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, January 31, 2010

A Trip Around the Globe III: A Look at a Few International Indices

I see London I see France .... :)

Here are a Few Charts, Globetrotter Style!

Original - A Trip Around the Globe: A Look at a Few International Indices - Dec 10, 2009
Second Trip - A Trip Around the Globe II: A Look at a Few International Indices - Jan 18, 2010


First stop Europe. The DAX, arguably the leader of the European Stock Markets, had its first scary drop in Nov/Dec (labeled as "Yowza"). The it has its next drop out of the second wedge which I labeled in my last post as "Swei Yowza". Since then? ... nothing bullish, that's for sure. Stink-o-rama! (Don't worry, there are *much* stinkier indices coming up :) ) The indicators are approaching oversold on the daily chart, so I would not be surprised by a bounce soon. But I think that is all it will be, a short term bounce. I think these chart patterns are forecasting a *lot* more downside.

Next stop, India!

From my last post: The BSE has had an *impressive* rise off the bottom, but its rally has maintained a distinct wedge shape (other indices have mostly morphed into a rolling top). There was a sharp pullback and then a rebound. And like the DAX above, the breakout of the first wedge is itself a wedge. I think there is a correction in the close future for the Sensex. This is a good one to keep your eye on.

And what happened since then? A HUGE gap down out of the wedge and a sell off of almost 10%! And is it done? Not a chance. Like I say on the notes in the chart, the 200 day will easily be tested, as will will support at 14000. That is another 13% down from where I am writing this.

Beyond that, I don't know. The BSE has a much stronger long term chart than the rest of the international indices (especially the United States), so I don't think the magnitude of its correction overall will be as bad as it is here. Stay tuned.

Next stop, the Far East! I have spent a lot of time writing about Asian Markets, please look through my posts for more observations: Asia

First look is at the HSI. Not looking so hot my friends. It is a heavy mix of Asian/Chinese stocks and Financials. And financials are far from healthy at the moment. The HSI has two crotches and it is getting kicked in both of them at the same time.

From my last post: It looks like a large ending diagonal. There was a breakdown, move up to the lower channel line and another breakdown. Then *another failed trendline retest (which didn't even come close to recapturing the broken trendline)*. I think this chart is saying "lots of trouble ahead". This is probably one of the most imminently bearish charts I have seen yet for a major index.

Imminently bearish was right!! Holy schnikeys. Since my last post the index dropped 8%!!. And the Head and Shoulders top that I identified broke the neckline. This projects a move down to at least 19000 (another 5% move down). It is currently sitting on the 200 day MA, so don't be surprised by a bounce here. In fact the most likely scenario is that it will retest the broken neckline from underneath. I will be very surprised if it actually recaptures it. I also think the chance of that being the bottom is approximately 0.0%. This continues to be a *very* bearish chart, and the more recent price action I see on it, the more bearish I get.

Next is South Korea. It is coming up on major resistance. It tried once and was tossed back hard.

From my last post: But now the pattern is turning bullish again. What was a down channel is now looking like a bullish flag with a break out above. It pushed through the lower resistance zone and is now consolidating. So here is the question: does it break through and try for the upper resistance zone? or does it turn down here making a double top? The indicators are suggesting bearishness, but not overly so. I don't have a super strong opinion on this chart.

Well it did indeed get tossed back from the top of the lower resistance zone. Not just a little, but definitively. It does looks exactly like a double top. So last time I did not have a strong opinion on this chart. I do now. And it is quite bearish. I think it will easily test the 200 day MA, but beyond that, I think it will try for the support zone at 1350. We will see how fast it gets there, and that should give us some clues for the long term trend.

China / via the Shanghai exchange. Read the notes, they tell the story. The only think I will add is that it is currently sitting at the bottom of the red support zone. If it breaks definitively below that, there is no meaningful support until about 2000 (about a 33% drop from where it currently is) .... yeah. Yikes is the word I would use.

Next Tokyo. I have written Several posts on the NIKKEI.

NIKKel, I Deserve at Least $0.06 For This Analysis, If I had a NIKKel for ...., and Long Term Count of NIKKEI back in Sept. We had an expected / predicted downturn since my last post. It is now sitting at the support of the 50 day MA. 200 day MA is close by and I think that will be tested soon as well. Beyond that is the support line at 9000 (12% down from the current price). I would definitely expect a bounce there, but 12% is a big drop in the meantime. Looks like a nice chart to short.

Next stop, South America! The Brazilian BVSP is putting on an *impressive* run!!

From last time: Holy Cow! Will it make a new all time high? I think the odds are definitely on its side. But look at the weekly chart, the momentum is definitely not on the BVSP's side. I think there will be a correction of some magnitude (too early to tell the size) before it puts in a new all-time high. Which I still put very good odds on. The recent move is much too strong to ignore.

