Intermediate trend change looks imminent

It is almost like the market read my post yesterday... The market started one of the strongest bullish W3s this year and flew by the trend average, the 13 day EMA and the 50 day MA without blinking an eye. I know the excuse for the rally is not all that convincing (allowing Spanish and Italian banks to borrow from the fund) but to me what really drives the markets long term is investor sentiment and not these types of news. To put things into perspective and not get sidetracked by all the "noise", catastrophic wave counts and predictions. This correction that started in April is now almost 3 months old and in all this time the bearish advance has been a total of 60 points!.. 1422-1362. The bullish wave preceding it was 4 months old and advanced 264 points 1160-1422. During this correction the market dipped below the 200 day MA just for a day before bouncing bank, signaling investors were waiting for a 200 day test to jump in. Unlike last year where the market sold off hard after the 200 day MA was lost. And unless the market starts trading under 200 day MA, my assumption is that the market is going up. I am aware of bearish wave counts targeting 1200, 1100, sub-1000, etc. but at this point trends don't support that. If anything, we're more likely to see new highs fairly soon once the intermediate trend turns bullish (which should be sometime next week if the 1340 level holds).

Have a great weekend!

Range bound... but

The market went down as anticipated and it did not even enter the 1300-1310 area, which in turn has caused a higher low and potentially a base for a bullish W3 wave. Obviously, it's too early to tell at this stage since key support and resistance levels have been holding. But it looks to me like the market has the intention to rally over the Trend Average and perhaps the 50 day MA which will likely turn the intermediate trend bullish. So if you're short, watch for this as it can save you a lot of headaches and $$$. Also, I wanted to post a chart of the stock market expansions and retractions over the last 100 years relative to P/E. Notice the market heading into a sub 15 P/E ratio (it is currently at 13) on the chart and how these ratios have retraction and expansion cycles. Going by these numbers, there is a very good chance that we have been in a correction within the larger trend for the past 12 years and if history serves as a guide we are probably about to embark in a major bull market sooner rather than later (talking about yearly time periods). Everything comes in cycles and I think the corrective cycle in the bigger picture is about done..

Trend Average Resistance

I made a mistake yesterday in posting that 1324 was a 38.2% retrace. I moved one of the Fib retracement tools on the chart by mistake so that level was not the right one. The correct 38.2% retracement is 1330 and today we saw the market go into Fib retracement territory and almost testing the Trend Average which is still 1336. So unless the market manages to close convincingly above it, we'll probably see a 30-40 point move to the downside once the bounce wave is over which would test the 1300-1310 support area. So the suspense continues.. I continue to be long but hedging on the overbought extremes. I am not sure what will do it but I get the feeling the market will continue to rally eventually to new highs before a any substantial bearish wave.

Market Bounce

The market bounced as expected today and found resistance exactly at the 38.2% retrace of the X or W1 wave at 1324. So now we'll see how much more strength this bounce before resuming another bearish wave to test the 1300-1310 level which so far has held up fairly well despite several bearish attempts. And if the bearish wave fails to beak this support area we will most likely then test the 1363 wave high again. The market looks undecided at this point which actually favors the bullish case as long as the over all trend is positive. Perhaps the market is waiting for more EU information before making its mind.

Confirmed Bearish Trend

The market put in a 5th bearish wave today completing what appears to be an X or W1 wave. The trend average served as resistance last past week and any coming bounce will have to overcome the TA in order for the bullish to take hold. If the wave that finished today was a bearish W1 then we'll probably see much lower prices after the bounce so I am going to hedge my longs at the test of the TA in case the bounce turns out to be a W2. With that said, we still trade above the 200 day MA so this continues to be a correction within a bull market.

Trend Average Resistance

The market bounced as expected today but it stopped right at the Trend Average closing just a point below it. Looking at some technical analysis tools the market looks like the bounce wave is not over so it remains to be seen just how much higher it can do. The trend has not changed and the intermediate bullish pattern remains the same so it is up to the bears to make their case now.

Have a great weekend!

Change of trend?

The market failed to put in the 5th leg I had been expecting and now it looks like the wave move up to 1363 was already complete. The 50 day MA and the trend average both failed to hold and if the coming bounce does does to push the market above the Trend Average then the trend will change to the bearish side. We just have to see how convincing the bounce is, if we see hesitation in the market at the TA/50 day MA then we are probably going to test the 1305 level again. I am holding long until there is a confirmed trend change.

