Tuesday, February 10, 2009

On a ledge

The markets closed Tuesday on a ledge over an abyss of significant new lows. Let's take a look at the charts we have been following for the past ten days.

First the 60 minute chart of the SPX. On the right is our trusty wedge containing prices since the beginning of 2009. Today prices fell right to the bottom trend line of the wedge, while the FBS oscillator fell all the way to oversold from overbought. Normally, this stochastic indicator would be signaling some kind of bounce from current levels. But it is perilously close to declaring this a "False" stochastic signal by recognizing a down trend, thus negating any strength.

On the left chart are my trend-bias signals that alert me to short-term changes in trend. We haven't talked about these indicators yet, but I expect to post more about them in the near future. Note how well those trend signals followed the market both up and down. Powerful stuff.

Next, our Weekly chart of the SPX:

Again, prices are resting right on the bottom ledge of support. Will they fall off the ledge, or bounce back to the top support line from last October? The EW software says no bounce, or if there is one, it will be of little consequence and new lows below 750 are on their way.

Let's zoom in on prices and look at the 15 minute chart:

Thw horizontal black line on the right chart is our, "ledge," it is the bottom support line of the wedge from the Weekly and 60 minute charts. You can see a violation of the support line over the last six 15-minute bars. Conclusive?

Here's another close up of the same chart:

What we see here is a clear violation of that ledge, a FBS signaling a down-trend and although not shown, the software is projecting a Wave 5 SPX low under 750.

The weight of the evidence is that Wave 4 has ended and Wave 5 has begun it's descent to new 52 week lows and beyond. The forecast is that at a minimum, 750 basis the SPX will be breached and that lower targets under 700 are possible.



Anonymous said...

I hope your computer crashes and you go broke you hater of America who wants to see the USA become a third world country.

Mike said...

Nice analysis Allan....thanks for posting.

Like that 3x ultra short.


Allan said...

Anon: Thank you for visiting my blog and for your constructive comment. I'm running a Mac, so it's unlikely that my computer will crash. As for my country, where did that come from? The markets are going where they are going without regard to what I think. Anyway, don't be a stranger.

Mike: Thanks, it appears that the analysis has been spot on, a combination of luck and skill, maybe equal parts thereof.

mlomker said...

Allan, it's always cool to come to your blog and see a different brand of EW software. Your daytrade indicators are interesting.

As far as predictions go, I haven't found it difficult to use EW to predict Intermediate sized trends. I've found using EW to daytrade to be fairly challenging--I debate whether it is worth doing. The 15 & 60 minute charts are a lot easier to deal with.

Anonymous said...


Looking at your weekly chart, I agree with your count. We have done a 1-2-3 and we are in 4 or resuming in a 5th wave down.

Wave 5 will push SPX below the Nov low of 741. My S&P target is somewhere in the 650 to 700 range.

What happens from there?

Even if this is the Grand Super Cycle down, 1 will be complete and a massive 2 wave correction or rally should follow, right?


Charlie said...

Allan, Thanks for your in-depth sharing of understandable information as you see it. If you are correct, I know what to do. If you are wrong, you will keep assessing what you see and I can still be prepared to go from there.

Many thanks.

Allan said...

Alex: One heck of a Spring-Summer rally = Primary Cycle Wave 2

Charlie: That is a perfect a Comment as I can hope for, as that is exactly what I am doing this for every night.

Anonymous said...

allan, what's the timeframe for s&p 750 or under 700? thanks


Anonymous said...


What about Primary Cycle 3 down. It should be much worse than this Oct 07 to present decline, right?

I think this is a 1 primary wave down, thus I'd be surprised if the S&P falls to something like 400. Likely, that will occur when primary 3 begins after 2009 has ended.


Allan said...

Aymon: Time frames are not my forte, it's enough to get the big picture pattern right.

Alex: I agree, that after our Primary Wave 1 completes, somewhere under 750, then a Primary Wave 2 rally will take over, retracing about 1/2 of the entire decline from October 2007. Once that rally is complete, the worst bear market of our lifetimes will take hold and not let go until there is no one left to sell to and that is going to be an economic and cultural nightmare. It is from those ashes that a brighter future for all will arise.

mlomker said...

"that is going to be an economic and cultural nightmare"

It'll be a nice ride for traders, though.