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, December 31, 2010

Weekly Chart

Here is a look at the weekly chart. With my preferred count.

As I said at the beginning of November, I have abandoned the P2 count as my preferred count (See Thoughts on the Large Count for the New Year and The Large Count). Instead I think the count is far more of a complex correction, somewhat like Japan's bear market.

So here is my take on a few basic questions:

- Are we close to a top here? Yes. Bullishness is far too high. Technicals are overextended and showing divergence on the daily timeframe.

- Is this 'the' top? No. I think we will be making another nominal high in 2011.

Things I will be looking for in 2011 to signify a more significant top

1) Overenthusiastic earnings estimates. The past few months I have been observing the unhealthiness in earnings growth (margin expansion) and I still stand by the fact that this is unhealthy. But the market is as much psychology as it is fundamentals. And analyst estimates have largely been in line with actual earnings for the past few quarters (regardless of how those earnings have been generated). At the beginning of 2009 we saw earnings estimates that were even lower than actual earnings. For market tops we want to see analyst estimates that are much higher than actual earnings.

2) Pronounced divergences on weekly indicators

3) Divergence on the New Highs / New Lows (we have only a very small divergence right now) and on the Advance / Decline Line

4) A number of smaller ones, but these are the main ones

I think a correction now (in January) and the early months of 2011, and then a slower rally up into July of 2011 would be a perfect setup so that these divergences can manifest.

Also consider all of the good news (and being honest, there has been positive macro data in the last couple of quarters) that has been priced into this peak. This means that the next few quarters need to exceed expectations (which is by most analyst estimates that I read something like 4.0-5.5% GDP growth) in order for this cyclical bull market to continue.

So unless the economy really starts taking off, then we have the stage set for some macro disappointments. But equity analysts are by and large behind the curve and they should still be raising earnings estimates as the macro slows down and the earnings environment is also slowing down.

This is the macro scenario that I would like to see play out that would coincide with a more significant top. And being honest, I don't think it is here yet.

I also have a crazy idea for a 2007 top type fractal that could support this move:

Wednesday, December 29, 2010

County

Looking close to done if it is in fact a diagonal

Tuesday, December 28, 2010

Update on my Gold Count

My last update was on Sept 14 (see Breakout? Not yet). Those of you who have read my blog for awhile know my views and my stance on Gold. That I am far from a Gold pumper, but still believe the Gold bull market has much further to go. This is why I don't put out a Gold count every week or try to micro-manage the waves. We are in a Gold bull market and all of the fundamental drivers that are moving it are still intact. Gold (and Silver and Gold/Silver Miners) are the largest chunk of my portfolio by far. And since I believe the bull market has much further to go, I am sitting back and not worrying about the squiggles.

The comments from my last post are still very relevant.

So even though we got a new all-time intraday and closing high of Gold in US Dollar terms, why don't I call it a breakout? Because it has still not closed above the trendline for the Large Cup and Handle formation that I have been watching. If we get a weekly close above that line, then I think we have an honest breakout.

Also keep in mind, I am a huge Gold bull, and I enthusiastically share my views, but I am certainly no Gold tout.

I have not been screaming about Gold recently through the nice rally we have been having. In fact my last post on gold was when everybody was screaming "Gold has TOPPED!!". (see: My hat is old. My teeth are gold. And now my story is all told.) What I did instead was to show the progress of my bullish prediction on Gold. And what do we have now? A new all time high.

I *hate* buying Gold on breakouts, maybe not quite as much as the people who recommend that you do so. Gold is a momentum player destroyer and will shake you off so fast that you won't know what happened.

I much rather prefer to buy Gold when *everybody* hates it. Like at the beginning of February (A little early in Dec: GLD Chart and then in Apr confirming uptrend: binve's Gold Foil Hat Zone: More Thoughts on Gold's Massive Bull Market) and the end of July (My hat is old. My teeth are gold. And now my story is all told.).

It makes me feel all warm and fuzzy when everybody is screaming that Gold has topped :) My PM and GSM long positions are by far the largest in my portfolios, much larger than my equity shorts. I am quite content to wait for another large pullback (and yes we will get one) and buy Gold again when everybody, once again, screams "GOLD HAS TOPPED! THE BUBBLE HAS BURST!". I am in no rush and the Gold bull market is far from over IMO.


Another (Potential) Divergence

This is a tricky one, because the SPX/VIX does not always show divergence with respect to the SPX at turning points, at least not all the minor tops and bottoms. But it has for the last three "important" (obviously a subjective modifier) turns.

The recent move of the VIX was not accompanied by a commensurate drop on the SPX. So the ratio has significant divergence potential (that is all it is right now, just potential, there is no divergence yet at least on any meaningful timescale)

Monday, December 27, 2010

After Christmas Festivities

Still have a couple of up days left by my count. I still believe we are in a diagonal and think another nominal high is coming this week.

Thursday, December 23, 2010

I saw three ships

come sailing in ....

Just singing Christmas Carols as this market wanders up. :)

Wednesday, December 22, 2010

Tuesday, December 21, 2010

Diagonally

Current thoughts

Monday, December 20, 2010

Diagonal?

Please put emphasis on the "?". Because there is no evidence to support this right now. Other than the fact that the move up since the low at the beginning of December is not a clean impulse.

Sure, there are very impulsive sections (just like in zig-zags), but I have not been showing many micro-counts because I don't buy an overall impulsive structure.

... However, if my crazy idea holds up, then it could be a very well hidden ending diagonal. This could fit with the euphoria in the sentiment surveys as well as price that keeps winding up through the rest of silly season.

