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

Thursday, September 2, 2010


Please see these posts (Spleen, Spline, and Splice) to understand where these counts come from.

First things first: Is today the top of the wave?

In a word: NO

At least I don't think so. I know a lot of people want to rush this count. But there are two very big reasons why I don't think it is done.

1) Tops are processes not events. By this I mean that the market is always predominately bullish. Bulls must exhaust a move in greed, which is done in fits and spurts at the end of an up wave. This is why we almost always see a cluster of reversal candlesticks at wave tops. Bottoms are different. Fear is the driver there and fear gets exhausted typically (not always) in one manic burst. But I stand by the idea that tops in equities at least are not found in one "blowoff" candle (this is of course subject to the size of the wave, but I doubt even a Minute degree wave ends in one daily candle).

2) I am highly skeptical of a huge downturn before Labor Day.

So now, here are the counts. I think today marks 3 of C of 2, not 5 of C of 2.

And for good measure, here is my sentiment chart. Historically speaking, things are still pretty bullish. I still see a lot of "everybody thinks everybody else is [bullish/bearish] which means we are definitely going [up/down]". This is a very dumb game of confirmation bias. See this post: Everybody is a contrarian indicator!! What is the actual sentiment like?.

Bottom line is: Make these calls by looking at market data. Sentiment surveys, while useful, measure what investors say not what they do (I *never* base decisions solely on these). However, the dumbest thing one can do is say that "all the blogs are (bullish/bearish) .... yadda, yadda, yadda" and make decisions based on that. Because if you do so, then you are looking only for the posts that fit your view (confirmation bias).

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