar index DXY +0.82% is fulfilling EWFF's forecast for a strong advance."

All of which fits right into Prechter's repeated predictions of a massive coming deflation."

If I had a penny for every dollar that was lost on that call, I would probably have millions.

Also, I appreciate the comments on the FXI. Some have been right in pointing out there is a potential Head and Shoulders on this ETF. But the issue is FXI is made of Chinese stocks from the SSEC and the SSEC is technically finishing its C wave of a W2, so the H&S on the FXI is not reflected on the SSEC at all. In fact, there is an Inverse H&S on there. I forgot to add that if we applied the current PE for SSEC to the S&P500, we would get 730 and 740 using book value. And since I missed my chance to more than double my capital from the 2009 lows on the SP500, this time I am going to be patient and stick to my call. Had I known then in 2009 what I know now, I would be more than retired.. but as I said yesterday, you live and learn.

Have a great weekend!

Main S&P 500 Trends*

Short Term Trend = Bearish
Medium Term Trend = Bullish
Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

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