Wednesday, July 15, 2009

Anatomy of a rally

Today's rally thrust a spike in the heart of the head and shoulders analysis that was so embraced about this time last week by the New World Order. In the spirit of, "if you can't beat them, join them," let's take a look at the most bullish frame of reference I can construct, albeit only for a trade while awaiting the re-emergence of an ongoing bear market.

In Advanced GET parlance, the above SPX chart has triggered a "Type 1 Buy Signal." To make a long story short, (no pun intended) all a Type 1 Buy Signal means is that a corrective wave has ended and a new impulse wave has begun. For our purposes, the corrective wave above is contained by the auto-regression channels and in today's rally the SPX broke above those channels on the chart. The significance for me is that now I have a target for where this rally should end, using orthodox Elliott logic as applied by Advanced GET.

The chart above is a close-up of the corrective wave along with three likely targets for the resolution of this rally. These levels are first, the blue horizontal line coming in just above 1000 on the SPX, then the two Wave 5 chart annotations at the 1050 and 1150 levels. Note how the False Bar Stochastic confirms this wave count and rally.

This spunky rally from the first week of March has been a bear (no pun again) to manage through strictly pattern recognition analysis. The mantra here (AllAllan) has been that we trade the trend, not the forecast and as you can see on this Daily chart of the SPX, the Daily Trend Model flipped LONG yesterday at 901.15 and caught all of today's rally. As of today, the reversal level to go Short is at 883.21, as indicated on the right axis of the chart.

My big picture view of the market remains unchanged. Below is a monthly chart that although not tradable, provides focus and perspective:

Here is a close up of the same chart with Fibonacci retracement levels:

Note how prices in this rally since March have only retraced 25% of the entire bear market decline and that how the next important Fibonacci resistance level is at 1011 on the SPX. Now look again at the Daily chart with the resistance levels and note how the first level (horizontal blue line) comes in right at 1010-1015.

Finally, a tip of the hat to Robert Prechter's group, who have been correctly assessing this market for the past 12 months, including the corrective wave up currently in play. They expect that when this rally plays out (could be any time) that will mark the end of Primary Wave 2 UP, to be followed frightening market panic in Wave 3 DOWN.

For those interested, they are offering a free week of their Commodity analysis service, which you can access by clicking the banner ad at the bottom of this page.



Anonymous said...

I subscribe to the elliot wave short term report and I understand them to expect Wave 2 up to continue for a bit (not sure how long, but soon, though I don't read it as any time from today's report) Of course, wave 3 down will be a panic.

Anonymous said...

Oh ho! Now we are in rally monkey mode!! What a bunch of monkeys we are!!! SPX 1000+...yikes. I feel really bad for that sheep that bought FAZ....

Anonymous said...

what is the wave 2 target ???

I am hosed by FAZ, QID, TWM ...
I lost 40% each in my positions ... ouch

Anonymous said...


Anonymous said...

Nice to see you finally getting
a little positive, its been painful
to watch over the last 4 months.

I dont care what Prechter thinks, he missed all of the bull market
of the 90's and he will miss this
one too.

I think were going higher for another 12 months, its gonna be
one long massive short squeeze.

Michael Lomker said...

STU was also talking about 820 in the last update, so color me not impressed.

I am signing up for eSignal data tomorrow, though. One big problem with Zenfire is that I can't even look at hourly (much less daily or weekly) BWT signals since it doesn't provide enough history.

Mike said...'ll really like that expanded access to historical data.

I have IB for data feed. One shortfall with them is that on Weeklys their historical feed only goes back about 6 months....which really doesn't generate much of a weekly chart.

Last time I checked....Barcharts offers low cost data feed that's compatible with Ninja...but don't know about it's ability to generate for good weekly spans in the past. Might be worth checking out.

If I remember correctly, Barcharts data is about $50/month whereas eSignal is about $150/month.

Allan's posting of those ^SPX daily and weeklys with BW has been a real eye opener. It's a wealth of information. Thanks Allan.

As far as intra-bar usage and what we just experienced:

It ain't over till the fat lady sings.


Michael Lomker said...

Mike, thanks for suggesting that I check out Barcharts. By the time you add CME it costs $71/month whereas eSignal has a NinjaTrader special for $115. I think I'll go with eSignal because it is clearly the most widely supported data vendor and I may want to use my account with other platforms as time goes on.

Mike said...


as far as dailys/weeklys go...might want to add the monitoring of USO...not that USO would be your vehicle of choice for actual trading...but to establish major redirection with crude.


Anonymous said...

Nice Blog...Do you post updates via twitter? Great work

abot said...

I am getting a new computer with 6 ram ( running on 64 bit str). Anyone has experience with esignal and BW running on windows 64 bit?

abot said...

Or any recomendations for improving the charts on Interactive brokers?