DOW : The Great Dow Highs of Summer 2007

[drbubb]

Looks like we could be setting up for a lower low on lower VIX

(if the low came on lower volume, that would be bullish also.)

and that may check-in on Friday or Monday, coinciding with Larry P's call of the final "negative

aspect day" for October on 25th.Oct., which is a Saturday.

 

Note: prior SPY low was 83.58 on Oct.10th

VIX has been hovering over 50 for many days

Intraday VIX is a bit more clear

 

(Note: VIX is the index of implied volatility on nearby SPX options, and many take it as a measure

of "fear". A lower stock index on less fear should be a sign that sentiment is set to turn more positive.)

 

See: thread on Larry Pesavento's forecast of a black October, and then a rebound.

http://www.greenenergyinvestors.com/index.php?showtopic=4537

[nbarter]

Looks like we could be setting up for a lower low on lower VIX

(if the low came on lower volume, that would be bullish also.)

and that may check-in on Friday or Monday, coinciding with Larry P's call of the final "negative

aspect day" for October on 25th.Oct., which is a Saturday.

 

The wave pattern supports this view. I am looking for a new low. We had a new closing low yesterday, but looking for a new tick low. It wouldn't surprise me if it made a marginal new low before a sharp rally lasting a few weeks. Why? because this looks like a 5th wave down of the wave down that started in August. But, any bounce should not overlap with the wave down from May to July which bottomed at 1200 on the S&P in mid-July.

 

[No6]

That depends whether an upcoming correction is just correcting the rises since 2005, since 2002, or since the early 1930s. Whatever it is it should be a large and tradeable correction. If the former then I would look for a floor in the 12,500-12,000 region, if the middle then maybe the 10,000-11,000 range and if the former then way down south and probably below 8,000.

This was a great call on your part Douche Dore.

[nbarter]

This was a great call on your part Douche Dore.

 

Thanks.

 

Well looks like we didn't quite get the marginal new low i was looking for in the end, although we have sure started the sharp rally. Basically all the major markets around the world managed new lows, but the Dow and S&P could only manage new closing lows and a new futures low, but not a new cash low.

 

Yesterday's punch higher strongly suggests that we probably have more upside ahead, perhaps after a bigger correction of the rise to todays high than we saw in the last ten minutes of trade tonight (the Dow managed an amazing fall of about 400 points in roughly 10 minutes). I will post some charts at some point when i get a chance, but i think that basically there is a good chance that we are correcting the falls since August and no more. So any bounce now shouldn't rise above the August highs.

 

A first target for the correction is probably to just exceed the highs of the 14th October (1044 on the S&P). There is also a slowly falling trendline just above that high at the moment, so depending when it gets there (if it does) then a target of around 1050 seems a good first guess. It closed at 930 tonight.

[nbarter]

Just been listening to the Robert Prechter interview on Bloomberg from last night that i recorded. He was making some interesting points about how he does not see the lows of the last few weeks as a bottom, based on volume.

 

He has posted some interesting material at www.elliottwave.com/charts

 

Have Investors Panicked and Capitulated?

Figure 1

+ CLICK TO ENLARGE

Excerpted from pages 1-4 of Bob Prechter's Oct. 21, 2008 Elliott Wave Theorist.

Ever since mid-September, we have read that the bottom is in because investors have “panicked” and “capitulated.” But market history does not support this widespread view.

 

A perusal of volume (see Figure 1) shows that investors have not panicked. In a market panic, the number of shares traded increases substantially on down days and bottom days. In October 1929 and in October 1987, daily volume surged to between triple and quadruple the preceding summer’s average as prices plummeted.

 

Volume recently has been quite steady, aside from two spikes. But it is important to get out the microscope and see on which days they occurred. September 19 sported all-time record volume as the market surged upward. September 18 had the fourth-highest volume of the summer, and September 16 had the fifth-highest, and both were up days in the market. Even though September 17 had high volume on a down day, it was a contraction in volume relative to that on the adjacent up days. October 10, which is so far the low day for prices, saw the second-highest volume ever, and in some contexts would indicate an important reversal. But it happened amid hints that the G7 would meet and propose a global bank bailout, and some averages, such as the NASDAQ Composite and the two Value Line measures, closed up that day. Even the record and near-record volume surges of January 23 and March 20 occurred on huge up days, not down days. So most of the biggest volume days this year have been those that attracted mostly buyers, not sellers. This is not how volume has behaved in past panics. It is more like the way it behaves in the early stages of a bear market, when hope still reigns.