50 day MA holding

I had an emergency and had to go drive out of town and back but I still want to give an update for 6/20. Basically the market did what I was expecting, which is the test of the 50 day MA and so far this level has been holding well. So if tomorrow this level doesn't break then I expect the market to make a run towards the 1365 to break resistance, which would go well in line with a W5 to finish up the impulse wave from 1266. And like I said yesterday, if the 1365 level breaks we're on to 1385-1390.

1385-1390?

The market found the fuel overnight to rally past the 50 day MA today and if advance can clear the 1360-1365 area then there is a good chance the next stop is the 1385-1390 level. But for now the market is overbought (it has advanced aprox 100 points from the low and we're just about 60 points for a new high for the year), so I am still expecting a correction to the TA or 50 day MA as soon as tomorrow. But this being a bullish W3, it has the freedom to extend and turn the market very overbought before any meaningful correction. So I wouldn't recommend being short expecting a market collapse (for those that assume we are about to witness a cataclysmic sell off) since all indicators are bullish or about to turn bullish. If the market was trading under the 200, 50 MAs AND its Trend Average then being short would make more sense to me. But for now, I am holding to all my longs until the market reverses the trend or we hit an extremely overbought spot.

Trend Average Test

The market got stopped by the 50 day MA today and that to me shows some doubts among traders, at the same time the VIX has plummeted so odds still favors the bullish side. I think if the coming correction finds support at the Trend Average (currently 1324), then the market will find enough fuel to propel past the 50 day MA and in turn increase the chances of turning the intermediate trend to the bullish side. But first, let's see how the market holds after the correction.

50 Day MA

I posted yesterday about the potential for a break out today and the market did exactly just that. But instead of gapping up the market opened with a bullish bias and just kept climbing for most of the day and leaving a bullish close for the day and for the entire week. And while the S&P500 fell short of testing the 50 day MA, the DOW closed above its 50 day MA. So there is a good possibility the correction might be over as soon as next week. And the same reasoning I used in early December 2011 for a rally applies here. Should the market be able to overcome the 50 day MA and trade above it then we will be on the way to 1400 and if you haven't been long, you can still use the next Trend Average test as an entry point.

Also, I wanted to add a comment on my opinion of "catastrophic crashes" not happening. When I refer to this type of crashes, I don't mean a 50% market decline as they are actually reasonable declines during recessions. What I meant by catastrophic is DOW going to 400 or the S&P500 going to 50 (from current levels!) as envisioned by the bearish "P3" EW crowd which to me is completely absurd.. That's why I don't follow the orthodox way of counting waves as it fails to take into consideration real GDP growth, wealth creation, inflation and basic Austrian economics.

Have a great weekend!

Breakout?

The market seems like it can possibly break out of its range as soon as tomorrow after today's action in the last hour. But obviously, nothing is firm until 1335 is taking out decisively. The excuse for a break out would probably be the increased possibility of more Quantitative Easing so any more data that suggest weakness in the economy will actually be good for the markets. I know a lot of people complain about the central banks intervening in the markets but as long as they keep assets nominally elevated, then numbers look good to most people. And that is the main reason we will never see any catastrophic crashes in the market like the so called "Primary 3" per some Elliott Wave practitioners.

The trend average has now risen to 1311 and the the prospect of the 1292-1298 area being re-visited seems less likely now.

More of the same

The last few days have been somewhat on the "boring" side as the market is stuck in a range. At the same time, this could well be marking a complex bottom with the right shoulder of the IHS being formed. And from that perspective it makes sense if the market takes its time forming the right shoulder that resembles its left side, symmetrically speaking it would look very good. With that said, a bearish Head and Shoulders was formed today that targets the 1275-1280 area. So we'll see if the market can break that 1292-1298 area first, whatever the case this looks and feels more like an intermediate B wave or a W2 so far.

Market Update

Despite the market moving 18 points from the lowest point to the highest, there isn't much to do but to wait. The pattern continues to be bullish until another weekly low is made so the market could just be zig zagging in preparation for a bullish W3. There is the possibility of a bearish wave coming obviously but given the trend and other traditional technical indicators, the odds don't favor it.

