Tuesday, December 16, 2008

Bull Trap

One of the most profitable stock market patterns is the Bull Trap, defined as an upward thrust in prices that suddenly reverses, trapping unwary investors in long positions while the market tumbles to new lows. It is in the throes of the thrust when it so very hard to short, making those that are so inclined so well rewarded for their efforts.

Multi-year bear markets do not end because the Fed lowers it's target interest rates. The bond market had already priced government securities within the new targeted range well before the Fed acted. Today's rally, so enticing, so Crameresque --did you catch him jumping up and down on CNBC worshiping at the alter of Ben the Bernanke, exhorting all to Buy, Buy, Buy--what are the chances this guy is getting it right this time?

Lots of questions in my email bag today, asking me about this action and right you are to ask. It sure seems inviting, a turn-around economy and cheap stocks just off their lows. Except they are going to be a whole lot cheaper before any of this is over.


I kept the Elliott Wave labels off this chart in order to keep this as simple as possible. Instead, one downward sloping trend channel that contains all of the price movement from the past three months. Circled is the confluence of the top trend line and probable target for this rally, only a few hundred DJIA points higher. Also circled is the MACD which is spoiling for a cross-over that will take it a long way lower along with the market soon after that top channel line is addressed. There is nothing very bullish about this chart and it is showing everything we need to know about where we are, where we've been and most importantly, where we are going.

Is it any surprise that as prices approach the top of the channel that market sentiment is turning gigly again? We are still 3,000 DJIA points lower then we were just this past summer, yet according to Cramer happy days are here again.

The severity of the damage already done to our economy is poorly represented in media hyperbole surrounding a 300+ up day. Nothing is fixed, nothing has changed. Cycles have to play themselves out and this rally is playing a crucial role in creating enough optimism, enough bullish sentiment with attendant buying power to fulfill the underlying structure of the Bull Trap from Hell.

The only question is whether or not the trap door opens before or after Christmas? How utterly poetic to time the descent to coincide with the end of this Administration, timing rock bottom for the eve of Obama's new era.

What a game.

A

19 comments:

Anonymous said...

Alan, Interesting post #18004 today from Doctor Seymour himself at the thread Nanoviricides at
investorshub.advn.com/boards. Also Haven't heard you speak about Robert T's Gravitas of late but his weekly forecasts have continued to be rock solid as of late with a Bi-monthly bias direction change arriving just in time for the holidays. Happy Hanauka to you Sir.

Anonymous said...

Who is Robert T?

Allan said...

Re: NNVC

There is definitely something up with this company. What was once just idle speculation about big pharma, apparently has a lot of meat to it, based on what was posted today on iHub. Whatever it is, it almost has to be good news for all of us shareholders. Continue to hold tight.

Re: Robert Taylor

He is the author of Paradigm and discovered that markets movements are related to gravitational forces on earth as measured by tides. I was on a 5 year gratis subscription to his work, but it only lasted about half that time and suddenly stopped coming. So, there has been nothing to say about it.

Anonymous said...

Alan, Mr. Taylor had mentioned that time and substance was restricting his ability to now continuely e-mail the forcasts on a regular basis to each and every subscriber. However he posts and updates them on the xyber-9 web site for viewing. I have the 5yr and had been removed from the loop of e-mails and locked out from site entry do to a incorrect non renewal issue. A short chat with Robert and all is well. Check it out.

Wayne said...

Somehow I've missed the investorhub site, thanks for the pointer! About 99% of the back-posts I read there were noise, but it's good to keep an eye out for a useful nugget now and then.

thanks,
Wayne

Wayne said...

Also it will be interesting to see where the market goes now that the Fed has reached 0% interest rate. The Elliot article on your side bar says it better than I can:

http://www.elliottwave.com/a.asp?url=features/default.aspx?cat=mw&dy=mwhl&cn=8aa

Anonymous said...