 

Figure 2

+ CLICK TO ENLARGE

The dominance of hope over fear indicates that investors have not capitulated, either. Capitulation is in evidence when investors finally abandon their hopes based on presumably bullish external factors. During September and October to date, investors have expressed immense faith in purportedly bullish news events. Figure 2 displays market actions to confirm this point. From September 1 through today, no fewer than half of the trading days found investors so excited about buying stocks that they drove closing or overnight futures premiums to record or near-record levels and/or concentrated their buying so intensely as to create large opening upside gaps in the futures market. You need not take my word regarding investors’ temporarily euphoric reaction to each news event; just flip through the news reports. This morning AP reports, “Wall Street surged on a burst of optimism Monday, [on] comments from Federal Reserve Chairman Ben Bernanke.” The Washington Post agrees: “The stock market soared in response to Bernanke’s remarks….” Socionomic theory accommodates brief market reactions to emotional stimuli, but we also know that otherwise the market’s trends are entirely in the grip of social mood, which cares naught for news. That is why we analyze waves of social mood, not news, except as it gives us hints about market psychology. Since every one of these days of excited rally had an excuse for buying based on news, it is clear that investors have yet to abandon their bullish bias or to give up hope that external factors will revive the bull market.

 

The main reasons that market observers are giving to support the case for a bottom are that momentum indicators are oversold and short term sentiment measures show that most traders are bearish. We know about these readings and show them on the Short Term Update. These indicators are tried and true, to be sure, but one must interpret them in context. Recall how often these same indicators registered an overbought condition or traders’ optimism from 1995 to 2007. If we are correct that Elliott waves identify that period as end of the largest-degree advance in nearly 300 years, setting up the largest-degree bear market since the 1700s, then current short term sentiment and momentum readings do not count for much. While they could support more near term rally, the bear market is likely to bulldoze right over them eventually.

[drbubb]

"The dominance of hope over fear indicates that investors have not capitulated, either. Capitulation is in evidence when investors finally abandon their hopes based on presumably bullish external factors. During September and October to date, investors have expressed immense faith in purportedly bullish news events. Figure 2 displays market actions to confirm this point. From September 1 through today, no fewer than half of the trading days found investors so excited about buying stocks that they drove closing or overnight futures premiums to record or near-record levels and/or concentrated their buying so intensely as to create large opening upside gaps in the futures market."

 

AGREED. That doesnt sound like capitulation.

 

A wave 5 coming after wave 4?

[nbarter]

A wave 5 coming after wave 4?

 

This chart shows my preferred count on the S&P. So, after this correction finishes we should get a 5th wave down, but that should just be the 5th of the 3rd (assumng this third isn't subdividing). So after that we should get a 4th of one larger degree and then a 5th of one larger degree down.

 

[nbarter]

Yesterday's punch higher strongly suggests that we probably have more upside ahead....I will post some charts at some point when i get a chance, but i think that basically there is a good chance that we are correcting the falls since August and no more. So any bounce now shouldn't rise above the August highs.

 

A first target for the correction is probably to just exceed the highs of the 14th October (1044 on the S&P). There is also a slowly falling trendline just above that high at the moment, so depending when it gets there (if it does) then a target of around 1050 seems a good first guess. It closed at 930 tonight.

 

It looks like this 4th wave maybe morphing into a contracting triangle (a-b-c-d-e pattern) rather than a simple a-b-c. If this is the case then it probaly won't reach the original target i mentioned of just above 1044, but rather stay within the trendlines shown below for a bit longer before a sharp thrust lower to new bear market lows.

 

[drbubb]

I think a bounce and retest, or lower lows, is possible : maybe by year-end or Q1.2009

The retest is here

 

So far it looks like much lighter volume.

And the final part is not done yet. Could it finish today or tomorrow?

I expect an opening gap down

 

Let's see if we can kill off this third wave action today

 

Bob Hoye wanted a retest low in mid-November. This may prove to be it.

[drbubb]

BOUNCE DUE? Maybe it has arrived... finally

 

The retest is here

So far it looks like much lighter volume.

