Apr 3

My 60-minute system issued a sell signal this morning just after 10 am. I also think this is the end of the current up wave and that we are in store for a decent correction. And no, I don't think this is the 'top'. I think this is just a correction and the cyclical bull market will continue.

For anybody who cares, here are my wave counts:

Update on Long Term Projection (01/19/13)

This Long Term Update will take a slightly different flavor than the last one (Update on Long Term Projection (08/17/12)) since I will be adjusting my count from the 2011 correction based on how the waves have been unfolding. I will show my rationale for that adjustment. But first I want to set the stage for the reason why I still think we are in the middle of this cyclical bull market, and not near the end of it.

Market Internals

The are a large number of market internals that still saying very strongly that this bull market is intact. I have discussed all of these several times, please see Long Term Projection, Macro, and an Analysis Retrospective for a detailed discussion and links to previous analysis and charts going back to a couple of years now.

Corporate Profit Margins still have not peaked and are making new recovery highs alongside the market. And as I have pointed out before, even if they peak this quarter the stock market will likely not be at a peak. This divergence takes several quarters/years to play out as the profit margins peak and the fundamentals start deteriorating long before the analyst community is able to confirm it.

The VIX continues to make new recovery lows as the market makes new recovery highs. If a peak in the market were to happen in conjunction with a VIX recovery low, then it would be completely counter to the 2000 and 2007 peaks which saw very pronounced VIX divergences for over a year.

The NYSE Advance/Decline Line as well as the NYSE New High/New Low Line is still making new highs alongside the NYSE Composite. Both of these displayed significant divergence for several months at the 2007 top. Now there is an issue that I have brought up before using the NYSE internals (see: NYSE Common Stock Only Indicators) and an analysis with them is less compelling due to the proliferation of fixed instrument / bond funds on the NYSE thus making less of a solid proxy for the stock market. But I still think it is still more useful than not useful.

When looking at the strength of these internal measures (fundamental, volatility, and technical) I continue to be convinced that we are still in the middle of this cyclical bull market and not near the top of it.

Wave Interpretation

In November/December I was thinking that we were in the middle of an Intermediate term correction. By mid-December it was quite obvious that was the wrong call and all we had experienced was a Minor Degree pullback on no divergence. You can see the count from my last Update on Long Term Projection (08/17/12) and why I was thinking that, which was obviously the incorrect count.

So I have been thinking a lot about the long count over the last few weeks. I was waiting for a new recovery high to cinch my theory and that has now been confirmed. The crux is that the wave behavior since the major 2011 correction is markedly different in character than the wave behavior before the 2011 correction. I outline the differences on the next chart:

I had been previously thinking that lack of Daily divergence at the early 2012 pullback meant that it was likely only a Minor Degree correction. Based on seeing three confirmed and completed pullbacks since the major 2011 correction and we can now compare sizes and durations, I am no longer of that opinion. I think the early 2012 pullback was an Intermediate correction, and that the form is different than the pre-2011 pullbacks.

The depth and severity of the mid-2011 correction and the fact that it did not end the cyclical bull market has changed the outlook of market participants. I think they are much more convinced of the viability of this cyclical bull and are more willing to 'buy the dip' on any sharp pullback (whereas prior to 2011, people were nervous and would wait for 'one more leg down' before buying the dip). This is making for corrections with spike bottoms on no divergence.

There is a loose analogy with the 2002-2007 cyclical bull market where the corrections before 2005 have a somewhat different flavor than the corrections after 2005. It is not as pronounced as what we are seeing now, but I think the precedent is there.

So with that observation made regarding the wave behavior and the observations made in the first section that show internal measures still confirming that the cyclical bull is intact, here is my updated long term projection.

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

-- Aug 2012: Projection calling for a late 2012 correction, however the degree of the pullback was misidentified - Update on Long Term Projection (08/17/12)

Primary Wave Projection

As noted above in the Wave Interpretation section, the early 2012 pullback is now assumed to be an Intermediate Degree correction, and the flavor of the wave behavior after mid-2011 is very different to the wave behavior before mid-2011.

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).

Dec 15

I think that the rally since the mid-Novemeber low is now over. Of course, take this with a grain of salt because I thought the Dec 3 peak was the top of the rally, which it obviously wasn't. My 60-min system issued a sell on Dec 4, which got reversed and a buy was issued on Dec 10, and the system turned back around and is now on a sell again since Dec 13.

But a slightly more compelling setup has occurred for a turning point with the clear bearish reversal candle posted last week (which *must* be confirmed next week), and the close back at / slightly below the 50 DMA.

My take at any rate.

Nov 30

60-min system is still on a buy signal, but that signal is weakening. Monday should be a telling day either way (is this consolidation before a new breakout above the 50 DMA, or has this sharp move up exhausted itself?).