We did indeed get weakness the past couple of weeks. The stochastics and MACD broke down like I was indicating. The drop since my last post was about 5%. And I don't think the correction is done. There is a strong support area around 60000 (about another 8% down). My guess is that there would be a bounce there. Beyond that, we will see. But I still consider this to be an impressive move, and a retest of 60000 to me says "correction" not "trend change".

Back to the USA. Looking at the weekly chart of the SPX, two words come to mind: tired and weak. Lots of negative divergence on the indicators, especially the money flow. And the top of this rally is looking very rounded indeed. Since my last post in December the size and quality of the rally has been pretty weak. This chart does NOT look bullish.

That was what I said last time. This time: more of the same. I have no idea why people are buying this chart. The CMF had its first weekly negative print in over a year!!. Breadth stinks!! The stochastics are approaching 50, and if it crosses it will head to 20 it very short order (this has serious bearish implications).

This break out of the wedge looks like Galileo dropping a cannonball off the edge of the tower of Pisa. If I was prone to motion sickness I would be vomiting all over my computer screen. ... Oh wait a second, I am... excuse me.

Saturday, January 30, 2010

This is Officer 1BDI, Requesting Backup.

.... We'll be there in 5 minutes.

And you know what else needs some backup? Yep, you guessed it, the old Baltic Dry Index (BDI). My last post on the BDI was back in October (If the BDI is a Leading Indicator ...). It turns out it needed to make one more high, and in doing so went up to the 38% retrace line and a large resistance zone and turned sharply back down.

This week it confirmed the downtrend by breaking through its first small support. Larger support lies just a little bit below that. If the next support is broken ... look out below.

Additionally, I am continuing with the "Leading Indicator" pun for the BDI. Some still maintain that it is a leading indicator (which is debatable), yet it began its turn down nearly 2 months before the current correction in the equity market. So again I ask, if it is a leading indicator, what direction does it seem to be forecasting?

.... your call dude.

And the title, besides being a pun on the Baltic Dry Index / BDI symbol, is taken from Leela's call sign in Space Pilot 3000 from Futurama. Good times :)

Friday, January 29, 2010

Captain Crunch

Hey Col, I was saving the title for you :)

Same deal, could be done. Looks almost done. But is surprising to the downside, blah, blah.

This is the more interesting chart. joske was pointing out the distinct wedge shaped pattern on the E-mini http://marketthoughtsandanalysis.blogspot.com/2010/01/interesting-overnight-moves-possible.html#comment-32057581. I think it counts very well as a leading diagonal (5-3-5-3-5).

This would be another indication that Wave 1 is almost done or done.

Interesting Overnight Moves. Possible Resolution?

On Wednesday I was I identifying two channels on the E-mini: Two Definitive Channel Breaks on the E-Mini.

... Well, it turns out there were 3 clear channels ... :)

See the chart below. We started out in the steep blue channel followed by the pink channel (same as the link above). But the action Wednesday and yesterday also formed the aqua channel .... Doh!

So this is still speculative as the price has not broken out of the aqua channel yet

..... however ....... (when did that ever stop binv from speculating :) )

The count going into a bounce off the lower aqua channel line looks very much like a 5 wave move terminated with an ending diagonal. The bounce up looks very clean and convincing. Much like an impulse wave to start A of Minor 2?

That's what I think, but this wave down has surprised me a couple of times :)

Added 60 min chart

Chart / Count idea based on conversation with Joske

Thursday, January 28, 2010

Well, So Much For That Theory

When you have a theory and it turns out to be wrong (such as this one Modified Theory), scrap it and move on to the next.

Here are my alternate counts which are now my preferred counts

Modified Theory

I have been looking for the "same" count on the major indices, but if I relax my criteria and look for counts that are approximately the same and combine that with some price movement observations, then I think I have a more nuanced / complete picture for Minor 1:

First is the Russell. It sold off by far the hardest. And the waves are *very* clean impulses down, each one making clear lower lows. Nothing ambiguous about this count. And it also bottomed before the rest of the indices (Hardest sell-off is the fastest to bottom).

Next is the SPX. The waves are not quite as clean as they are on the Russell. Finanicals comprise a large portion of the SPX and Finanicals TANKED last week. So it is a hybrid between clean counts and muddy counts. The SPX bottomed next

The Dow, Wilshire, and NYSE are all somewhere between the SPX and the Nasdaq in count "muddiness".

Last is the Nasdaq Composite and 100. Both the COMPQ and NDX had the most overlap and it sold off the least (the wave structure is far more "sideways" than the Russell's clean down moves). And it did not finish it's down move until today (Weakest sell-off takes longer to bottom).

