I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Saturday, October 31, 2009

(Hidden Camera) Investor, Do You Realize That the Last 9 Months Was Not the Beginning of a New Bull Market But Just a Large Bear Market Rally?

Sorry to continue this shtick, but when you are on a roll ... :)

To go along with the jokes that I made in these posts (Sit Ubu Sit .... Ubu?, Knock Knock, If You're Friends With P, Happy Fun Ball and Sometimes the Truest Points are Made Through Humor) here is one last one.

This rally has obfuscated the truth, that we are in a secular bear market. The long term (next several years) direction for the US equity market as a whole is down. But because the rally

a) lasted much longer than most bears thought likely
b) came with Wall St. analysts upgrading everything in sight and
c) was accompanied by Government economists declaring victory and the end of the recession,

it has suckered in a huge number of LTBH retail investors into becoming the bagholders.

See my rant in this post here: VIX Thoughts to Accompany a Few Count Options

So when we start crashing again (and I do not use this term lightly) and investors will realize they were mislead *again* (through Wall St. chicanery or simply outright incompetence) here is the reaction I would expect:

Friday, October 30, 2009

Here is the Daily Chart ... Because It Is So Very Pretty

Lots of bearish portents are forming.

And the Intermediate Count for good measure.

Sit Ubu Sit .... Ubu?

(whispering).... We have secretly replaced Gary David Goldberg's Black Labrador with a large grizzly bear, let's see if he notices

Ubu ??
ROAR !!!!

..... I am just randomly entertaining myself. But this nice bullish compliant rally has been secretly replaced with a (or rather the resumption of) bear market.

Let's see if the dip buyers notice.

Anyways, getting back to the counts. I still maintain that the count, at least at the Minute degree (but I also think Minuette discrepancies are too big also), should be the same between the 5 major indices (SPX, INDU, COMPQ, NDX, RUT). So drawing on the observations from last night (Reinstating the Tin Foil Hat Zone) here are my counts.

Wave 4 going into 1 on the Dow *CANNOT* be ignored. So I think a leading diagonal makes the most sense. It counts as one very specifically on the Dow, COMPQ and NDX and it is only the "shape" of a diagonal on the SPX and RUT.

Point is I think yesterday was a Wave 2 reaction and the strength of today especially as it accelerated the last hour counts very nicely as the _beginning_ of a Wave 3.

Thursday, October 29, 2009

Reinstating the Tin Foil Hat Zone

Welcome to the Reinstatement of binv's Tin Foil Hat Zone :) (I know Jimmy will be very happy to see this) :)

Here is my crazy count for today

Addition 5:48pm

Per the conversation with Alphahorn below, I want to share why I am looking at this crazy count:

The reason why I am thinking about this crazy count is because the 1-2-3-4 (today's rally being the 4) that so many people are counting .... well, 4 goes into 1 on the Dow. And I still subscribe to the theory that the best count is the one that works on all 5 major indices.

So with the Russell breaking the Oct 2 low (which is *huge* reason why I am sticking with the bearish count), and the NDX making a higher high on Monday vs. last Friday's high, and the bearish breadth at the peak yesterday (9:1 D/A), and with the Dow today going into the wave 1 down from last week. ..... a standard impulse count doesn't cut it, nor does it explain the strength of today.

But a leading diagonal really starts to look very compelling. We got a nice reversal up that matches up with a reaction from falling wedge. But the counts in the wedge are **impulsive**, not corrective. Which has leading diagonal written all over it.

.... at least that all makes sense if you are crazy like me :)

Thank You for visiting binv's Tin Foil Hat Zone

Another Look at the Rally Trendline and Hindenberg Omen Thoughts

Here is another look that the Rally Trendline since August. Lets examine breadth and momentum as well. And lets take a gander at INDU and RUT for good measure (as they are telling nearly *OPPOSITE* stories).

We have a huge amount of momentum divergence. But the biggest and most important observation is that this rally trendline has been support. By that I mean on the pullback, the price would stabilize around the trendline for a 1-2 days, turning around, and then a new wave commences.

That is, until today. Today is a bounce. Pure and simple.

Can a new wave initiate from a bounce? Sure.

But this isn't March 9!!. We are not free-falling in the midst of utterly oversold conditions. V-bounce rallies happen in that kind of environment. Not the one where we have now: overbought conditions with waning momentum.

Now, look at the trainwreck of dis-information that these 2 indices are telling us. If we wanted to see how the Hindenberg Omen might form at a peak ... I would say it would look something like this. (Thanks for all your work on this Col !!!)

Is the GDP and POMO Bounce Almost Done?

Ending Diagonals on all (here is the SPX, INDU and NDX). I can count a 5-3-(ending diagonal)5.

Keep your eye out for a sudden reversal soon

Wednesday, October 28, 2009

Knock Knock

- (Knock, Knock)
- Who's there?
- .... (scratching)
- Who's there ...?
- (scratch, scratch)
- What the? ... (sound of door creaking open)
- AHHHHHH!!!!!!
- ROAR!! (jaws snapping, claws scraping against wood, etc.)

... What did you expect the bear to say? It's just a bear.

Who wants a snack? (thanks MissMalibu !!) :)

So here is my count. And I know, I know, in my last post (RUT Broke the Oct 2 Low !!) I said maybe this is P2, maybe not, we will deal with it later.

But with the Russell breaking its Oct Low, this count has increased in possibility (moving away from the other alternate counts) by a huge margin.

So I feel entitled (and very happy) to use it :)

Here is the pattern chart, confirming the bearishness of the move.

So, lets revisit the P2 *confirmation* criteria, from from http://marketthoughtsandanalysis.blogspot.com/2009/10/whew-one-crazy-week-however-i-think.html

The most obvious question is: Did we reach the top (end of P2) last week, or if we have one small wave up next week, will that be the end of P2?

The best answer anyone can give you is: maybe.

That's all. I have opinions and thoughts on this matter, just like any analyst does. But they are irrelevant.

The top will happen when the top will happen. And we will never *know* it is the top when it occurs, we will only know after a confirmation move. What would be a confirmation move? I would like to see a clear impulsive *MINUTE DEGREE* wave down (5 full Minuette degree waves), followed by a 3 wave Minute degree correction with a lower high on all the major indices (SPX, INDU, RUT, COMPQ, and NDX), and then followed by another Minute degree wave down.

I think a move of that size will a) obviously break the 7 month wedge lines and b) be too large to ignore as a bull market correction because c) a 5-3-5 is either a 1-2-3 in an impulse or a zigzag, and I don't see another realistic Minor degree zigzag X-wave to extend this out to be a triple zigzag (I think we are in the 3rd zigzag now by my preferred count).

So thinking about P2 some more, there are a few things that we would expect to see at the end of P2. The final wave of P2 should have:

- Low volume
- Low volatility
- Low breadth and decreasing breadth as it moves up
- Daily divergences of technical indicators (MACD, RSI, and TRIN more importantly)
- Lots of extension with little pullback and possibly a 5th wave extension for a blow-off, not because of a bullish move but because of little bearish resistance.

And so while I am not calling the top here, I am remarking how much this current wave from Oct 2 fits nearly all of the criteria above.

Update 2:51pm

Here is the big count for good measure. Based on Columbia's count several weeks ago: http://ewtrendsandcharts.blogspot.com/2009/10/week-end-thoughts.html.

Thanks for all your awesome work Col !!!

RUT Broke the Oct 2 Low !!

The Russell 2000 (RUT) Broke the Oct 2 Low!!!

This goes along with my last post Reading you Five by Five

So your first reaction might be "so what? They are just small caps."

But they are not. INDU, SPX, RUT, COMPQ and NDX cut across the economy. They each have components in Energy, Financials, Health Care, Consumer Products, etc.

And I have always watched all 5 and have always maintained that the best count is the one that works on all 5!! Sometimes there is disagreement on subminuette waves, but 99% of the time, they all fit nicely in the same wave structure - AS THEY ARE SUPPOSED TO! Remember, these are economy-wide indices and reflect how the market perceives the economy.

