Wednesday, January 28, 2009

What, me worry?

While the perma-bulls are soiling their pants in excitement over this rally, I remain unimpressed.

Here is my updated Weekly SPX chart:


Annotated on this chart is the 943.85 price high of January 5, 2009. The move down from 943.85 to 804.30 on January 19th counts as Wave 1 DOWN of a larger Wave 5 DOWN from the highs of October, 2007 (see blue circle 5 upper left of chart). This is not the only wave count, nor is it necessarily the right one, it's just the one that makes the most sense to me.

The last bar on this chart is for the current week and it is retracing a percentage of the entire January decline. Under orthodox Elliott Rules, this Wave 2-Up can retrace up to 100% (and no more) of Wave 1. That is the significance of the 943.85 level. If it gets taken out to the upside, this Wave Count is wrong.

Levels discussed by other readers representing 38-50-61% levels of Wave 1 are all premises of the extent of this Wave 2-Up and are worth keeping sight of in the next few days. The high print today was 877.86, a near-perfect 50% retracement of Wave 1 DOWN.

We know that upon completion of Wave 2-Up, that the next move is a Wave 3 DOWN and it promises to be hard and sharply DOWN, as all Wave 3 DOWNS are usually the worst, most fearful of all waves under the Elliott Wave Principle. That it may be occurring on a Weekly Count will serve to make it all the more severe.

The bullishness of the media, especially Cramer today on CNBC, is all typical psychology for Wave 2. As Prechter describes the psychology of Wave 2's, "At this point, investors are thoroughly convinced that the [bull] market is back to stay." (Page 80, The Elliott Wave Principle, Frost & Prechter, 1978)

So there you have it, possible 70 more points to the upside for the SPX, against the expectation for a violent decline that could start at any time targeting a loss of 200 or more quick and dirty points on the downside.


A

30 comments:

Michael Lomker said...

Your epilogue is exactly why I'm averaging in to the short side rather than long--the probable losses are greater than the probable gains at this juncture.

When this Intermediate wave ends then you can rest assured that I'll ride the A-wave up. Yee-haw!

Anonymous said...

B**t**d. I hope you are wrong.

Michael Lomker said...

lol. If you have long-term long positions then just don't sell at the bottom.

The rally off of the bottom (cycle theory suggests late March) should bring us above current levels. EW just doesn't support seeing 1000 before we see 640, that's all.

Anonymous said...

With the perma-bulls soiling their pants in excrement over this rally, I'm really quite impressed - at their ability to remain up beat despite things collapsing around them.

I feel like I'm watching the movie "Jaws", in which the mayor says after the first attack "It was just a boating accident.". Even after the second attack he's saying "We can still save August.".

Anonymous said...

Alan, I like your count. It makes a lot of sense and is worth trading from the short side if/ when the market gets to the strong resistance area of 889 to 900.

What is the alternative count?

I'm guessing the first alternative is SPX is still in wave 4. That is 3 ended in December at 741. (a) of 4 took the market to 943 in January, (b) dropped SPX to last week's low of 804, and this is a (c) wave up. Being a zig-zag, if 943 is taken out and our primary count is proven wrong, that would become the new count.

Another alternative is, if SPX takes out 943 it would be a head and shoulders bottom, with a much higher target.

Either way, to keep SPX within a very bearish count, SPX has to stay below 943 or the 100% retracement of (1) of 5.

What do you think?

Alex

Allan said...

Alex, If one looks at the enormity of what we are trying to accomplish, i.e. forecast global financial markets, the fact that we even occasionally get it right is mind-boggling. I enjoy your input and alternative scenarios, keep sharing, every new idea makes us all just a little better off. A

Anonymous said...

Thank you. I feel the same about your comments and believe your wave counts are very good.

I always have an alternative count, because it gives you a good sense where the stop loss orders should be. In this case, the stops should be above 943 and where that head and shoulders neckline is.

SPX should have support about 855 to 852 today. I'd be surprised if this market just fell all day.

I'd like to see the market hold there, and rally into the 889 ~ 900 area next week. I'd look to sell it somewhere in there.

Alex

Anonymous said...

Geesh. Like the future can be determined by some mathematical formula translated into EWs. Don't forget rule #1. News trumps all.

Anonymous said...

