Headline Charts Blog Update:
headlinecharts.blog.com
The above chart is free from BreakPointTrades.com. It's a bit hard to see because I had to shrink it. The 62% retrace puts the Dow Industrials at 5488 about 1200 points below where we are now.
Funny thing though, the chart shows Elliott Waves so it appropriately labels the Fibonnaci retracement levels, but the author seems to ignore them in his estimates of the future direction for the market. What gives? I think if we draw an Elliott Wave then we respect its influences, so I see the future similarly to this author, but with the bottom corresponding with the 62% level.
If they are right that the current leg of the market is A down, and almost complete, then we rally here as wave B up... then in my view wave C down brings us to 5488 at the intersection of the 62% retrace and the gigantic uptrend line off the bottoms of the depression and the 1982 low.
I do like that they see the lows of the market defined by the uptrend line, and the inverted head and shoulders pattern. But based on the patterns in the 1930's and 1970's, I think we are likely to move in more of a sideways range with an upper limit at about 8850 and the lower defined by the uptrend.
That means a 5 to 10-year consolidation. After the necessary consolidation, a break above the 8850 level defines the next secular bull market? And if 8850 is breached to the upside before the lower levels are adequately tested, and before enough time has passed, it will likely be a trap and will probably fail.
The key I think is that we need enough time to pass for all the many market forces to realign and play out. So I guess that means we don't need to be in any rush to buy the market indexes, and the money will be made by finding the smaller or more focused opportunities, or by investing in the new secular trends once they become clear.
Regarding the ECRI leading index, there is nothing positive to report, more bad economic news lies ahead... they say, "The US Recession has not yet hit a bottom".
Their index is able to predict out into the future about four months. The leading and coincident indicators are near all time lows, and now we wait for the lagging indicators to get near their all time lows as well. Unemployment figures are the key lagging indicators and will probably hit the levels of the last secular bear market. Sorry for all the gloom, just trying to give my best shot.
Continuing from yesterday's post... somebody correct me if I have labeled the chart above incorrectly based on the chart from Breakponttrades.com.
One principle of Ettiott Wave is that correction patterns alternate. So if the 1930's was a zig zag, then the 1970's was a flat, meaning the 2010's will likely be another zig zag.
The bad news is that we have a bad period ahead of us. But the good news, I suppose, is that a big chunk of the correction in stocks has already happened. That is, unless the bottom falls out and we are destined to hit the 76.4% retrace, in which case we have another 50% decline in stock prices to go. Let's hope not, but don't rule it out either.
Maybe I have taken this far enough for now. Let's see how it plays out. Both the larger A and C waves down will be smaller impulse 5 wave patterns, and the larger B wave up will be a smaller 3 wave corrective pattern.. probably very choppy and confusing, and drifting upwards.
Before we are done, I'm betting most people will have their retirement and savings in CD's and not stocks. Very few kids coming out of school will choose Wall Street as an occupation. At that point, the secular uptrend resumes and most of us won't know about it because we'll have new hobbies.
Friday, March 06, 2009
Friday Market Sentiment
Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.
Not Sure Jan-31 The downtrend in the VIX favors stocks, but the put/call 60-day average works against stocks. Feb-7 Conflicting sentiment indicators. Mar-6 The VIX showing diverging strength works in favor of stocks.
The bear has finally pulled down just about every stock, commodity and currency. But at some point maybe, just maybe, a bottom will be in. One positive sign is the VIX which led the market lower by a wide margin last year, but now is diverging nicely. The inverted VIX looks to me as though it is making a near term higher high and higher low? That's good, right? Please, somebody tell the stock market. |
