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, March 1, 2012

Mar 1

Here is my current EW count for anybody that cares.

Before looking at it, let me be very clear: I am *NOT* calling the top of this wave. There is absolutely *zero* evidence that the trend is over. You can talk about divergences until you are blue in the face, but in bull markets, specifically at the beginning of strong bullish continuations (which is exactly what this is) divergences do not matter. This market will wind higher to the frustration of everybody who tries to call a pullback.

I am just looking at this particular spot, and doing some wondering aloud. That's all. ... Why this spot?

1) From here: We started a new 60-minute cycle on Dec 23, making the current cycle 64 days long. Out of 67 60-min cycles since 2001 the average duration for a cycle (which is both the upcycle half and the downcycle half) has been 56 days. And the upcycle half of the current cycle is already longer than then average duration, which makes this rally 'mature' from a cyclical perspective.

2) First Wave relationship: Move from Dec 20 to now is ~1.62 times the move from Nov 28 to Dec 7. This relationship is tucked inside a larger relationship.

3) Second Wave relationship: Move from Nov 28 to now is ~1.00 times the move from Oct 4 (the bottom) to Oct 27.

So what I am saying is that there are a lot of favorable relationships from a wave perspective for a turn in a rally that is statistically overdue for a correction. That is not a prognostication, just an observation.

With that, here are my counts (again, just what-if's):

But keep in mind what I said here:

I formulated my study in the following way: Assume that my main indicator (which has not yet topped) tops right now due to a pullback (which would be met with a downcycle on my 60-min system). What would be the odds that this price peak would also be 'the top' of the current Daily upcycle?

The stats are pretty compelling: Since 1982, 18 of 20 cycles (90%) made higher price highs after the initial peak and rollover of my main indicator.

Which means that the odds of the next price peak being 'the top' are pretty small, at least from my viewpoint.

Again these are statistics, not prognostications .... past performance is no indication of future results ... yadda, yadda, yadda.

So in short, I think the next pullback (whenever it happens) is not a 'short it and forget it' type event. I think it will be a dip that will be worth buying.

If that is the case, and if this pullback does happen to materialize here, then my first reaction would be that it could look something like this (nice support zone right around 1300-1280):

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