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
What a crazy couple of days. However these gut-wrenching moves have a potential corollary, in recent history even. The move out of the May 2011 top.
Here is what that looked like:
Here has what has unfolded so far:
Is the correction done? I give a little better than even-odds that it has. Like I said Saturday, the 1290 target has been met, and that this week needed to rally or at the very least stop crashing. That was not a prognostication, but merely an observation of what needed to happen this week to keep the Long setup which has been open since Oct 11 on my Daily Trend System alive. And we had a huge scare 'redux' again today but a strong rally into the close.
Which means that so far a turn looks to be occurring exactly where it was needed. So for this corollary to play out, the bulls need to make significant progress in confirming this breakout Thursday-Friday. We we see if they can manage it.
1290 target has been met. However in doing so, it has put a *very* ugly weekly candle on the chart by closing basically at that level. The market needs to rally pretty hard next week (or at least stop crashing) for the Daily Cycle scenario to play out (a higher high before a sell signal is issued). Any more strong down days past the middle of the week, then the Daily system will likely be at an emergency exit criteria (which it is not at yet but is fast approaching).
My 60-minute system is displaying some crazy divergences. They are as severe as they were on the Nov 2011 and Dec 2011 pullbacks.
But a divergence by itself won't say when a pullback is done. So I am looking for other data to see if we are near anything important. Here is one view on the Daily chart. We are at a breakout retest line at a 38% retrace with oversold short term conditions.
The next view is a long term weekly chart looking at lateral support 'strata'. And it looks to me that this pullback is moving right into a zone that is consolidating the breakout.
There is a lot about the short term that looks compelling from a pullback perspective. Also the 'analogy' chart that was discussed on May 2 has a more complete look to it. Also notice the lower orange PPO indicator. It did not go into divergence at the top of the wave like it did at the 2010 and 2011 tops.
The next section is my current EW count. Feel free to skip this section if you are not interested.
First is the count of the most recent correction. And I see two sharp 7 waves down with a complicated/messy 3 wave up in the middle:
Zooming out is the count up from the Oct low which was discussed Apr 10 (and no, it's not an impulse):
Count since the October low where the waves down to the ~Subminuette/Micro degrees are identified.
I disagree on both counts. The fact is that the structure of this wave at nearly all degrees of trend has been distinctly three-ish ever since the March 2009 low. And for anyone who is looking at the waves objectively, we can see threes even in the move since the October 2011 low. You really don't get impulsive waves until you drill down to the micro/submicro degree. It is all right there, plain as day:
The fact that I don't suffer from the affliction where I try to shove every sharp wave into an 'impulse box' means that I am seeing the waveforms more objectively than the greater EW community. It is precisely this view that allowed me to call the top last May when the rest of the EW community was looking for another wave up to finish the 'impulse': Regarding Tops and Sloppy / Misleading EW Practices.
I received several comments on my last post. Several were well-meaning. One was not. But I think all missed the point of the post.
I wrote that my 60-min Trend System issued an emergency sell signal, and that the sell signal was not the result of a normal exit criteria. There are several conflicting signal indicators happening at once on my 60-min system. We also have a lot of sharp reversals happening at range boundaries (like in a large triangle) that make it extremely difficult to interpret what is happening in the short term.
And that was the simple point of the post: The short term is proving very difficult to predict based on the plethora of conflicting signals.
It was suggested that I needed to take a step back and take a look at the bigger picture. While well-meaning, this misses the point. I frequently take a step back and look at the bigger picture. In fact, I had two posts in the last 3 weeks that did precisely that: Long Term Projection, Macro, and an Analysis Retrospective and May 2.
The point is that I was properly and publicly bearish in May 2011, bullish in Oct 2011, and I stated that we are getting close to a top but not yet at a top here. And that further I don't think that this coming top will be 'the' top of the cyclical bull market.
But absolutely none of this has anything to do with Friday's post which was a comment on the 60-minute Trend System and the short term timeframe.
Anybody who has been following my work knows that I think and discuss market behavior in several different timeframes and that I try to illuminate when people improperly try to think of the distinct time cycles (60-min, Daily, Weekly, etc.) as happening all at once. This almost never happens in real life. We often have, for example, a 60-min cycle in a down trend with a Daily Cycle in an uptrend, with a Weekly Cycle in a downtrend, etc. My baseline position is that we are currently in a cyclical bull market in the middle of a larger secular bear market.
So while I appreciate the general advice that stepping back to look at the bigger picture is useful, I think it is also unwarranted.
Regarding two specific points:
1) Several Weekly Indicators are rolling over.
Very much agreed that they are. But I disagree that this means a top is 'imminent', I think it only means a top is near. That was the point of this post: May 2. The lower PPO (orange) on the daily chart is slowed down, which makes it behave like a weekly indicator. It has not really gone into divergence yet, which it did at both the 2010 and 2011 tops.
In short, I think trying to call a top right here is rushing to judgement. Just my opinion.
2) That I have finally gone 'bullish' at the end of this wave.
But the aspect of this comment that I would like to address in my 60-minute system. My 60-minute system performed spectacularly last year: Jan 2. But this year has been dismal. It is 0 for 10. And specifically it was trying to catch roll-over tops that never occurred, and the last signal was a sub-cycle long which was confirmed by a 60-min Up Cycle signal that as of Friday looks like it will be a failure.
So this commenter says incorrectly that I am now 'being bullish' (which I have been since Oct 2011) when they are likely confusing the performance of my Trend System which is dispassionate and has nothing to do with my independent analysis. However, I am owning up to the fact that my 60-min Trend System has been badly faked out this year.
The 60-min sell signal just issued was not a normal topping signal but triggered by emergency exit criteria. I honestly have no idea what is happening in the short term, none of the short term cycle signals are making any sense to me.
Here is a chart looking at the structure of the last two major bull waves up. I don't think there is one-to-one correspondence, but I do think there are some analogous features.
I do think we have another wave up to make a clear higher high. Personally I don't think we are at Dec 2010, but more like Mar 2011 from an analogy standpoint. This theory would tend to fit with what my Daily Trend System is telling me. It is expecting a higher high, but as things stand now the next peak will likely happen on a divergence between price and my main indicator. This is something I am expecting as 18 out of 20 past Daily Cycles with a similar configuration have done.
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