And the final part is not done yet. Could it finish today or tomorrow?

 

We may see seen the Low that I was expecting

 

Here's a possible Right Shoulder in VIX

 

...as the QQQ and SPY made possible wave three lows (or just 3 of 3?)

SPY

 

Meanwhile, Energy (XLE) shares rallied more than QQQ or SPY

 

XLE: 48.09 Change: +1.31

Open: 47.08 High: 48.50 Low: 45.92

Volume: 52,403,470

Percent Change: +2.80%

 

The 181 point rally in the Dow came in the face of some horrible news:

+ Speculation of immanent backruptcy of automakers

+ Record low in confidence from home buyers

+ Home prices tumble in 80% of US cities

+ Massive layoffs announced at Citibank, and a big fall in the stock (-6%)

 

Now we need to see a slide in the Yen, showing that some of the deleveraging pressure is fading

[drbubb]

NEGATIVE SENTIMENT

 

``There's absolutely no reason to take any risk right now,'' Steen Jakobsen, who manages about $140 million as chief investment officer at Saxo Bank AS, said in a Bloomberg Television interview from Copenhagen. ``We need the world economy to reignite.''

 

Europe's Dow Jones Stoxx 600 Index sank 6.3 percent in the past week to 205.61, bringing its two-week retreat to 7.4 percent and its loss for the year so far to 44 percent.

 

Gross domestic product in the 15 euro nations shrank 0.2 percent for the second straight quarter in the three months through September, the European Union's statistic office said. Economists at Bank of America Corp., Deutsche Bank AG and Citigroup Inc. predicted the slump will worsen.

 

The Organization for Economic Cooperation and Development said this week its 30 members will contract 0.3 percent in 2009, compared with a June forecast of 1.7 percent growth.

 

`Potential For Disaster'

 

``There is a potential for disaster'' in the economy, Roger Nightingale, the global strategist at Pointon York Ltd., which manages about $1.1 billion, said in an interview on Bloomberg Television. Nightingale said he prefers long-term government bonds over equities.

 

/see: http://www.bloomberg.com/apps/news?pid=new...id=aFLcovpKITgA

 

== ==

 

Isnt this what one sees at/near a low?

[John Doe]

From my limited understanding of EW theory and re-reading some of DD's posts, this looks like the 5th of the 3rd (larger degree). If so, and when it ends, there should be a fairly significant rally (abc up for wave 4) before the next 5 down of the larger degree 5th wave.

 

 

[drbubb]

STOCKS - QUO VADIS ???

#3: SPX-780 (matching Oct.2002 low) : Depression Type #1

 

Note, in edit, Oct.10, 2002 intraday low was: 768.67

 

The Monthly chart already shows an oversold condition which may be enough to get a good rally soon.

So even if the market is going to SPX-780, I do not expect it to get there soon. A rally first (into Spring, maybe),

and then a deep slide into late 2009 or even 2010 might get it there.

 

Another ugly scene to wake up to: -445 points / -6.7% on big volume

at Dow-7552.29

 

The chart says, that this is a great place from which to start a rally

 

 

SPX: 752.44 Change: -54.14 // Percent Change: -6.71%

Open: 805.87 High: 820.52 Low: 747.78

[John Doe]

The chart says, that this is a great place from which to start a rally

Agreed.

 

Along with some more CRUD, I bought my first call yesterday

(FTSE)

[nbarter]

I have been away soaking up some vitamin D and so missed the recent action.

 

I will update some charts when i get a chance, but it looks like a temporary bottom was put in a week ago. We should now be in a 4th wave of some degree. This bounce in the US markets should correct either the falls since mid-May or since August - depending on the degree. Either way the bottom is not in and the lows of March 08 should not be exceeded by this bounce. But, if the whole of the 3rd wave down is complete then this bounce could last weeks more.

 

The MSCI World Index looks like it has put in a 5th wave bottom of the major 3rd wave down that started in May 08, so if the US markets are now only correcting the falls since August then it may well be that any new low in these markets may not be replicated across some other world markets - such as Asia. They would likely fall too on the back of any big US falls, but probably not make new lows; not yet anyway.

 

Bottom line: This bounce is just a rally in an ongoing bear market that has far further to go. Plus, keep an eye on the upcoming Bradley turn of December 14, 2008 (A most important date).