I drop buy infrequently and i must say--Allan i have never seen you so "all beared up"--must mean something for sure--wish i knew exactly what it wuz! roflol

best wishes--widetrak

Wayne said...

hmmm, of course there may be lesser actions the Fed can take now that the interest rate card has played out:

AP Television

New York - 16 December 2008

5. SOUNDBITE: (English) Sam Stovall, chief investment strategist at Standard and Poor's:

"Let's say that they have a quiver of arrows. They've shot their last red arrow, but they still have blue, yellow, green, a whole bunch of other varieties that they can use, in particular quantitative easing, which is the purchasing of treasury bills, treasury bonds, equities, commercial paper, basically to do whatever they can to directly add liquidity to the overall marketplace. So I think the Fed still does have a lot that they can use, just not lowering of the Fed funds rate."

Ok I'm done replying to self now :)

Wayne

Anonymous said...

Allan, I'm sure you've seen ANSV. I got in at .51 yesterday, been 1.49 today; Any idea on a possible price target...this stock was $84 in 2004 and $6 this time last year. HAS HAD UNBELIEVABLE VOLUME...looks to be for real!

Allan said...

Re: ANSV This stock has risen from 0.07 to 1.49 in two days basis successful phase 3 results of thei rnew pain medication. This is a model for my expectations for NNVC, except that NNVC has eight products versus 1 product for ANSV. Do the math.

Anonymous said...

NNVC is a long way from a successful phase 3 though, correct?

Allan said...

The better question is how far NNVC is from a partnering agreement with big pharma? According to the iHub posts yesterday, the CEO has something along those lines sitting on his desk right now. That's how close this stock is to exploding up.......hopefully before you can say, "Merry Christmas and Happy New Year."

Anonymous said...

Allan:

There has been plenty of talk about the SIPCs involvement with the Madoff scam. What's your feel for the spike/stimulus this may provide with the SPICs responsibility to the investors who thought they had stock in XYZ co, but didn't? SPIC has $1.5B cash and $2B in credit lines to return up to $500,000 per investor - which there are many - and could possibly tap congress for more $$$.

I am not sure how responsive they are to returning these losses and how they will calculate all this mess, but I have a feeling that since so many people were involved and so much money was actually missing from the market, this would cause a significant spike once the re-funding and re-purchasing begins. It may be a bull for X days given this scenario or it could post the DJ higher, but who knows by how much right now.

Your take if any?

-PSU Eric

Anonymous said...

Allan,

ACTC reminds me of the early days of NNVC. has very interesting technology with patents in Stem Cell growth. Stem cell stocks are expected to do well in 2009 with the new presidency.
any thoughts?

Wayne said...

Wow! I've never heard of one of the big 3 closing ALL plants, esp. at the very time they usually put new models in showrooms. Bad news for Chrysler, bailout or no bailout:

Wayne

SAN FRANCISCO (MarketWatch) -- Chrysler said Wednesday that it will idle all of its manufacturing operations starting this Friday through at least January 19 in an effort to keep inventories more aligned with plunging U.S. demand for new cars and trucks. Due to customers' inability to obtain financing, Chrysler dealers said that their sales volumes have fallen as much as 25% from a year ago.

Anonymous said...

Wayne:

Sounds like a ploy for Chrysler to expedite the bailout plan in their favor.

-PSU Eric

Anonymous said...

stock is to exploding up.......hopefully before you can say, "Merry Christmas and Happy New Year."
Allan, hope so too but the figures in my mind r really mixed
i made above calcultions in relative to actc but i appreciate if u can give a rough figures on the initial explode
nnvc addict

Anonymous said...

Three popular buffoons are wasting our time and considerable talents, Alan: Prechter, Cramer, and Obama. This is the time of the year for A Christmas Carol. So we have Buffoon Past (Prechter), Buffoon Present (Cramer), and Buffoon Future (Obama).

It's just a credit bash and a recession and a bear market. They happen all the time in history. We need to get used to it before it finishes us. You and I know as much or more about what's really happening than the Celebrity Buffoons ever will. Resist marketing!!!

Cheers and all best! Every day is great if we are alive and healthy.

Dave said...

Allan:
Are you familiar with Dr. Stephen Leed? If so, any thoughts about his current evaluations of the market? Is he even credible? I'm sure like yourself, I get so many solicitations from "experts" that I have developed an overly skeptical eye. Of course, after discovering you 6 or 7 months ago, I'm still here.