Stepping back and thinking about the bigger picture: I have been of the opinion that we are now in an Intermediate degree correction, and I have been saying that this pullback will be like "the Apr-June 2010 pullback and not the May-Oct 2011 pullback" in terms of severity.

But I think there is a case to be made that it might be similar in form as well. Here are my current thoughts as to how this pullback might count like:

And here is a look at the Apr-June 2010 pullback. While the recent move down is not analogous to the 2010 'flash crash' in terms of severity, it is certainly similar in form (fast move that accelerated into a spike bottom without even a hint of divergence on a daily chart). The current move up is a sharp retracement to alleviate the deeply oversold condition from a local perspective, and I think it is similar to the move up in early May 2010:

Oct 6

The recent high and pullback has set the stage for some meaningful divergences on the Daily chart. Does this mean we are at a top now? NO. Does it mean we are *near* a top? MAYBE. These divergences typically take a few months to manifest and play out, and my observation is that we had a significant peak from which those divergences can START in September.

My thoughts right now are that we have a couple more months of the current rally left before a meaningful correction (Minor degree wave or higher). This also works with seasonality: October is typically one of the best months for the stock market (http://pragcap.com/october-the-jinx-month), I have serious doubts there will be any major pullback before the election, and then the market will be set up for a potential Santa Rally.

Of course none of that could happen, but if we are looking at odds and the lack of divergences in the current wave from a Daily standpoint, I say the strength still rests with the bulls right now.

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.

May 9

We got a sub-cycle bottom signal today on divergence with my 60-minute system: https://twitter.com/#!/binve01/status/200275729206878208.

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.


Now, I am sure I will get comments about my counts. That these W-X-Y's don't follow the EW orthodoxy (to which I say the orthodoxy is completely incorrect: http://marketthoughtsandanalysis.blogspot.com/2011/08/regarding-tops-and-sloppy-misleading-ew.html#comment-276329829). Or that all these W-X-Y's are 'unhelpful' and complicating what could be counted as simpler wave forms.

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.

Zooming out again is my 'near-term' daily chart.


And here is my 'longer-term' daily chart.

Apr 10

Current EW count for anybody that cares.

First up is a 2-year chart. As I have said on many occasions, tops are processes and bottoms are events. The PPO(14,13,10) in the upper pane is good at finding bottoms, which was another reason why I called the October low in near real-time (see Revisiting the Large Count). But this indicator is too fast to capture the rolling-over 'process' that is associated with tops, and the PPO(34,89,21) in the lower pane is much better suited to that task.



Drilling down to a 1-year chart to see the Minute degree waves at work.



Count since the October low where the waves down to the ~Subminuette/Micro degrees are identified.



Now, I am sure I will get comments about my counts. That these W-X-Y's don't follow the EW orthodoxy (to which I say the orthodoxy is completely incorrect: http://marketthoughtsandanalysis.blogspot.com/2011/08/regarding-tops-and-sloppy-misleading-ew.html#comment-276329829). Or that all these W-X-Y's are 'unhelpful' and complicating what could be counted as simpler wave forms.

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.

But even despite these observations, I am sure I will get more comments telling me that I am wrong / don't know what I am doing than those that actually agree. And you know what, I am fine with that. In fact, I am better than fine, I am ecstatic. I love being the minority opinion. I love suggesting things and making observations that the crowd is missing. So I am extremely comfortable and happy in my 'wrongness'.

Update on Long Term Projection

Here is an update on my long term projection. It hasn't changed in the last several months, so there will be no new long term analysis in this post. Just some chart updates and references to my previous work so you can follow why I arrived at this projection.

-- 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

Rally from July 2010 - May 2011. It is corrective, not impulsive. Subsequent price action is also corrective, not impulsive


Last two Primary Waves and upcoming Primary Wave projection


Alternate View: Looking at the large scale triangle formation and a count that might go with it. The point being that this is another way to look at the large scale structure. But whether it is counted in the above manner or the below manner, the overall structure and projection is approximately the same. See this post for where the idea was originally explored.




Update on studies that support the hypothesis that we are in the middle of a cyclical bull market, not at the end of one:

-- Moving Average 'Price Stretching' Update, Nov 2011
-- BPSPX Update, Nov 2011
-- Yet another reason why I don't think we saw 'the' top (3), Nov 2011
-- Yet another reason why I don't think we saw 'the' top, Sept 2011
-- Yet another reason why I don't think this cyclical bull is over, Aug 2011

Secular Bear Market Projection

Revisiting the Large Count

Okay, it's time for Crazy Uncle binve's Unpopular Opinion and EW Count Time!

Last week (during another episode of Crazy Uncle binve's Unpopular Opinion and EW Count Time) I was showing this count. So far things are going pretty close to script. Move up the the top of the range. Pullback/pause. Then after that we will see how the next act moves.

