Update

I will be updating again when I get back on Wed night as I am having problems access blogger from here. But it looks like the market will be rallying some more as expected.. we will see.

Another all time high

The market continued its rally today and closed again at an all time high. It looks likely to me that we are dealing with a stand alone W3 and perhaps we'll see the W4 early next week before higher highs.  The DOW is lagging behind in this rally and the SP500 could be in an Ending Diagonal but looking at small caps and technology, those markets have broken out of their potential Rising Wedge pattern so the SP500 will likely follow.

The key drivers to the markets now are going to be earnings, so a decent season will add fuel to this rally. I am still waiting for an entry point since the market hasn't not tested the TA and one thing I will remember next time I see a Bullish Engulfing Pattern is to stay long. And as I've said before, as long as there are no signs of recessions or anything that could lead to a recession the markets will continue to go up.

Next few updates will be from Southern China. I have a cold from recent travels and I'm hoping I'll be better by tomorrow night for a 15 hour flight.. Have a great weekend!

Short Term Trend = Bullish
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. 

All time highs

Original Post: The market ended up "selling off" on the budget resolution news but it was short lived as it reversed and closed at an all time high as I was anticipating last week if we had a resolution. I will add more later (on the market action today and my take on the longer term count) but you can see my attempt at labeling a stand alone W3. You won't see these sort of labels anywhere else as this is my own creation and not a standard wave principle concept.

I am btw regretting not holding on to my Google shares.. arghh..

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So now that the high was taken out we can confirm the wave to 1627 as a corrective wave and as such I can start projecting targets for the current bullish wave. The one thing that makes this wave tricky is the fact that I am counting it as a 5th wave so it has the potential to end up in an Ending Diagonal or Rising Wedge. But if I were to treat it as a normal Wave 3 we are looking at 1868-1888 for the end of this wave or maybe even the entire 5th wave including the Wave 5. We'll just adjust as we go along but as of now this rally looks like it's just getting started.

Also, I posted a longer term chart I last updated in May since I posted about the different theories on market predictions yesterday. On this chart note that I posted preliminary targets for W3, W4 and W5 on that date prior to the market topping in May. Going by Eugene Fama's theory, the business of predicting markets is as good as a coin toss but if we break down the odds of this chart being right, odds would favor Shiller's theory on the market's having a psychological element. So I did an statistical calculation based on a few permutations to figure out the odds and this is what I found.

Odds of getting the turning points correct: 1/8
Odds of getting price direction correct: 1/8
Odds of getting the first two turning prices correct within a 2 % margin : 1/25 (this one is subjective and based on experience)
Odds of this chart being correct today relative to when it was posted vs a random chart: 1/1600

That's 1 in 1,600 and I am not including other permutations such as the time frame element nor the previous periods where right predictions were made. The third permutation is subjective as I am basing that on experience but I think that would be about right. So taking this into account, one could argue that markets CAN be predicted with some level of accuracy using the tools I have been utilizing. Obviously, this could have just been random luck so the point to this whole blog is to find out over the long term whether or not these technical analysis tools that I am using provide an advantage over the buy and hold strategy. I'd like to believe there is an advantage but I won't be sure until I see returns during 3-5 year term in bull and bear markets. If you have ever wondered why I am so dedicated to analyzing the market, this is the reason. I want to know for my own sake whether or not I am better off actively managing my money or leaving it alone in an index fund. If you are good at statistics please feel free to provide your input on my calculation.

Last but not least, since we're talking about the business of predictions. Unlike wave theory where one has to call the ups and downs of the markets, there are the likes of Marc Faber who just couple of days ago was speculating on Apple going bankrupt.. as a doomer, he will eventually be right in something bad happening but when you make the same prediction every single day then it's really no better than a broken clock being right.

My favorite Marc Faber prediction: http://www.cnbc.com/id/47566735

Short Term Trend = Bullish
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. 

Gap up or sell on the news?

The market had another strong day today and it is just a few points from an all time high and I am assuming the high will be taken out when the House approves the extension of the debt ceiling and the re-opening of the government. The Senate just passed the bill as of the time of this post so chances are good we will get this issue out of the way until January. So now the question is will we see a huge run tomorrow in some sort of bullish W3 (the micro count supports it) of a stand alone W3 or a sell on the news event. I am wishing for a sell on the news scenario where the market will test the TA so I can load up on longs but I think the case for a continued run is stronger. That Bullish Engulfing Pattern is usually the start of a powerful rally and it seems like this time won't be any different. I guess we'll find out in a few hours..

