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

Friday, August 31, 2012

Aug 31

Nothing to say, so I haven't said anything. Market is going sideways deciding what it wants to do, so I am waiting to see what happens and being patient during this period.

Have a Happy Labor Day!

Also, I will be unavailable most of the next two weeks. So if the market does anything of interest (and the Trend System responds with new signals) I will likely not be able to send out anything in real time. However I will reference when the signal occurred and let you know as soon as I can when it happens.

Tuesday, August 21, 2012

Aug 21

Best guess as to what's going on

Friday, August 17, 2012

Update on Long Term Projection (08/17/12)

While the last few months have been very confusing regarding the Minute/Minor Degree waves, my larger view of the market remains unchanged. For the last large update, see this post: Long Term Projection, Macro, and an Analysis Retrospective.

All of the macroeconomic and fundamental analysis in that post is still very valid, as is the sentiment analysis from market indicators. Also with the VIX recently making a new 'recovery low' makes a confirmation in my mind that this next market peak will not be 'the top'. Like I have been saying for a couple of years now, we are in the middle of a cyclical bull market and any pullbacks are mid-bull corrections. I think this cyclical bull still has a few years left in it.

No new analysis in this post, just chart updates.

Long Term Projection History and the Current Projection

I have a long track record of being consistent with my projection. It has obviously adjusted based on how events actually unfolded (absolutely *nobody* can predict the future), but this long term projection which serves as my preferred count has been quite good in general directionality and intermediate timing.

-- Nov 2010: Abandoned the Primary 2 count and adapted my leading alternate count which was a Cycle X count - The Large Count

-- Jan 2011: Rethought the size of Cycle X with some historical analysis and comparisons. I lay out my thoughts for March 2009 - June 2011 (projection at the time) being only Primary W of Cycle X - The Large Count with Historical Perspective

-- Jan 2011: Macro thoughts that accompany my projection - Macro Thoughts and Observations. Is the Bear Market Dead? Is this the Start of a new Secular Bull Market?

-- Feb 2011: Long term context - Secular Bear Market Projection in Historical Context

-- Mar 2011: An in depth study and a comprehensive list of references and analysis of previous work. I highly recommend reading this post and following the references - First Derivative of the S&P 500, Long Term Study

-- May 2011: Count of the large structure (the top of this wave) being completed in real time - May 5 (and a Long Term View Update)

-- Aug 2011: Macro thoughts in the middle of the August crash putting this wave in context (specifically refuting that this was the start of 'P3') - Update on Long Term Projection

-- Oct 2011: Real time count that pointed to the October low as being a significant low based on how the waves and indicators unfolded - Revisiting the Large Count

-- Jan 2012: Confirmation of the October low being a significant bottom - Update on Long Term Projection

-- Apr 2012: Large macro, fundamental and sentiment update. In depth post and a recommended read (many links to previous analysis) - Long Term Projection, Macro, and an Analysis Retrospective

Primary Wave Projection

The May 2012 pullback while sharp, was not in retrospect a 'major' pullback. I think it is just a Minor degree wave down and we are now probing into the top to end the Intermediate wave up since the Oct 2011 low. If my count is correct, the next wave down will be an Intermediate pullback (think the Apr-June 2010 pullback and not the May-Oct 2011 pullback)

Secular Bear Market Projection / Long Term Count

For the SPX:

And NASDAQ Composite for good measure:

4-year Cycle Chart

This chart comes from this study (A Look at 4-year Cycles) and fits pretty nicely with my long term projection. I think the next pullback would fit timing wise with the next 4-year cycle bottom (which as I show on my chart can simply be a mid-range correction).

Monday, August 13, 2012

Aug 13

As Cobra has said many times before in similar situations: Nothing bearish works. The VIX setup described last week is invalidated. And despite being an overlapping mess, the market continues to make higher highs and higher lows and is now a handful of points away from a new recovery high.