 

[nbarter]

............We should now be in a 4th wave of some degree. ... But, if the whole of the 3rd wave down is complete then this bounce could last weeks more.

 

This 4th wave has done the minimum as of Friday to be counted as over. That is not to say it is, just that the minimum is in place. The wave 2 correction in the spring of 08 (which should be of the same degree as this 4th wave) took ten weeks, this has so far taken about 7 weeks. Once it is over we should get a 5th wave down to new lows below those of November, before a bigger multi-month bounce that will make people believe the worst is over (needless to say it wont be).

[nbarter]

This 4th wave has done the minimum as of Friday to be counted as over. That is not to say it is, just that the minimum is in place. The wave 2 correction in the spring of 08 (which should be of the same degree as this 4th wave) took ten weeks, this has so far taken about 7 weeks. Once it is over we should get a 5th wave down to new lows below those of November, before a bigger multi-month bounce that will make people believe the worst is over (needless to say it wont be).

 

The S&P (and most other markets) topped on the 6th Jan, two days after i posted the above. We then had a pretty constantly falling market for the next couple of weeks, in what looks like it may have been the first wave down of this 5th wave. We then had a correction of these falls and this looks like it should end early this coming week if this count (see chart below) is indeed the right one. The small a-b-c correction pattern that started on the 21st Jan should finish ideally with a further small rise to above 877.9 - the high of 28th Jan. Parity with the distance of wave a would take it to 904.

 

The best alternative would be that we are still in an ongoing sideways 4th wave and that the market should rise further, to the 944 area, before the falls begin.

 

The Dax incidentally, is currently forming a nice looking contracting triangle pattern that also suggests a sharp reversal lower is not far off.

 

[silverharp]

The S&P (and most other markets) topped on the 6th Jan, two days after i posted the above. We then had a pretty constantly falling market for the next couple of weeks, in what looks like it may have been the first wave down of this 5th wave. We then had a correction of these falls and this looks like it should end early this coming week if this count (see chart below) is indeed the right one. The small a-b-c correction pattern that started on the 21st Jan should finish ideally with a further small rise to above 877.9 - the high of 28th Jan. Parity with the distance of wave a would take it to 904.

 

The best alternative would be that we are still in an ongoing sideways 4th wave and that the market should rise further, to the 944 area, before the falls begin.

 

The Dax incidentally, is currently forming a nice looking contracting triangle pattern that also suggests a sharp reversal lower is not far off.

 

You might enjoy this interview with Tim Wood and his techician buddies , they waere talking alot about the sym. triangle that has been forming

 

http://www.cyclesman.info/Interviews/johntony020609.mp3

 

[nbarter]

The S&P (and most other markets) topped on the 6th Jan, two days after i posted the above. We then had a pretty constantly falling market for the next couple of weeks, in what looks like it may have been the first wave down of this 5th wave. We then had a correction of these falls and this looks like it should end early this coming week if this count (see chart below) is indeed the right one. The small a-b-c correction pattern that started on the 21st Jan should finish ideally with a further small rise to above 877.9 - the high of 28th Jan. Parity with the distance of wave a would take it to 904.

 

Bingo, the market topped (in its mini wave 2) the day after i posted the above, hitting 875 (missing my 877.9 target by 3 points). It has then fallen pretty much every day since and has just (as of in the last 30 minutes) made a new low below the autumn 2008 lows. This did not happen at the beginning of the week, contrary to what the media would have you believe. The 21st Nov 2008 low was 741.02 and the 23rd Nov 2009 low was 742.37. It hit 734.5 a few mins ago.

 

So, we have new lows in the Dow and S&P and many of the European markets now - the 5th wave that i mentioned at the turn of the year has truly worked out nicely. But, the Nasdaqs and the FTSE have still not made new lows yet. Plus, the pattern would look better with a mini 4th wave any time now followed by a final mini 5th of this larger 5th to new lows next month. It could be all over and a big bounce could be dead ahead, but i think a little more churning sideways and lower is probably likely first.

