MM, potential consolation for the bears can be found in the e-wave count: a possible count in terms of the SPX, NYA and DOW is that today was a very sharp C of 2 of 3, whereby the assumption is that we are actually in wave 3 of a downtrend that began from the July high. if you look at a 10-day 5 min. bar chart of the SPX, 1 of 3 began on thursday of last week and ended at the intraday low on tuesday this week, tracing out a clearly defined five-wave pattern. at tuesday's low, the corrective wave 2 began to develop in a-b-c fashion, B ending at yesterday's low at the open and C ending (i hope) today.
what's a bit disturbing is that the NAZ has made a new high and not even the most determined bears can call that a bear market rally...
also, the breadth and impulsiveness of today's move as well as the fact that none of the gains were surrendered by the close are somewhat disturbing.
i therefore admit that the above scenario does not seem very probable at this stage. my preferred view is that we have seen the beginning of a blow-off rally that will carry all or most of the indices to new highs a good distance from where we are now before a truly significant top is in.
this view is mostly based on the observation that most if not all manias have ended in blow-off tops and that the current one is so far retracing the path of the late '80's Nikkei almost perfectly. i am currently assuming that the relationship will continue to hold and that points to a target for the Dow somewhere between 12,200 (minimum) and 13,000(maximum). 13,000 would be an ideal Fibonacci target from the '74 low, and there are several other indicators that should ideally develop fibonacci relationships to their predecessors so to speak: for instance the a/d line divergence, as is well known, has already surpassed the '29 divergence in terms of duration. the ultimate duration could possibly be a fibonacci multiple of the '29 duration. also, the stock/bond yield ratio, which is near an all time high, should reach a fibonacci multiple of the one reached in '87, a previous peak of note. the VIX could conceivably go to single digits if this scenario plays out.
i really hate to say this, but that's how it looks to me right now, in spite of all the crummy internals.
of course, a sharp reversal early next week that looks like it validates the above-mentioned e-wave count would re-open the door for a more immediate bearish alternative. but it would have to be convincing in terms of it's intensity...a 3 of 3 down has to be a mirror image of what we have seen today. |