I have been quite wrong in my thinking of how the market was going to play out the past few months.

It boils down to the volatility of the wave since June and the signals on my Daily System. The volatility has been great enough to issue multiple sell signals on the 60-min System. But as soon as one would get issued, the market would stage a terrific rally and invalidate the setup. These sell signals made me think this market was forming a bear flag. The reason I was predisposed to think this was my Daily System. As I was saying back in June, the Daily system issued a sell signal not on normal topping signals but an emergency sell based on the Cycle Signals. But since we were in a Daily Down cycle, I was expecting it to a) last longer and b) make a new low. Based on the stats from my system, those were the clear odds. Neither happened. Just today, we got a new Cycle Buy signal without even getting a normal buy signal. This makes an emergency buy/cover just like the June signal was an emergency sell/short. So we have an abnormally short Daily Down Cycle duration, no normal buy signal, and the worst fakeout my Daily System has ever endured.

Needless to say, I am not happy about this.

But the market doesn't give a shit if I am happy or not. So I just have to accept the fakeout, take my lumps, and move on.

So with the benefit of hindsight, I now believe that while sharp and bordering on severe, the May 2012 correction was not 'significant'. I think it was just a Minor degree wave down in an Intermediate wave up.

I think we make new recovery highs before the next significant correction (yes, Johnny-come-lately, I know, I know) so that we establish divergences on my Daily and Weekly charts below.

Saturday, August 4, 2012

The VIX and some perspective

First things first: Even though I still continue to think that we have more downside in the SPX, I still think that downside will be a relatively short correction and that this cyclical bull market will continue and will likely achieve new all time highs before it is done. Why? For the many reasons outlined in this post: Long Term Projection, Macro, and an Analysis Retrospective.

So if I am bullish for the medium term, why am I bearish for the short term? Because we still have not seen an adequate duration Daily Down Cycle to correct the previous Daily Up Cycle, and because of something I discussed in the post above: the VIX.

Now in the post above, I showed why the VIX is *NOT* saying that we should expect a 'major' top to have occurred in May 2012. Here is the reason why: Yet another reason why I don't think we saw 'the' top (3) (and an update to that chart is in the first link above).

But watching for VIX divergences and the *lack* of VIX divergences at both long term and short term tops and bottoms is a useful exercise, and while there was absolutely no long term divergence at the May 2012 top (the VIX made a new 'recovery low' as the SPX made a new 'recovery high'), there was also no short term VIX divergence at the June 2012 low.

First, lets look at the long term:

There have been VIX divergences at all significant local minima and maxima in the last several years. But there is still no divergence in the VIX when looking at the 2011 to 2012 peaks (the VIX makes a lower low as the SPX makes a higher high from 2011 to 2012 => no long term divergence).

However, all bottoms after significant pullbacks the last few years have been marked by significant VIX divergences. Although we have not seen one during the last pullback.

A short term chart shows another reason why I don't think the June low marked the end of the correction:

We can see a similar pattern of clusters of VIX down gaps taking place near the April 2012 top that are also occurring near the end (potentially the end) of this wave.

So that is what I am thinking:
- Short term the correction is not over and we will revisit the June 2012 lows
- Medium term the cyclical bull market is not over, which means the the correction is a short term affair, and will be followed by new recovery highs and likely new all time highs

Thursday, August 2, 2012

Aug 2

Another monster reversal last week invalidated the short setup that I discussed last Tuesday. A buy signal was issued last Friday which turned around and a sell signal was issued yesterday right after the FOMC announcement. Lots and lots of volatility. Since June, the cycle for each period has been about a week and a half with lots of movement in between. Which means that it has been tough sledding for the 60-minute system which doesn't turn quite that fast and so the market is almost acting like negative feedback for the system.

So is this move up done? I honestly don't know. But the 60-minute system is back on a sell. And this move up still counts like a big overlapping mess. Here is my best guess (which is admittedly pretty bad recently) at a count: