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, August 22, 2010

Space Madness

I have been thinking about this wave a lot this weekend.

I hate the action on Friday. It just doesn't fit. If this really is 3 of 3 of Minor 3 about to bust this market wide open to the downside, then why the crappy volume? Why the crappy breadth? Why the hell are we making a slightly lower low with positive divergence on a 60 minute chart? Why are all the moves down happening as overnight gaps without much breadth and activity intraday?

This is not the same behavior, or even remotely similar behavior, leading up to the flash crash. My counts, indicators, and charts were predicting something big then before it happened. See: 1-2 Heaven? and There is a word for days like today

This time around it seems like it is consolidating and building a temporary bottom, IMO.

Now don't get me wrong, I am more bearish than probably most of you reading this. We had a number of hugely negative macro developments this week. I think the shit is going to hit the fan soon (between the next few days and maybe as long as a month). So even if we do get a bounce here there is NO WAY I am covering my shorts. I held short through the Feb/March madness because it felt like a fake wave and so this one won't shake me out in the slightest.

I am just saying that something doesn't jive here and that next week might not go as us bears expect and are currently planning for. I just don't want anybody to get "thrown" by a bullish hiccup.

This is when it helps to step back, take a bigger picture view, and to realize that even 100 point moves on the SPX are small potatoes compared with whats to come. Bear markets always have high volatility and huge moves both ways: What type of markets do 4% up days happen in?.

I just want everybody to keep their heads screwed on tight and to expect volatility both up and down before the market shows its hand.

So what I show above is a possibility, just one of my alternate counts. I don't know if it fits the technicals the best, but it fits my uneasiness the best. Below, however, continues to be my preferred wave count:

blog comments powered by Disqus