If not then this wave has a lot of out of proportion 4th waves in comparison to the 2nd waves.

Thursday, December 16, 2010

Tight as...

-- a drum, anybody knows that.
-- Uncle Ebenzeer's purse strings!! (mid 19th century party crowd laughs uproariously)

High as...

You might be tempted to say 'a kite', or perhaps even 'Woody Harrelson'. But the crowd pleaser in this one (well, not for the bears [and by that, I mean me :( ] ) is 'the US equity markets'.

New highs in the next 2 weeks IMO.

Wednesday, December 15, 2010

Not Yet (Probably)

Move down is looking pretty overlapping / corrective on every index. I think another stab at the highs in the next 2 weeks is probably likely. Looks like Santa is holding out for his milk and cookies :)

Tuesday, December 14, 2010

Leading?

Tech and Small Caps looking weaker again. See yesterday's post for commentary.

Monday, December 13, 2010

Very Interesting!

On Friday and Saturday I was remarking that some important divergences were showing up: SPX Weekly Technicals and More nascent divergences.

On Thursday however I made this remark: Still Silly

The speculative indices are still flying high, and until they start to stall everything else will continue to melt up in the low volume Silly Season.

We that was certainly true today!! The Russell and the Nasdaq led the way down from the early peak today and have much uglier looking candles than the SPX and Dow.

The divergences on the 60 minute chart are very pronounced. Looks like the fractal might indeed be playing out:

Saturday, December 11, 2010

Thoughts on the Large Count for the New Year

Like I said at the beginning of November, I no longer buy the P1/P2/P3/etc. count anymore (The Large Count). I am still macroeconomically bearish and think we are still in a secular bear market (the current rally being a cyclical bull in a secular bear). But I think the timing of the bear market is stretching sideways, much like the NIKKEI has the past couple of decades.

I have updated the chart from my Nov 4th post and added some Fibonacci time intervals to measure some important time relationships of Cycle X with respect to Cycle C.

So while I think we are in the process of slowing down here in the midst of Silly Season, I am skeptical that it is "the top".

Some things that I will be looking for on the macroeconomic front that hasn't been observed to a significant degree: Overenthusiastic earnings estimates. The past few months I have been observing the unhealthiness in earnings growth (margin expansion) and I still stand by the fact that this is unhealthy. But the market is as much psychology as it is fundamentals. And analyst estimates have largely been in line with actual earnings for the past few quarters (regardless of how those earnings have been generated). At the beginning of 2009 we saw earnings estimates that were even lower than actual earnings. For market tops we want to see analyst estimates that are much higher than actual earnings. David Rosenberg did a very good study on this a couple of months ago, but I can't seem to find it right now.

We are heading in that direction. While a number of sentiment surveys are bullish and consistent with a top, I don't think the bullishness on the Street is commensurate with "the top".

Hard to say with this market. Corrective waves are hard to count and to know for sure when they have ended. And macroeconomics is good for determining the trend and drivers but is does not give good timing signals. This market is driven so much by psychology right now, and I think watching sentiment indicators (VIX, CPC, BPSPX, etc.) as well as earnings estimates in comparison to actuals will be very useful in determining the end of this (IMO) cyclical bull market rally.

More nascent divergences

The are a few divergences that are just starting to form: The Advance / Decline line and the New Highs / New Lows. Actually they NYHL has been showing divergence for a few months now but the NYAD kept making new highs. But with this last rally, that is not the case.

.... So will Monday and the rest of next week turn out to be very bullish and negate this potential divergence? Or are things really slowing down?

I think there is enough evidence to support the slowing down claim. Whether or not this will be enough slowing down to create a top remains to be seen.

I am still doubtful of a "major" decline while in the middle of Silly Season, but I am now becoming skeptical of a major bull run into the new year as well.

Friday, December 10, 2010

SPX Weekly Technicals

Just looking at the weekly chart for the SPX.

Is it prognosticating an imminent top? Not necessarily. But there are some divergences taking shape that you should be aware of.

Sentiment Pondering

I was revisiting my long term sentiment charts, trying to glean some trends. I noticed some interesting divergences between the the SPX and CPCE at the 2007 top and 2009 bottom that was confirmed by the VIX.

Predictive? Maybe. But certainly worth keeping an eye on.

Wednesday, December 8, 2010

Still Silly

The potentially bearish candle from yesterday had very little follow through today. Early morning down move was reversed nearly across the board.

The speculative indices are still flying high, and until they start to stall everything else will continue to melt up in the low volume Silly Season.

Tuesday, December 7, 2010

Interesting Daily Candle

Today had very much an exhaustion gap feel to it. A >1% gap up and then down trading the rest of the day. Is it simply a gap close? Possibly. But I am still pondering the idea that a fractal of the April wave is still at work. If that's the case, then there is an interesting similarity that is setting up.

But being cognizant that we are in the middle of Silly Season, this rally could still have legs. Tomorrow should provide and interesting clue.

Wednesday, December 1, 2010

Silly Season's Greetings

My guess was that the move down would turn into a floor and we we get range bound / slightly higher trading during the rest of Silly Season. And that looks to be bearing out. Like I was saying before: Side of Mashed Potatoes

Silly season is upon us. Setups that look like they have a lot of downward potential (and we had several last Nov/Dec) will hit support and bounce off IMO. I am really skeptical of a strong down move prior to December/January at this point. The bears had one good shot at the very beginning of November and that opportunity was blown.