Fundamental trends drive the market up and down. No doubt, I think EW believes those fundamental cycles move in a 5 wave/ 3 wave pattern.

Given the market price reflects fundamental trends -- that is looking at a price chart is like holding a mirror up to the fundamentals, you should be able to look at the price and get a sense where you are in the fundamental cycle.

SPX has support here. I'm a buyer here at 853 for a day trade. I believe SPX will close higher than 853 today.

Anonymous said...

One more thing, there are so many fundamental varibles, you never know which one is going to be driving the price.

As a technician, I don't care which one is driving the price, all I need to know if it is going up or down, and how strong it is.

Buy SPX for the day trade now.

Alex

Allan said...

Alex, So far today's decline is coming in right as expected, except for one huge problem: If it is a Wave 3 Down as forecast, it should much more impulsive then it is showing. Still three hours to go, so I am still short expecting a lot more fireworks to the downside.

A

Anonymous said...

Right now I'm on the ropes and my day trade is underwater.

Beyond today, I suspect we are still in (2) of 5 and the market will reach the 889 to 900 area the next few days. I believe (3) of 5 will begin then. That's where I'll be selling.

In sum, if the market cracks in half today, I'll be surprised and very wrong.

Generally, trying to pick these wiggles like I'm doing isn't smart. Alan, you are wise to trade only with the overall trend, which is down, but I couldn't resist it.

Alex

Anonymous said...

So much for 852 to 855 being the low. I was wrong about that.

Actually, the day surprised me. Yesterday when the market closed at 873, I expected SPX to test 882, and close up on the day. I'm surprised the market fell and was down this much.

Overall, I still assuming we are in (2) of 5, and I'm looking to sell the market in the 889 to 900 area.

Alex

Michael Lomker said...

Alex,

The market caught support precisely at the TTT level. If you haven't checked this out, then I think you'll find it worth your time.
http://www.taylortradingtechnique.net/

It looks like a 5-wave move down from 874 (look on the 3 min chart). I'll admit that the waves are little messy but they are quite distinguishable.

We should have an wave-2 up for this smaller wave-1 tomorrow but it shouldn't go above 874. I think the high is in at 876.

Anonymous said...

That's interesting. Thanks for that information.

The trend is down. This advance is (was) a correction. No disagreement there.

When I look at the hourly SPH chart (I don't have an hourly SPX chart), it looks like a base (double bottom) launched this correction or (2) of 5 and its target is 886.7 to 890.2.

Cash is trading a bit higher than futures, correct? So that confirms my SPX target of 889 to 900.

Myself, I'd hate to short it here and have it back in my face at 889. I'm waiting a day or two.

If the market rolls over from here, and I'm dead wrong, I'll have to chase it with the rest of the crowd.

Alex

Michael Lomker said...

Yeah, cash tends to be 6 points above ES. For leverage reasons I don't call tops/bottoms on my futures positions--I trade the breakout of daily swing highs/lows.

My SH position doesn't require that kind of precision since my account isn't going to margin out if I'm off by 20 points.

I'm currently 40% short but I'll be watching tomorrow closely.

Anonymous said...

Allan, hope your EW comes up against parameters not accounted for next week eats it big time!!!!

Anonymous said...

Allan,
Thanks for a great week. Sold the rally per your updates and cashed out at the afternoon lows today. I rang the donation box for you and thanks again for all your hard work. Joe/NYC

Anonymous said...

I second that. Very good timing Alan.

I didn't think 873 was going to be the high. Michael, you were right about that. Good call.

We'll take this up next week.

Alex

Tapan said...

Hi Allan,
I wrote a blog on cool links for Jan and included your blog

Check inquisitiveaboutfinance.blogspot.com

Thanks

Michael Lomker said...

Alex,

We should see at least 840 on Monday (38.2%). The next wave is the one that you can't afford to miss.

Anonymous said...

First time poster here, been following Allan for a couple of months. To say this guy is good is a gross understatement. Been in the business a long time and I have never seen anyone call market movement ahead of time the way Allan is calling it here. I see he also seems to be pounding the table on a small biotech stock, NNVC. I don't know what else he knows, or even if he knows more then he is letting on, but I do know that NNVC is the one stock I own, along with gold shares, both only because of Allan.

As for you Allan, I hit your Donate button today. It's no joke, it's all yours and its only a fraction of what you have saved me by staying out of the market.

