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, July 23, 2010


[Addition Saturday Morning]

For clarification purposes, some may interpret this post that I am no longer bearish based on my opening paragraph. This is certainly not the case.

When I say I don't have a preferred count, I mean exactly that. I have no idea what the short term wave count is telling me, but the overall trend and pattern is down, so I am short and staying that way. The macro is bad, despite a bunch of bull cheerleading.

So there is what happens in the time frame of 1-2 weeks and then there is what happens in the time frame of 1-2 years. The point of this post is to stay that the EW counts are sufficiently ambiguous that I no longer have a confident basis to have an idea what the next 1-2 weeks are going to do. This is why I state the I am watching momentum and divergences more closely instead of the squiggles.

In the bigger picture I am quite bearish and I am staying that way for the duration. The macro is horrible. If you look at my Caps Blog (which is also listed below on my blog roll), I point to a lot of articles that show deteriorating fundamentals. John Hussman's astute observations on the ECRI a few weeks ago is a prime example. So whatever the squiggles say for the short term, make no mistake that we are still in the middle (no where near the end) of a secular bear market.


What is my preferred count? .... I no longer have one. I suppose, by default, the 1-2, 1-2 is still my preferred count (I am heavily short and still haven't covered), I think the price the last few days really makes very little sense in that context anymore.

We do have a few things going for us (the bears) in this though for the near term: All of the moves up have been on very low volume and the breadth has not been hugely impressive. Throw in a few 2-3% gap up days, which of course begs the question: What type of markets do 4% up days happen in?. You know the answer. On top of that the move up the last 2 days has been on highly negative divergence. Now that doesn't mean anything yet because it is only potential divergence until we start to move down. But the observation is that the move the last two days is taking on a very distinct wedge shape.

What else? Oh yeah, the VIX continues to hold support at 22.50-23.00. If we break that key support then I think we will see a move up on the SPX, but so far that has not happened.

So right now I am still short because of all the very tired technicals in this rally. But right now all of the wave counts look like garbage and I am no longer gravitating toward any particular one. The next 2 weeks should really add some clarity (and if it doesn't then I start liking the theory that we are in a big triangle). But until then I am not getting too hung up on the squiggles and instead am watching momentum and divergences more closely.

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