But this is not a minor issue. If you are maintaining a bullish count / theory / stance for the near term, then *** THERE IS A MINUETTE DEGREE DISCREPANCY BETWEEN MAJOR INDICES!!! ***. If you think the SPX is in a 1-2, then 2 just went past 1 on the RUT. A huge no-no

And I call BS on that.

NO, I think it is far more likely the the RUT is leading this down and forecasting the much more bearish count option. The end of P2? Maybe. Lets evaluate that one later.

In the meantime, those of you thinking this is just a routine pullback with dip-buying followed by another big rally are likely to be very surprised and disappointed.

Reading you Five by Five

Five Charts that tell the story. They should be, and typically are, coupled. Not always, not all the time. But I have watched all five indices together for a while, and this is the first time I have seen them as utterly disjointed as they are on this large of a scale.

Is the rally breaking down? I think there is a good shot, and if you are bullish and ignoring this or simply looking at one index ... well good luck with all that.

I am going to show 5 separate charts, instead of my 2 Overlay variation charts. You need to look at it like this, this is an eye-opener

Beloved SPX. You have seen a count of this on every EW blogging site in existence. No new story here. But this is *THE* Baseline. Let's see how the rest compare

Dow - the bastion of "strength", barely a pullback

Whoa. Hmmm. That's not so strong.

Hmmmm, neither is this one

Yikes!!! Wow what a turd. Question? What if RUT goes below the Oct 2 low ... I invite you to ponder that for a bit.

So the point is these indices are _almost_ telling completely different stories. **AND I POSIT THEY THEY ARE NOT ALLOWED TO!!!** They are allowed to tell a slightly differently *nuanced* story (and they normally do) because each one has different sector weightings and compositions. But this is the worst discrepancy I have seen yet during P2 between all Five.

If You're Friends With P

Then you're friends with me .... and in this case, the P stands for "Puts".

Interesting observation on the CPC. It was super bullish during the height of the rally in July - Sept. Okay, that was obvious and not interesting. But look at the chart:

After the pullback in Sept, and then the next rally in October, the CPC does not return to its former level of bullishness.

It is kind of hard to see on this chart, so please permit me a very *ungraceful* zoom-in (a la Stockcharts)

Just another interesting divergence. Options investors are starting to become "Friends of P(uts)" again.

Yet another weakening indicator in the bullish case.

Tuesday, October 27, 2009

Need to Break on Through to the Other Side .... of the Gap

Right now we are in limbo (would Mr. Market have it any other way?). We need to break the gap at 1057-1060 to confirm the bearish move. And it needs to happen soon. Otherwise we are consolidating at the 50% retrace line, and it becomes more likely that the bulls are going to start another rally wave.

Pattern chart is very bearish, but we need to break the gap.

The bearish count (if this is indeed an impulse down) needs to break down. Soon. Like tomorrow morning soon.

Also notice my notes regrading the count. The NDX made a higher high than Friday's high. So the 1-2, 1-2 count is WRONG on the NDX. Maybe you care, maybe you don't. But I subscribe to the theory the the best count is the one that works on all 5 major indices (SPX, INDU, RUT, NDX and COMPQ).

Recall this chart from 3 previous posts: Another Look at the Correction, What's All This? and That's Good Soup. My prediction from yesterday (Green Notes on the chart) panned out quite nicely.

Here is my VIX chart. The orange dotted line is my prediction, what we needed to see, from a few days ago (The Market Moves Vixenishly)

Showing You Guys My Crazy Count .... because i'm CRAZYY!!!

Update on the massive ending diagonal count option.

Not saying this is my preferred count
I'm not even saying it is likely

Just saying it is still possible.

Per my last post, we have a bounce at the 50% retrace, right above the gap and at the Bear Wedge support line.

If the bulls are going to put in a turn, it really needs to be soon.

Happy Fun Ball

We got a nice bounce off the 50% retrace Happy Fun Ball Style

Watch for a turn here. If the bulls want to continue this rally (i.e. if P2 is not over) then this is a critical point to put in a reversal.