Correction to Trend Average

Last week I mentioned the market intended to test the Trend Average early in the week and I think we are in the process of doing just that after seeing a 5th wave materialize mostly in pre-market. And like I said last week, I consider the 1298 level an important area as it must hold for the market to really start rallying. Let's see if the market will manage to stay above the TA in the coming days. As it is, the pattern so far looks bullish and the potential H&S targets 1403.

Trend is confirmed bullish

The market seems like it is trying to put in a 5th wave but it is impossible to tell. What is clear at the moment is that the trend is bullish and the market will probably try to test the trend average on the next correction. The higher it goes the less likely 1298 will be re-visited so we'll see early next week if we get that right shoulder on the potential Inverse Head and Shoulders. One interesting factor during these past few weeks is the lack of panic among traders, the VIX has not come close to the levels seen last summer which helps support the case of a correction within a bull market. So no need to find the trend.. I've been long for a few weeks and will start shorting only to hedge once we start seeing buying mania again (and mark my words, those days are coming again.. they always do).

Have a great weekend!

Going for 1298?

The market continue its rally early morning today and it seems like all 5 waves are in on this A or W1 leg, so now we just need to see how the bearish wave behaves. I favor the area around the 1298 level being tested before resuming another bullish leg. If the market is able to successfully test that area and bounce right back above the Trend Average then we have a good chance of seeing a rally. Obviously, whether is a counter rally or a real rally is anyone's guess at this point. And last but not least, if today's high is the neckline for a potential Inverse Head and Shoulders then we're looking at 1395 as a target.

Bullish reversal

The market managed to bust through the 200 day MA as well as the Trend Average and if I were to take a guess now, I'd say we'll probably get the trend reversed to the bullish side in the next couple of days. The market has set itself up for an potential inverted Head and Shoulders so watch the area around 1298 level as it can a nice long set up there. What wave is this in the intermediate sense it's hard to tell just yet, I have to sit down and look at this with time. One thing that I assume is that this whole thing has been a correction within a bull market and that will remain the case until we get a "death cross". Some people have been debating the usefulness of wave counts and like everything else nothing is 100% when it comes to predicting the stock market. However, I follow a clear system here that follows 3 basic trends based on moving averages and trend averages. The long term, intermediate, and short term. If the long term numbers are pointing up, there is no need to be Nostradamus and call for massive crashes at the first hint of a correction. I rather be late at the party than miss the party altogether. The trend is your friend!

One on my next projects will be to publish returns for the long term and intermediate confirmation signals. They are obviously behind in terms of market turns but at the same time one avoids whipsaws that happen with shorter term signals.

W4 and the 200 day MA

The market continued to bounced as expected and it tested the 200 day MA today. And as I said yesterday, the ideal scenario would be for this W4 bounce to end before 1298 and then see another bearish leg to put in a clear 5th wave. The alternative of course is the market has already put in a bottom and we are seeing a real rally but for this to be confirmed the 200 day MA would have to be overtaken and the Trend Average should be in confirmed bullish. Until then, the assumption is more downside ahead. Also, because of how deep the correction has been I have to sit down and work on another long term count so I'll have something new by the end of this week.

More downside ahead?

The market seems to have to put in the low for its bearish W3. However, whether it is W3 of a W3 or the actual W3 needs to be seen in the days ahead. As a wave rule, the bounce from the low today can not exceed 1298 and if that happens to be the case then we'll probably get at least a 37 point bearish wave from the W4 top to finish up the 5 wave move from 1417. Where it ends doesn't matter that much IMO, what really matters is if the market is able trade above the 200 day MA when the real bounce occurs.

Market resumes bearish trend

The market decided to put in a clear W3 and at least we now have a better picture of the entire wave I've labeled "C". The 1292 level was the end of the W3 for this C wave and after an ABC bounce, we got the W1 and W2 yesterday and today we got the W3 with possibly more downside to come after a mild bounce. The trend obviously has turned down so we're back in confirmed bearish in the short term as the TA has fallen to 1313. Once the 5th of this C wave completes and I will continue to assume this is a correction within a bull market given the fact that a) 50/200 MA b) This is a 10% correction after a 30% run. One thing that we need to pay attention to is the 200 day MA, the market must bounce above it after the wave is done. If the 200 day MA becomes resistance then the bull market will start looking questionable.

Have a great weekend!