What happens tomorrow btw ties in very well with the recent economics Nobel Prize. For those that are not familiar with the theories, the concepts formulated by the recipients is related to directly to the stock market and all other asset classes. On one hand we have Robert Shiller whose theory on asset valuations assumes prices are distorted by emotional factors, leading to irrational exuberance and bubbles. At the other end of the spectrum we have Eugene Fama whose theory assumes market is always efficient, meaning assets are perfectly priced by the market because participants are able to price in all relevant available information. So during a bubble, say the US housing market prior to the crash. Shiller assumes prices where out of control because buyers were in manic mode vs Fama who assumes buyers priced in all relevant factors such as easy mortgages and a competitive buyers market. In a way it's ironic they gave the prize to people who contradict each other but at the same time they are both technically right. Using the S&P500 as a guide, if we believe in Shiller's theory 100% then one would be able to time the market and have substantially better results than the buy and hold method. But the fact is there are very few people in the world who actually have been able to beat the S&P500 over the long term and the one person who has managed to do that consistently (Warren Buffet) is a buy and hold proponent. Personally, I think over the log term markets will price assets appropriately while during shorter periods of time markets will have the tendency to be affected by emotional biases. In fact, this theory mirrors my own portfolio where I have invested most of my funds in markets I consider to be undervalued in hopes valuations will rectify over the long term while I trade short term market moves. But the real question is, do we really have an advantage using Technical analysis and Wave theory to beat the market. If you believe Shiller, that would be a yes. I like to real time test stuff, so I will come to a conclusion in a few years as I will be able to compare my own results. As of now, I lean yes but I am not 100% sure just yet.

Short Term Trend = Bullish
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.

Market Update

One of the best things of traveling is coming back home and I just got back home from my trip, it was so quick I barely had the chance to get jet lagged but I am tired. So I am going to make this brief, basically the market is waiting for a last minute deal so we should see a big move out of range by Thursday. The market is pricing a resolution so if the opposite happens then we will probably see a big sell off but I think politicians have enough common sense to resolve this and move on. And since we are down to the wire, I rather wait for the results and trade from there to minimize risks and catch up on some sleep :)
 
Short Term Trend = Bullish

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.

Daily MACD Bullish Cross

It is midnight where I am writing this (In Munich for couple of days) but the markets just closed couple of hours ago, so it feels weird to be writing about the markets at this time. If I lived here, I would actually be awake during market hours..lol. Anyway, the market corrected somewhat early morning in what seemed like it was going to be a "sell off" but instead it turned into a bear trap by quickly turning around and ending at the second highest close ever while the Russell 2000 made an all time high. And if a deal is reached today/tonight then we will probably see the SP500 all time high challenged. The daily MACD has made a bullish cross and the market has gained in 3 days most of what the market had lost in the previous two weeks, so things are looking bullish. I was tempted earlier today to add longs to my short term account but I wanted the market to get closer to the TA so I guess I'll just have to be patient. At least I am already fully invested so I can't really complain.

Short Term Trend = Bullish

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.

New all time high this month?

The market continued its bull run today and if a solution is found over the weekend we might see a stand alone W3, meaning there won't be a W2 retracement and the market will shoot straight for the all time high. The best example of this pattern was the wave from the Fiscal Cliff resolution on Jan 1st (which was also a Bearish Engulfing Pattern), that wave just went up with just a few sideways corrections. The market is pricing in an agreement early next week, so we'll see if the market is right. The wave count looked complete yesterday and now it looks like the 5th is extending but under normal circumstances we should see a correction of this wave for a W2 to perhaps the TA now that 1670 looks less likely.

I am in cash since I sold yesterday and you can see now why I'm avoiding shorting the market. I just hope we get a good correction so I can buy back longs and if not I'll just have to wait until the market decides to test the TA. I knew when I saw Doug Kass on the news last week the bottom was probably in! lol.. the man had quit tweeting his bearish opinions early summer and just when he thought he was going to be finally right.. he gets a BEP.

Have a great weekend!

Short Term Trend = Bullish

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.