Monday, October 26, 2009

Oct 26 EOD

Several charts - SPX Micro, Pattern, Daily.

Financials were also leading this mess down today. Wave down does not yet look complete. SPX (financial-heavy) *almost* counts as a complete five down, but look at the INDU, COMPQ, and NDX. They mostly moved sideways all afternoon.

I think we have more weakness before the bulls decide if they want to put in another rally.

Another Look at the Correction

In the same vein as What's All This? and That's Good Soup, here is the Overlay chart of the 5 major indices.

I think it is showing more down, before we start heading back up (and whether that new up makes a higher high is TBD)

Morning Oct 26

Here is my count for this morning.

The NDX made a higher peak than Friday's peak this morning! So any 1-2,1-2 count down is invalid.

So we either have a 1 with a very long complex 2 (which I don't buy) or an A with a complex B (much more likely IMO).

The peak on Oct 21 for SPX, INDU, RUT, COMPQ and NDX still stands.

Mark910: Calling the Top.......Who cares? Why you should.

Here is a great post by my friend and fellow blogger Mark910 --- Buen ' Dia', Oct 26 : Calling the Top.......Who cares? Why you should.

"...We should start by defining "TOP". To a trader, the top can mean simply a high from which the market retreats for some period of time and is therefore tradable. In fact, to a day trader, the top can mean high of the day. However for purposes of this article I choose to define “The Top” as - the time period in which an investment is worth at or near its maximum to which it will not return for a period of time measured in years that are unacceptable to the investor. Thus there is some leeway in the definition for investor’s circumstances. To a trader, prudently trading with a small percentage of his net worth, a 50% drop might not be the end of the world. And yet, to a pensioner who is past his productive years 10% might be huge. A drop in the market, for instance, of 30% requires a 50% increase to get back to even. The S&P dropped about this amount in both 1970 and 1987 and it took 2-3 years to recover. In 1973 and 2001 the S&P fell 50% or so. In both cases the recovery took about 8 years. Even a retracement of a 20% correction could take years. ..."

PSW: Phil's take on the Wonderland Market

Here are two new posts by Phil from Phil's Stock World

Wonderland Market

Market direction - Interesting that this is what’s on your minds as it’s what’s on my mind too. What is real and what is not? Keep in mind that when the market was down 50% in March, that was not real either. You can go back and read all my posts back then, but the gist of my argument was, short of annihilating a good portion of the global population, the global GDP is very unlikely to fall below $40Tn (down 20%) so anything beyond that is, by definition, an overreaction.

Wonderland Market II: Whodunit?

We have to put on our deerstalker caps and do a little deducing and see who has motive, means and opportunity to commit the crime of market manipulation. I think, in the end, this is going to read more like a Christie novel than a Doyle one as Holmes usually had one guilty suspect while I think our current situation is more like "Murder on the Orient Express," where they all did it!

Sunday, October 25, 2009

Homebuilders, Making a Few Distinctions: A Technical Appendix to FB's Newest Post

For those of you who don't know who floridabuilder is, he has been a dominant Caps player for years, but most importantly his blog posts on the home building industry are the stuff of legend (well, I don't know if they can technically be called a "legend" since you can go back a re-read all of them, but let's just say they are legendary and held in very high esteem by many :) ) He was one of my earliest favorites in my binv271828 portfolio.

As the title of this post says, it is an appendix to FB's post: Break Time - NVR - If your going to be a bear, try not to look like a jacka$$. It is a fantastic read, and a prerequisite to understanding this post

First, let me say I am a bear (My friend Mark910 sums up my thoughts pretty well My name is Mark and I am a Bear......My 12 step recovery plan.). But let me add more nuance to this statement. Like I say at the top of my blog - "I analyze macroeconomic issues from a fundamental and technical perspective". So when I look at the long term fundamentals and technicals, from a macroeconomic perspective, I am bearish on US equities as a general asset class for the next 5-10 years (which means that I think equities will have nominal losses, but more importantly hugely underperform other asset classes). Here is my spiel as to why I think this: binve's long term view. But I am not a bear for the sake of being a bear, I would much rather be long US equities and I think over the long term, after we complete a needed correction, US equities will be another huge true bull market. Please read the comments in blue at the end of this post: Thoughts on the Dow/Gold Ratio