But I have been thinking .....

Here are a few consensus views that seem to be going around in the EW and macro spheres:

1) The vast majority of EW blogs seem to be counting this as a Minor 1 down that ended on Oct 4 and we are in a Minor 2 up (with the dreaded Minor 3 down to come). There seems to be a sense of inevitability / preemptive vindication about this stance.

2) The macro commentators are just flabbergasted that the Eurozone is not immediately imploding. "Dexia getting bailed out and nationalized", "Slovakia not agreeing to debt terms", "Italy is teetering on the brink of default", etc. etc. So there seems to be a widespread belief that this is just a relief rally because things moved down too far too fast in August. And we will be seeing these economic problems manifest in the stock markets (Eurozone and then a contagion to the US) in the next couple of weeks/months.

3) Recession warnings are popping up all over the place. ECRI (who has never flubbed a recession call, granted in only a 15 year time span) is saying that a new recession is inevitable. It seems like the majority of economists are either outright pessimistic or have curtailed optimism greatly.

Hell, even my recent counts are showing us that we completed a W down, we are in an X up, and so we will be making a lower low in a Y wave early next year.

The view seems overwhelmingly biased that we will be making a lower low across the analyst spectrum. In preparation for this 'inevitable crash' short selling reached a significant peak recently.

Of course there are contrary bullish voices out there, but from my (hopefully objective) assessment, they seem to be in the minority.

I have made the case many times that this cyclical bull market is likely not over:

-- Yet another reason why I don't think we saw 'the' top
-- Yet another reason why I don't think this cyclical bull is over
-- Update on Long Term Projection

However my original thought was that this mid-bull interlude would last longer. But with all the bearishness out there, now I am not so sure.

So I am revisiting an idea that ZimZeb and I were hashing out at the end of August. It has to do with some time relationships, and it comes from this comment thread. Here is the relevant excerpt that I will be discussing:

I also was doing some (likely erroneous) time analysis and comparisons, it goes something like this:

Call March 2009-May 2011 Primary W. = 2.15 years

Primary W is made up of Int W, X, and Y. The time ratio of Int X (0.22 years) to Int W (1.12 years) is 0.196.

Apply to Primary W => 0.196*2.15 years = 0.42 years (~5 months)

If Primary W started in May 2011, then if it obeys a similar time ratio, then it would end in Oct 2011.

This is what I wrote in August, and didn't think too seriously about it.... But now I am. Because in that same comment thread, you can see that one of the criteria that I was looking for (and didn't happen in August) was PPO divergence at the bottom. But with the October low (which could arguably be a capitulation bottom) we do have one.

So that means I am starting to think more seriously about this count:


The bottom of the Jul 2010 wave and the Oct 2011 wave display PPO divergence (blue indicator at top) [for an explanation of the PPO vs. MACD, see here]. I don't use the standard 12,26,9 settings (because it is too fast to be useful) and I like to slow it down to 14,30,10 which responds a little more slowly and less erratically.

This is certainly far from 'proof' of a bottom (which I guess the 'proof' would be a higher high above 1370, which is not particularly useful from a trading perspective) but says at the very least:

1) A tradeable bottom is in and any pullback should be bought for a couple more weeks of upside
2) The *potential* of a more significant bottom ('the' pullback low before continuation of the cyclical bull) is in.

Like I have said before, I don't let my expectations get in the way of my trading: Regarding Trading Positions and Long Term / Macro Outlook. But the point of this post is to illustrate why I think for the intermediate term (weeks/months) and potentially for the longer term (several months/couple of years) the risk is to the upside, not the downside.

Of course, like I said here and here, if the US significantly embraces austerity, then all bets are off and look out below.

So *IF* my theory about a significant bottom is an accurate prediction, then the longer term landscape could look something like this:

Weekly

Like I showed in today's post June 24, we have a possible triangle setup / very sideways correction.

The last 2 weekly candles show absolutely no net progress. I am struck by the feeling of the price action now to that of Silly Season 2009. That also made no net progress for several weeks with lots of gaps up and gaps down with tons of reversals and no follow through. It was also a prolonged sideways triangle.

May 5 (and a Long Term View Update)

For the past several days (see my last 3 posts) I have been saying that we reached the end of a large wave up and a significant top was forming. I gave a threshold / confirmation level and that level was broken just now (with gusto). On Monday my Trend System said that a significant top was likely forming (not a simple two day pullback) via my 60 minute chart and I have been trading that way for the last few days. A couple more days like this and my Daily chart will say the same thing.

Now, I say significant top. Does that mean 'P3' started on Monday? ... Hardly. Anybody who has been reading my work for the last several months knows that I abandoned that option. Here is the most recent large study of what I think the landscape looks like: First Derivative of the S&P 500, Long Term Study.