Wednesday, January 27, 2010

Two Definitive Channel Breaks on the E-Mini

As I was discussing earlier today (Domo Arigato, Mr. Divergence-o), I said that the odds favored Minor 1 being done and now we are in Minor 2, and (for myself *only*) I covered my swing trade shorts and went long.

The ES so far is confirming that assessment. We have two definitive channel breaks and a strong move up overnight so far

Domo Arigato, Mr. Divergence-o

Like in my last post Malt-O-Meal, I have been debating whether we are in Minute 5 or Minuette 5 (i.e. do we have one more leg down or are we ready to start Minor 2 up?)

The fact that we got the lowest move of the wave today makes me happy for 2 reasons. 1) I didn't get shaken out of the up and down BS the last few days and 2) It gives some more clarity to the *possible* counts.

Before I show you my preferred count, let me say that *none* of the options are a slam dunk at this point. But TA and EW is about evaluating risk/reward setups, it is about playing the odds. I have been reducing my short position as this wave down had moved on because the nice clean impulsive moves down were done. We were in the churn. And I don't like holding through churn if it is near the end of the wave anyways. Too many fakeouts and false starts. So while there could be another move lower, do you think the risk is at this point (from a short term perspective) to the upside or downside? I say upside, but you may answer differently based on your convictions.

So we have had a lot of really confusing action at the Subminuette degree, and it has made for a lot of disagreement between counts among the chartists. I am stepping back and looking at the larger count, and acknowledging that the squiggles can be interpreted many ways. But what does the overall structure look like, and are we getting good channeling (remember: extended 3rds quite often overshoot channel lines of one higher degree, especially if the move is manic)?

Next I do a 5th wave termination estimate based on how I count the Minuette waves. Using an estimation factor of 0.618 I get 1067 .... I don't really buy that. We have an extended wave already showing exhaustion that would have to pierce a really strong support line at 1075 and then move through a support layer at 1070. No sir, I don't buy it. It is possible, but is it likely? I play the odds and the odds say no.

The next most common termination factor is 0.382 and my next estimate gives me a 5th termination at 1082 .... ahhhh. Very close to the low of the day.

When I combine that with my count, examination of breadth, support levels, and divergence on the indicators, I find that the move down during the last hour is likely the end of the move. Those are the odds as I see them.

I am now out of my short term shorts and establishing longs. This is *NOT* advice, just sharing my thoughts


So here is the deal, we have some conflicting information from the counts on the different indices. I have my preferred count and leading alternate (discussion last night with bob_johnston describes both pros and cons to both counts: http://marketthoughtsandanalysis.blogspot.com/2010/01/weetabix.html#comment-31471031)

I have the preferred and alternate on the SPX, and the RUT count to support the preferred and the NDX/COMPQ count to support the alternate.

So we *could* be at the bottom of this wave, or we might have another Minute 5 down. I am lightening up some more on shorts this morning based on further deterioration of the risk/reward profile at this price and stage in the count. But I will leave a little on the table to capture the move down if it comes. Again, this is just how I see the trade, this is *NOT* advice to anybody else

Tuesday, January 26, 2010


Current Count. See logic from earlier in Weetabix


Here is my current count. I don't like it (I tend to have a healthy disdain for my EW counts), but I think it is the best fit.

I have yet to see a compelling count that says Minor 1 is over and fits all of the tendencies that waves usually show.

The part of this count that I dislike is the very truncated 5th at the Subminuette. But I rationalize it as: a) the Subminutette 3 was *extremely* extended and b) it is a Subminuette wave (these are very short term waves subject to manic moves and can become distorted). I would not find this to be a compelling argument even at the Minuette Degree.

The main reason why I think the move is not done?

We have not seen any meaningful positive divergence with the indicators on the 30 minute and 60 minute charts (you have to go down to the 10-15 minute charts to see a little bit of divergence). This is *not* a prerequisite for a wave to bottom, but it is a tendency.

And the odds favor divergence, so unless I saw a *very compelling* count that shows a completed 5-wave structure (which I don't) without positive divergence, then I play the odds. And the odds say a 5th is coming.

(That is how I use EW and TA. I *don't* try to predict the future. I use it to perform risk management: What is likely, what is not, what tendencies usually manifest themselves, and what moves negate potential counts. That is the best anybody can do).

However I did lighten up on my short positions (in my short term swing trade account). I do think we will get a 5th wave down, but the risk/reward no longer favors being *heavily* short. I do not like going long here. The odds favor a Minute 4 bounce, not a Minor 2 bounce (IMO). I will play a Minor Wave from the long side but not a Minute one. But everybody's aggressiveness / risk tolerance is different.

So that's what I think at this point.

Monday, January 25, 2010


Here is a guess at some channels on the SPX for the current wavecount.