God bless you my friend.

Anonymous said...

Alan, with NNVC, how do you see the risk reward? It has been a while since a company update and looks like the stock is selling off in the past week. Having no signed deals with big pharma in their 3 year history, what gives you peace of mind that this can be a huge winner. I own lots of shares, for over 2 years and am becoming more concerned that there is some reason why there is no major players becoming involved with NNVC. Plus, I don't know how many others are doing simlar work as NNVC, perhaps in house.
thanks for any input.

Allan said...

Risk reward will vary for the individual, my risk is zero on most of my shares, since I bought mostly under 25 cents three years ago and sold a bunch above $3 about a year later. More intriguing is the reward side, 10,000% plus the satisfaction of being a part owner of the company that wiped out virus-caused diseases for mankind. Most famous pharmaceutical companies didn't start out that way, they started out as unknown small caps, developmental and full of risk until one day, everything changed. That day is still ahead for NNVC, and closer with each passing day. Patience and trust will yield rewards beyond our collective imagination.

Anonymous said...

As much as I hate to disagree with Allan I agree with the former anonymous poster on NNVC.

A) The big pharmas MUST be working on similar projects with unlimited resources compared to NNVC.

B) NNVC has not cut any sort of deal with a big pharma, even a small one to add credibility to NNVC.

C) NNVC has nothing in the marketplace.

D) NNVC's technicals are about as bad as they can get. Check out any chart you want.

E) NNVC's fundamentals are in the toilet and have been for a long time. Check out any ratio you want.

F) They are losing about $3.0MM/year and have about 800K in the bank at the last report I have (6/08).

G) The stock has been on a long slow dive.

So, barring some kind of very short term miracle, I do not see how this company can remain in business much longer.

I think NNVC's potential product pipeline and management are excellent but I have seen nothing substantial on this blog or elsewhere to contradict any of the above.

Frankly, it looks like an excellent short sell but 70- cents/share is too close to zero to make any money.

Again, if anyone has anything tangible and measurable, please let me know. I'd love to go "all-in" on "AllAllan's" lottery ticket but it looks horrible from where I stand.

Conrad

Allan said...

Conrad, You conveniently omitted all of the collaborations between the company and the CDC, the US Defense Department, foreign governments and universities, all doing their own testing of NNVC materials and processes for internal confirmation of findings so far. There is so much more to this company then you are letting on, I can only surmise that you have not visited their web site, or did so with such a negative bias that you missed the big enchilada. There is always a time before the "tipping point" where skepticism reigns, that time is about to come to an end. Come back then and explain how you missed it, it may be something we all can learn something from.

A

Anonymous said...

As much as I'd like to fully trust in Alan's take on NNVC, conrad does have points that are not really being addressed. I've visited the website and have spoken to Dr. Seymour, a nice guy but in all the years he has been in on cutting edge medical technologies, he has yet to have a market success, going on 20 years that I know of. I have many shares but not at a 0 cost basis, nor will anyone else who buys now. The company is broke and have so many OS shares. In this market, with out some kind of confirmation from those testing and willing to invest I really don't see how the stock can hold on to its current price let alone make 10K %?
I ask not to critize but to have something to hang on to other than pie in the sky hopes. TIA

Anonymous said...

Actually, I retract my comments above. I re-read Conrad's post and saw too many flaws in his argument as he left out too many details we all know to be true, not least of which are the numerous drugs being currently tested by major scientific organizations, at their expense - CDC, NIH, WRMAC, Armed Forces Research, etc. I think Allan is correct and NNVC will reward those with patience.

Anonymous said...

The last post by anonymous is not the writer of the two posts that are pre and post Conrad. Now, one has to wonder, why would someone pretend to be another? So, the last question to Alan is still looking for Allan's response. Steve

Anonymous said...

the key to timing a spec buy in NNVC is the technicals. Someone has been out there defending 70 cents like crazy. If that is breached, there may be a bit of a fall, and I will hold off buying until it stabilizes. If it breaks out on the upside instead, I will buy higher... but happy knowing that I managed the downside risk.

I don't know enough about the technology to make an educated guess on this one. all I know is that the financials are horrid, but I trust Allan's judgment for the most part so I will wait for the price action to confirm or deny the story.