I am updating a few of my longer term charts so that you can see what I am currently thinking.

Short term (I am counting this move down as a sharp double corrective)


Last Intermediate wave:


And NO, it wasn't an impulse:


Primary Degree Wave:

April 28

Current count. This wave is looking a lot like the end of the February wave. I don't know if this is the end of it, but it looks like we are very near. Also no pullbacks at all, just sideways consolidation and stair-stepping into highly overbought territory.

This last wave for the past week and a half is not an impulse. If you want to be ridiculous and call it an impulse, that is your prerogative.


And speaking of ridiculous impulsive counts, I still see a lot a counts trying to call the move since last July as an impulse. And I disagree with that pretty vehemently.


This final move is looking like it will get toward my target area of 1370 (give or take a few points) with virtually no pullback. That doesn't seem particularly healthy to me.

Correction in the Larger Context

I have been showing a corrective upward count since the July low. And I have been showing my version of the count where the rally ended a few weeks ago and we have a bigger downward correction in store: Correction.

However, this idea is a little bit in opposition to another count that I have been showing, where this rally wants to peak in June. See the chart at the end of this post: Macro Thoughts and Observations. Is the Bear Market Dead? Is this the Start of a new Secular Bull Market?. The reason I was reconsidering that count is because the rally continued past with almost no correction and almost reached my target.

... But, the price target was not met (almost but not quite). And I think it will before this leg of the rally is done. And I still think my Fibonacci time target is still a good guess as to the end.

So with that, here are my thoughts.

This is my rally count that would support a new high being reached around June. The most important (and confusing) question is: what degree is the November correction? It just seems out of proportion as a Minor degree wave. I know that is how I was counting it before... but it never sat right with me. So right now I am showing my version of the count that has it as a Minute degree count and the recent correction is the Minor degree correction in the current rally.

I still maintain that the overall count is corrective, not impulsive. I know there is overwhelming majority in the EW community that wants to call the July-present wave an impulse, but I disagree with it quite strongly. I think the internals during the middle of the wave is abysmal (nothing like a 3) and the waves are clearly overlapping where 3rd wave extensions should be.


Here is how the above count fits in my larger count. I think the 78.6% retrace level (~1370) and the 1.618 time extension is the magnet for this rally.

Convincing

Start of a decent sized down move? Looks convincing to me. Want a little more convincing? Check out XLY

Wavey

Do we have a top for this wave? ..... Maybe.

But lets consider a few things:

1) Max pain for the SPY is 126-127 and OPEX is Friday. That would be a few points down from here
2) We have daily MACD divergence. A down move the next couple of days would confirm it.
3) Assuming it follows that, then we would have the first red weekly candle in 8 weeks.

A bunch of if's (as always).

But if this is a top, I would expect a ~10% pullback, based on the wave count I have been showing recently. I have identified a few support levels.

Weekly

Internal wave count suggests we are very near the top (within a few points) if we didn't see it at the close. However, we had an up day all day long with another positive weekly close at the high of the week. With the three-day weekend, I wouldn't be surprised for a bullish Tuesday (at least the open).

Here is what the weekly chart looks like from my perspective:

ATPG, part V

This is my fifth look at ATPG. Here are my previous posts:

- ATPG, part IV
- Natty: It's a Gas!, a Review of ATPG, and a look at SWN
- Analysis Update: ATPG and AMX (Feb 5)
- Analysis Update: ATPG and AMX

My last analysis was in the beginning of June while the stock was in a free fall. I saw that it was hitting some major support in the form of lateral resistance and a Fib retrace level.

I initiated a long position at the same time as the post (at about $8.50) and the subsequent bounce was very nice indeed. My projection was a move up to $13 dollar level and that is where I exited my position.

The move carried well beyond that and reached a high recently of about $18.50.

I am writing this post today because the move up to the $18.50 level coincides with a retrace of 62% of the Apr-June down move of last year and is also a touch of the downtrend line of all the major peaks since 2007. This should serve as some large resistance.

Maybe it breaks the downtrend line this time, maybe it doesn't. But the move up from the June low is very corrective looking and the last peak has occurred on highly negative divergence.

I have shorted and went long this stock several times successfully. I am not currently short, but will think about doing so if it breaks the trend line indicated on the second chart below.

Like I said in my last post, I am very bullish on this stock for the long term. But the recent up move is very corrective looking, and new bull markets in stocks don't start from corrections. However longer term, I would look for another move down to the $8.00 level, or (even better) the $6.00 level. If it does that again, it will complete an A-B-C correction off a previous impulse. That will be a buy it and forget it investment entry IMO.



Disclosure: No current position in ATPG, but entry thoughts are given above

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:

Breakout? Not yet

What am I talking about? Gold of course.

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.