 

It is not a time to try and get too cute with the market, so i have no shorts open as it were and will wait to see if a buying opportunity presents itself at some point. When this bounce does come it could be a truly massive turnaround, with many shorters getting horribly burned, so watch out. It should last much of the rest of the year before we get a repeat performance of what we have had over the last 18 months. It is tempting to buy some calls now, but if this was to last a few weeks more then the time decay could get nasty. I am off to Canada for some skiing tomorrow so knowing sods law it will probably all happen whilst i am away.

[Wanderer]

DD,

 

Good thread. You seem pretty close to the mark with your predictions.

 

Enjoy your skiing! When I went skiing earlier this year I thought of selling everything before I went, didn't, and came back many thousands of pounds poorer (and not just because the resort was expensive!)

 

Wanderer

[chazza]

...

 

It is not a time to try and get too cute with the market, so i have no shorts open as it were and will wait to see if a buying opportunity presents itself at some point. When this bounce does come it could be a truly massive turnaround, with many shorters getting horribly burned, so watch out. It should last much of the rest of the year before we get a repeat performance of what we have had over the last 18 months. It is tempting to buy some calls now, but if this was to last a few weeks more then the time decay could get nasty. I am off to Canada for some skiing tomorrow so knowing sods law it will probably all happen whilst i am away.

 

OK. Seems like DD will be away so won't be able to answer this. So if there are other seasoned EW's out there can you advise please. I'm thinking we are very close to (or in) the 5th of 5th for this first impulse wave down. So looking ahead to the rebound, are we not just expecting a rebound to the end of the previous 4th wave of one lesser degree? So about 9000 on the Dow?

 

Timewise, some fraction of 18 months?

 

Spending a bit more time on getting to grips with EW, so help is appreciated!

[nbarter]

OK. Seems like DD will be away so won't be able to answer this. So if there are other seasoned EW's out there can you advise please. I'm thinking we are very close to (or in) the 5th of 5th for this first impulse wave down. So looking ahead to the rebound, are we not just expecting a rebound to the end of the previous 4th wave of one lesser degree? So about 9000 on the Dow?

 

Timewise, some fraction of 18 months?

 

Spending a bit more time on getting to grips with EW, so help is appreciated!

 

I have posted the updated chart of this bear market below on a weekly bar basis for the S&P. The series of 5 waves are very clear. The chart would look better in my opinion with a further mini 4th and 5th, as mentioned in my post of about ten days ago. The FTSE has now made new lows which was one of the factors i mentioned that favoured the falls continuing in my last post, so a low could be in, but on balance i think we have a good chance of more sideways and down action before a more meaningful bottom is in.

 

If, or when, this wave down is complete then yes a common retracement target is a previous 4th wave. But this could also be the mini 4th wave of the 3rd wave down. So, the 9,000 to 10,000 area would seem a likely first target. Given that we are currently at 6.6k then even the 9k level would be a near 40% rise and to 10k would be 50% rise. Substantial rises. Combining EW targets such as previous 4th waves with fibbo retracements such as the 38%, 50% and 62% give further target areas. Time is less important in EW, but yes some fraction of 18months seems resonable.

 

[chazza]

I have posted the updated chart of this bear market below on a weekly bar basis for the S&P. The series of 5 waves are very clear. The chart would look better in my opinion with a further mini 4th and 5th, as mentioned in my post of about ten days ago.

 

Cheers DD.

 

My thoughts also regarding the mini 4th and 5th. Think I posted on a different thread, McHugh is calling the Wednesday bounce the 4th wave, which too me seems just a little too convenient. I was expecting a something of a similar duration to the mini wave 2, or at least a few days (4-5).

 

 

How was the skiing?

[nbarter]

Cheers DD.

 

My thoughts also regarding the mini 4th and 5th. Think I posted on a different thread, McHugh is calling the Wednesday bounce the 4th wave, which too me seems just a little too convenient. I was expecting a something of a similar duration to the mini wave 2, or at least a few days (4-5).

 

 

How was the skiing?

 

Yeah, i would be surprised if the 4th wave was just a one day event. But i recall seeing charts of big falls before that ended in a less than perfect 5 waves and something more like a 3 (with a disproportinately small 4th wave). So, in summary i have not gone long, but am not short either.

 

Skiing was ok thanks, cold and a bit icy, but still fun.

[chazza]

Tracing out an expanded flat right now for the 4th? If so, I guess we reached the min. of 750. If we power through 775, then maybe we are in wave a of the correction.

 

My take.