Saturday, February 07, 2009

On being prepared

Before I address what lays ahead for the market, it has come to my attention that some of you just don't get it:
Anonymous said... Hah! You're EW theory just got fu*ked. See??? News trumps all!!!
First, profanity is out of place on my blog and I will not tolerate it. If I have to go back to moderating comments, so be it. Second, one rally is inconsequential to the Elliott Wave Principle and even less meaningful to my analysis. Let's review.

Here in relevant part is my analysis from last week:

Monday, February 2nd:

Once the counter-trend rally is complete, we should see another sharp decline to well below 825.

Tuesday February 3rd:

As Dylan so eloquently put's it, "It's not dark yet, but it's getting there."

Wednesday February 4th:

Watch the 812 level on the SPX, it represents the previous low, if it gets taken out with conviction, the floodgates should open to the downside.

Thursday February 5th:

The significance here is that a break of the wedge to the downside should lead to another fast 100+ point decline. It can happen at any time, tomorrow, next Monday, a week from next Monday. Until it happens, prices can play all they want inside the wedge.
The common thread, which is unchanged, is that the market continues to flirt with major support and it is when that support fails that a vicious third wave decline will take hold.

Here is the wedge I posted on Thursday night, ahead of Friday's rally:


My observation was that it will take a break down out of that wedge to trigger a significant decline. Now let's look at the same chart, adding in Friday's rally:




See the difference? Hardly. Friday's rally is a mere blip, an elongation of last week's candle that isn't even threatening the top resistance line of the wedge. My analysis is unchanged, when and if the wedge is broken to the downside, expect a massive decline, a mini-crash, or worse.

Here is a closer view of the wedge, basis the 120 minute chart:


Take a look at the False Bar Stochastic indicator at the bottom of the chart. It has again reached the Overbought top area of the scale. The previous time it did this the market suffered a significant decline the following day. It is again poised to signal a move lower.

In summary and as I wrote on Thursday night, prices can play around inside the wedge long enough to shed bull and bear alike, before making a definitive move out. My analysis is steadfast that this definitive move will be to the downside. Only an impulsive move above the top of the wedge, well above the 900 level on the SPX, will call this analysis into question.

Finally, I don't mean to merely chastise a flippant comment made in response to one of my posts. Instead, I want to point out how important it is to keep the bigger picture in mind. We are waiting for prices to signal that a significant move lower is imminent. As markets do, this one is teasing it's participants with fake-outs to the downside, followed by fake-outs to the upside. There is a real move coming and to be aware of the big picture, alert to the wedge forming on the weekly chart, is to be prepared for whatever comes our way.

A

21 comments:

Anonymous said...

I might be inclined to take you more seriously if you had 50 billion in cash like some other fellow who thinks its a good time to go long NOW.

Anonymous said...

Allan, if a big down day/week/month is coming, where do you think it would be safe to stay long? Can financials such as C and BAC eat it further than their recent lows, particularly given that the FED is committed to making sure they survive? I can see how GS and JPM might have a lot of downside, since they haven't been punished as much as C and BAC. And what about pinkies? small caps? Will they also be punished along with the broader market?

scott said...

Allan,
I think your site is great. I have been trading for more than five years and have tried many financial websites and trading software, and after thousands of hours of research and training, You by far have it right. Your chart posting is spot on. We are in a wedge with false up and down moves, and when we break from the triangle a lot of people are going to get taken out of the market. It's simple, a break above 900 means an uptrend is in place, break of lower triangle then we go to 600. Thanks for your hard work, keep postin!

Anonymous said...

Allan:

1)If you are not long by now, you are a goner.

Say gooodbye to your investment cash
and go to nursing school. They are hiring out of there rapidly.

2) Dump NNVC at 70 or better. By the end of the second quarter it will be at 7 cents.

3- GFRE and ACTC may be much better picks.

Conrad.

Anonymous said...

Not much love from the other Mr. Anonymous.

Might I say that the pros will be fading most rallies in a bear market...not buying them. Want to get savaged...buy this market before it proves itself. That includes Mr. Big Talk, Warren Buffett. Warren uses other people's money. Life, and tough calls, are a lot easier when your own cojones are not on the line.

in the mountains said...

Hi Allan,

I'm with you on this one. There's no other way I can see to read this chart that to expect one more significant move down, which will very likely take out the November lows.

The tough part of this call is the timing. 5th waves begin after 4th waves. And there's the rub, trying to figure out whether the 4th wave has ended. 4th waves are usually the most difficult to figure out because they often play out in complex corrective patterns whose EW counts are ambiguous until it's obvious that the 5th wave is well underway.

That being said, I would give at least even odds that the 5th wave down began on Jan 6 and we are very close to completing wave 2 of 5. I think it's likely we will begin wave 3 of 5 tomorrow or on Tuesday.