And notice my wording --- I am bearish on US equities as a general asset class. This is the main reason why I focus on the broad market indicies (SPX, INDU, RUT, COMPQ, and NDX) when I do most of my analysis. Because this is the best representation of how the market interprets the broader economy. But that's the thing about general asset classes, you can apply your analysis to them only generally. Some will outperform the average while some will underperform the average.

And so lets get into homebuilders. I too am bearish on homebuilders as a sector for the long term, but there will be outperformers and underperformers here too.

Which goes exactly to FB's point, the importance of being able to make distinctions. Here is an excerpt from his post:

"... What cheeses me off to know end are people that can't make distinctions

Everything sucks, there are no jobs, all real estate is worthless, blah blah blah..............

You know why? Because they are masters of the obvious. Look at my distinction tree, no pun intended. The more distinctions you can make on any subject in the world the more wealth you will make within the boundaries of that subject. Who makes more money? A professional cook that is highly trained in French cuisine, with an unmatched pedigree who lives and breathes his subject matter? Or the CPA MBA who gets bored with numbers, because it is all the same day after day crunching numbers............ Who is paid more money? Who is more sought after?

It doesn't matter what your field of expertise is, except for this, the more of a subject matter expert you are the more money you make and the more you will be taken seriously. Seriously.

You become rich by understanding distinctions that other people can't see. You become rich by investing your time (your job and investments) in those areas. Life really is that easy. ..."

And this is an exceptionally good and valid point. FB has proven his ability to consistently find outperformers and underperformers in the Homebuilding sector. His analysis of these companies and how the supporting industries (mainly financials) affect HB performance is unmatched.

So, normally if I looked at a sector, as a macro guy, I would look at the average sector behavior (through a good index / benchmark) both fundamentally and technically. But for this post, I am going to look at some individual issues and see if there is some wheat that is separable from the chaff. And of course, there is. Not because of anything that I will show you, but because FB had done all the fundamental analysis and has shown us this is the case.

Let's look at some charts.

We will be looking at NVR, SPF, XHB (for an index comparison), and a random assortment of other tickers. No need to provide fundamental analysis, FB has already done all the work:

- Break Time - NVR - If your going to be a bear, try not to look like a jacka$$
- Chapter 3: Builders - did land prices double? why this is bad for banks... real bad.
- Chapter 2: Builders - The $8,000 Tax Credit Question + Did Land Prices Just Double?
- My best blog ever! Seriously.. Geitner plan, a smattering of poop, and who really controls the US
- Pitch thread for NVR
- Pitch thread for SPF

These are just a few resources provided by him.

Before jumping into the individual charts, lets see what the chart of XHB (homebuilders index) looks like:

Yep, as expected we have had a large move down from the top. Moreover, the move down is very impulsive (5 waves). And since a correction is *never* a Five by itself, a Five is only part of a correction. This is an important fact, and it will show up in more analysis and charts later on. So regardless of the current rally, the long term forecast for builders is down, per this wavecount analysis.

Another note, the XHB index was established in early 2006. The reason why we call the 2006 peak as a "top" (rather than it just being a local high point on the chart due to a not-very-long price history) is that most of the builders show a peak that occurs right at the identified peak, early 2006.

As per the original post referenced above, FB has maintained the NVR is the outperformer in the group, so lets take a look at NVR from a long term perspective:

This is a very healthy chart. A nice clear impulse up since 1995. Moving up steadily through the tech boom and the early 2000 sell-off.

As I was saying above, the general description/analysis of a sector applies to that sector generally, and there will be both out and under performers. NVR is the clear outperformer. FB has identified the the fundamentals behind the strength, and the technicals are confirming it.

And while the long term chart of XHB forecasts long term weakness, the long term chart of NVR forecasts long term strength.

