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

Sunday, September 12, 2010


Okay, as you know I have been doing a lot of thinking about the wave structure recently. I have a few posts that talk about the 'incongruities' that I am seeing:

1) There is no clear impulsive count down so far. This is the closest thing to a 1-2, 1-2 and frankly it is becoming less compelling all the time: Spurn. On top of that, the FTSE made a higher high than the August high (see Spiel). Because the FTSE and the SPX have been moving in tandem, with the FTSE slightly leading, this really hurts the 1-2, 1-2 case for the US indices.

2) The current LD count going around makes me want to barf. It is not a wedge. It is vaguely wedge shaped, but that's it. The trendlines are not converging. The more I look at it, the more I am convinced that the count is not right: See this chart from Spiel.

3) So is the count corrective down? I have been pondering a triangle option, Spurious. But there are a few major problems: the triangle is highly disproportionate to the down move and there is not a valid triangle on the INDU and FTSE (they are sporting wedges).

4) Could we still be in P2? ... Possible, but I seriously doubt it. Based on all of the macroeconomic and fundamentals problems I really don't buy that case. Plus April was a sentiment extreme: Everybody is a contrarian indicator!! What is the actual sentiment like?. The April top really looked and felt like a capitulation top.

.... So where does that leave us?

With no clear answers, that's for sure. But MTU has a great post up that might provide some clues: MTU Weekend Ed. - Moment of Truth (9/10/10 Close).

A proper LD that we are still in the middle of.

When you consider the fact that the FTSE has already bettered its Aug high, then the odds of a 1-2, 1-2 down for the US indices are greatly diminished. So I think all of them are still in a Minor 2. Even if the US indices do not better the August high (making a truncated C wave) I am now thinking it is still in the context of Minor 2 (not Minute 2). But there are far too many problems with a cleanly impulsive down count from the April high (I know, this is what I was pulling for, but the amount this wave is dragging on is forcing me to reconsider).

So while this is not necessarily my preferred count yet, this is an option that is really catching my interest.

In any event, no matter what the count ends up being, there are enough intermediate technical and macro leading indicators telling me the trend is still down. So I am staying short and trying to remain unaffected by these short term whipsaws.

Addition 3:20

Before I get a slew of comments about this (there are already 2 below), A 3-3-3-3-3 is a VALID LEADING DIAGONAL!!!. So is a 5-3-5-3-5. The 5-3-5-3-5 is a variant that *can* (not required to) show up in a LD slot. I did a study of this back in June: A word on Diagonals and A Look at the Waves, Discussion of Options and Diagonals, and a Review of the Big Picture.

If you don't agree with the conclusions of my study? Fine. Then we agree to disagree. I am comfortable in my own position on the matter.

But I am not interested in debating this topic (again) here.
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