Good luck!

Anonymous said...

That last comment was great. Right on the money.

Myself, I see resistance at 886 c = a of (2) of 5. Then 889/ 896, which is the 61.8%/ 66.6% retracement of (1) of 5.

Looking at that wedge or triangle that could be taking shape on the 120 minute chart, resistance is just below 900.

Thus, STRONG resistance starts at 886 to just below 900. I'll look to sell SPX there.

If SPX gets much above 900, people will see a head and shoulders bottom and it would be dangerous to stay short if SPX starts to get into the 920 area.

It is best to play this market from the short side in the 886 to <900 area, anticipating the downtrend is about to resume.

What really may sink this market in the long run is what we learned in Econ 101 -- the crowding out effect. It may be starting to occur now.
Alex

Lasertrader said...

Allan:

I read your recent posts and all the comments with a big grin. Those of us that have been at this for some time know to trust our charts and ignore all the noise.

The most encouraging thing about the comments is that when the ankle biters start coming out in force like this you know the move is coming sooner than later.

All the best to you and your family.

Bruce

mlomker said...

"I think it's likely we will begin wave 3 of 5 tomorrow or on Tuesday."

As much as I wish it'd just get over with, I wouldn't be surprised to see one more day of upside. Anyone late to the party will have looked at the market over the weekend and may decide to buy. Geithner also pushed his unveiling out until Tuesday.

Anonymous said...

Allan, on what website can I find the False Bar Stochastic indicator, thanks ...

Anar said...

Do others here stay away from Inverse ETFs? They have been very, very bad at working the way they theoretically should....

UYG (ProShare 2X Financials BULL) 2008 Return = -83%

SKF (ProShares 2X Financials BEAR)
2008 Return = +5%

FAS (3X Financial Bull)
2008 Return = -54%

FAZ (3X Financial Bear)
2008 Return = -40%

WTF (I know SKF was halted, but still...)?

soo those who believe another leg down is coming, any favorite alternatives?

Anonymous said...

Allan, any thoughts on todays PR from NNVC.....it looks like they are getting ready to receive some good news like FUNDING!! jmo

Allan said...

Re: NNVC

This is blockbuster news that as of now is being incredulously overlooked by the market. They have confirmed a pending deal with an unnamed major pharmaceutical company. We will look back at today as the first step toward recognition of their remarkable therapeutical discovery and it's application across a broad spectrum of viral diseases. I cannot be more excited for the company and its shareholders.

Anonymous said...

Just checking your blog after posting on Apple forum. Trouble with EWT is that if you put two elliotticians in a room (heck you and me), there would be at least three interpretations. According to my T/A, an upside break of your wedge is more probable, and if so your EW count is flat out wrong.

P.S. Change your bio. from "than" to "then".

Cheers!

-cramar

Anonymous said...

I just have to say, beware of those who sell a stock picking service and then proceed to twitter the pick that worked the next day, ignoring of course all of the vast majority that failed. They use youtube to post videos of 'how I called the bottom' in November when in fact there were many more videos, unpublished that said the opposite. I know, I lost my ass with 20 buys or shorts that failed in the last two months, especially the shorts like SKF and FAZ , the dangers of which he had no clue about....

Wayne said...

well I'm back into QID near today's low, after the SP500 turned back just a couple of points shy of the 100% Fibonacci retracement. If the rally holds tomorrow I'll be looking to add QID around SP of 890. If SP goes beyond 920 or so then I'll just take my QID loss and wait for the market to assert itself one way or the other.

Wayne

Anonymous said...

Allan - take a look at IYF and tell me that's a chart that doesn't want to go up. Forget your preconceived notions and biases that come from ill-informed financial writers. Forget EW and Prechter that has been calling for a cataclysmic crash for the past 20years. What is the MARKET telling us?

Allan said...

You know what the market is telling me? That cash has outperformed stocks for the past 13 years. That means Prechter has outperformed the perma-bulls for the past 13 years. Get over it, I've seen many a fine market analyst melt down attacking Prechter, resorting to lies and vicious bigotry as though that somehow makes them right and Prechter wrong. Facts are facts, face and deal with them or you will never be successful in navigating the markets.

Anonymous said...

So why'd you delete the post about you pumping a pinky that released news that is without substance?

Allan said...

I have no idea what you are referring to and I have never deleted a post, ever.

mlomker said...

@anar, it is the double and triple beta ETFs that don't perform uniformly in both directions. If you want to go inverse with ETFs then stick with 1x versions like QID. I personally alternate between SH and SPY.

If you want more than 1x leverage then you should step up to options or futures. Futures have 8-9x leverage so you need to be careful with them.