Fixed dumb mistake - Thanks 3's & C's :)


NYA and RUT Counts for Blankfiend and dnarby

XLF count for swank

Sunday, January 24, 2010

The Real Deal? (Divided Opinions)

So, is this move the real deal (meaning is this a subdividing 3rd wave as Minor Wave 1 down?), or is this move done in essentially a "fakeout" drop on Friday afternoon to end the down move and we get a very strong bounce up on Monday for Minor Wave 2?

Much of this depends on how you view the VIX move. This is a crazy 4-sigma event (4 standard deviations on a Bollinger Band with 20 period reading are needed to capture the move)

A valid observation would be "We got up to >3 sigma moves (not quite 4 sigma) in Sep - Nov and the each time it pierced that zone, there was an immediate VIX snap back the next day"

This was also met with some sort up upward move in the market (as expected).

Fair point. The VIX "rubber band" analogy.

My counter-observation (not even necessarily a rebuttal) would be: We were in P2 then. The main trend was bullish. **If** we are in P3 now (and despite what anybody thinks, that is still very much an assumption at this point), the main trend will be bearish. Are fear spikes without *immediate* snap-backs reasonable? My gut says "yes".

But let's go to the price action. The next chart examines the move side-by-side on the SPX, INDU, COMPQ, RUT, WLSH and NYA.

Here are the notes on my chart:

Key observations:

1. There is clear separation between the Wave down peaks and the retracements peaks on the SPX. So while the waves are more exaggerated, they could count down as a 1-2-3-4 for part of the waves
2. **HOWEVER** This is not the case on any other index!! On the COMPQ and RUT, there is *significant* 1-2 overlap between the sets of waves
3. Why is the SPX so exaggerated then? BECAUSE FINANCIALS ARE TANKING!! (SPX is financial heavy)

4. The Fourth Wave Down is technically *much stronger* than the rest of the down waves (the first and second waves are panic gap down opens, yet the 4th wave was a mid-day drop that accelerated through very strong support)

This looks like the real deal. When all the indices are viewed side-by-side, this looks like a nested set of 1-2's (4 levels deep) to me.

So when I look at the price movements across the board, and the move on financials (which is *very* bearish and is in a very clear extended 3rd wave) which explains the move in the SPX according to my observations above, and I note the overlaps which negate a 1-2-3-4 count on the NDX, COMPQ and RUT....

(BTW: Here is my financial count, which explains the exaggeration on the SPX)

... I come to the conclusion that the most likely count is a series of 1-2's, 4 levels deep. I put >70% odds on it. I think my count from Friday is a valid one and it remains my preferred count: Looks Like Hibernation Time Is Over

One last thought:

The last 8 months has neutered a lot of bears (my voice is a little bit higher). And the entire US investor pool has been conditioned to "buy" the dip. So much so that many are trying to call the bounce here in the midst of a strong down move (hey, I did the exact same thing Friday morning: L(S)D Option. Not blaming, just observing).

Maybe that's how P3 starts. It crushes dip buying bulls as much as it crushed the top-shorting bears in July and October. Absolute conviction of a market rise gets replaced by doubt for the first time.

Just a thought.

Friday, January 22, 2010

Looks Like Hibernation Time Is Over

Wow ... That's really all I can say.

I mean I am a gun-shy bear too. I have had my .... avocados ... in a vice trying to guess some bearish setups in this bull run. So even I thought that the opening salvo would not be quite so dramatic (hence my leading diagonal post earlier today L(S)D Option).

So even a bear like binv (and I am one of the more bearish bears you will find) was surprised by the strength of the move down today. Things looked to be consolidating this morning into the end of a bullish falling wedge: momentum was slowing, bearish breadth was declining, sitting right on top of a support zone at 1105-1100.

But then we exploded down. And all I can say is ... Wow. But despite being shocked, there is a smile on my face.

Perhaps the market might start to make sense again? ... Nahhh, now I am just talking gibberish.

Here are my counts and charts for the SPX from 1-minute to weekly:

More Channel!!, Less Wedge!!

Very bearish indeed!! The wedges looked good up until about an hour ago and the pattern started taking a much more bearish nature.

The lower trendline is coming down and these look like channels now. Very bearish indeed!! With the recent new lows the last few minutes on all the major broad market indices, I would say this looks far more like a series of 1-2's!! (I count at least 3 levels deep)

3:40 - Adding the short term count with the relabeled waves and Wave degrees

L(S)D Option

This market feels like it is a bad acid trip.

When I look at the 5-wave move down on the SPX, INDU, NDX, RUT, COMPQ and I see overlaps between 4 and 1 on the last 3, but the pattern is very wedge-shaped on all, I tend to think it is a leading diagonal.

10:45 - Adding longer term chart to see wave size in context

1:30 - NDX and COMPQ count for Kevin