So let's zoom in to a shorter timeframe.

NVR has been correcting with the rest of the homebuilders since the peak in 2006. This was a sea-change in builder stocks coinciding with the real estate market peak. Even the strongest builder cannot escape from this unscathed.

But if we examine the structure of the correction, it is clearly *NOT* impulsive down. By my count, it looks like we are getting a double-three (regular flat followed by an expanded flat -- my projection). I think NVR will have one more correction when the rest of the market goes through its next large correction (I think there will be another large down move in stocks next year, which I know that most do not agree with me on this). But beyond that, I think NVR will bottom faster, and be making new all time highs while the rest of the homebuilding pack (as measured by the XHB) is still languishing.

But lets stop talking generals with XHB, lets look at another builder specifically: SPF.

SPF is a horrible builder. I have looked at their balance sheet, and it makes me want to vomit. I normally do not short stocks outright, but I shorted SPF in real life in 2007-2008 a couple of times very profitably. Unsurprisingly, FB is bearish on SPF as well. Lets see what the charts have to say about SPF:

The count for SPF is nearly the same as XHB, since the peak in 2006 the count is a very clear 5-waves down. This large impulse means SPF's woes are not over yet. But I am also showing a projection that takes SPF higher (in a relative sense) before it starts it's next large downleg. (see the notes on the chart)

Let's think about why for a second:

From the peak, SPF was down > 98% !!. So in order to put in a decent rally off the bottom, very little interest is needed. It was just so utterly oversold, and the bullish sentiment for SPF was utterly spent, that short covering and a little speculation can drive a nice bounce.

Maybe you disagree and think that SPF has turned the corner and is now a healthy company and that is the reason why they are trading higher. If that is your theory, good luck with all that. To me, the chart says maybe some more upside for the next few months, but lots more downside (maybe even de-listing and/or bankruptcy) for the long term.

Now lets compare NVR to SPF side-by-side:

Read the notes on the chart. This goes to the observation that I made earlier: And since a correction is *never* a Five by itself, a Five is only part of a correction.. The is the main reason why the NVR chart looks long term healthy while SPF does not. The NVR correction counts as a healthy correction with a healthy retracement level, corresponding to a well-run company positioned well in its industry. SPF ... not so much.

Next lets look at some comparison among a few HBs:

These are a lot of the big names, and what is immediately obvious is that most have patterns that look like XHB. Large impulsive move down. NVR is a clear winner here. And based on my TA above, will continue to be for a long time.

Finally, lets compare against the market and the Lumber index

So FB knows what he is talking about when it comes to red thumbing and green thumbing builders. However, this is exceptionally obvious and a large post from binve filled with charts is unnecessary to make or confirm that point.

But what I liked about going through this exercise was that the the fundamentals of the industry and several prominent names in the industry, as identified by FB, is confirmed by TA. Most of you hate / don't believe in TA (and most despise Elliott Wave even more), so I am not expecting this post to make anybody a convert.

In short, it was useful for myself and I am sharing it with the community. Hopefully it was useful to some of the rest of you as well.

Addition 6:05 pm

Long term sector performance and peaks

Friday, October 23, 2009

Well now, that was an adventure. Singed a bit, were you?

Like I said on Sunday Whew! One Crazy week! However I Think Next Week Will Make Last Week Look Like a Walk in the Park :). And boy howdy, was that a true statement. Crazy moves up and down. Bulls turning to pigs, but the dinner getting snatched away from the bears before they could eat. Hard to know who is winning?

But like I have been saying in the last several posts I have written, momentum and breadth have been waning for the bulls during this wave the last several days and it is time to start correcting.

And as I pointed out earlier today (That's Good Soup) despite the correction yesterday this move is still heading down.

Breadth - Stink-o-rama. Read the notes on the chart, they tell the whole story

Pattern Chart still intact. Broken support now resistance. Next support is the 38% retrace level (by my guess)

Current EW count. I think it is highly unlikely that this is still a Minuette 4. (IMO). Possible, of course, but unlikely.

Daily chart for good measure.