Where we are

SPX Hourly with Trend Model and EW count

From the late August low (five waves down) the SPX has risen in five waves up.  Wave five up could extend, but as long as you can count five waves up, it could reverse down at any time in either an ABC correction or the beginning of a new five waves down.  If SPX closes lower on the day, its likely that the rally from August is over.

I have no idea why the first chart doesn't expand with a click.

 

DJIA - Long Term Chart

Here is a perspective on the current rally in the context of a longer-term chart of DJIA.  Not shown is a major BUY signal in 1981, briefly reversed by the 1987 market crash, but back LONG in 1989 for a 12-year rally.  The EW analysis suggests that the next major move is a pretty significant decline once the current strength runs out.


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Another View - Glenn Neely

NEOWAVE’S GLENN NEELY RELEASES POSITIVE FORECAST FOR REMAINDER OF 2010: S&P TO RALLY NEXT 2-3 MONTHS

Positive Forecast Built on Foundation of
Precise August/September Predictions in NEoWave Services

September 28, 2010 – NEoWave Institute’s Glenn Neely, internationally regarded as an

Elliott Wave innovator and creator of NEoWave technology, believes the S&P’s near future is surprisingly positive with a probable gain of 75-100 points.

“The S&P will continue to move up or sideways for the next two-to-three months. The market has transitioned into a General Predictability phase, based on NEoWave principles, so I’m now able to map behavior for the rest of this year,” Neely says. This bullish market behavior may take many by surprise, he explains, given the market typically declines in October. “By late 2010/early 2011, the S&P will closely approach – or exceed – the April 2010 high. As a result of increasing valuation, I expect economic conditions to improve for the rest of this year,” Neely says.

Neely built this short-term bullish forecast on his recent, on-target S&P predictions in August and September 2010. As shown on the recently released NEoWave chart, he forecasted a sell-off, quickly followed by a steep uptrend. The dashed-red line on the chart below presents Neely’s recent forecasts (the solid-blue line shows actual market action).

Link to Glenn Neely

Before the Deluge - Part II

DJIA 1000

Just about everyone knows that Robert Prechter is using Elliott Wave patterns to forecast a decline in the DJIA to below 1000.  The most immediate question that arises is what underlying societal fundamentals could possibly coincide with that kind of catastrophic stock market crash?  

There are some theories.  A subscriber to my private email list sent me a link to "Crash Course," a compelling study of three fundamental developments, any one of which could drive our world into a devastating tailspin.  Two of the three could send the world into a deep, deep depression.  If all three were to come into fruition,  DJIA 1000 would be a gift.

To grossly oversimplify the three contingencies:

Peak Debt
Peak Oil
Peak Minerals

The full seminar of Crash Course  is over 3 hours long.   This is the version I recommend. Here is the link:  Crash Course

There is a 45-minute version, here is it's link:  45-minute Crash Course

Because I am providing a recommendation and these links doesn't necessarily mean I accept or endorse all of the arguments presented.  But remember, the question at issue is what could possibly underlie  Prechter's forecast?  The thesis in Crash Course is one explanation.

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Before the deluge

A great Jackson Browne song, before the deluge is what the following S&P weekly chart is suggesting may be the resolution of the past five months of pathetic sideways price movement:

Note the sideways pattern in mid-2007 lasting from August to December. The resolution was a 50% haircut in the SPX.   Fast forward to 2010 and we see a similar sideways pattern lasting an almost identical 5 months.  Notice how the SPX Trend Model remained SHORT in both instances, early in both and in retrospect, quite handy in the wake of prices eventually breaking down in late 2007.


The window is open for a repeat performance.


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Gold Stocks

For the past 12 months the mantra around here has been trend following.  In mid-June I introduced a basket of gold stocks in the subscription service because it as evident that gold was in an extended UP trend and we needed exposure to the sector beyond GLD and SLV.  Yesterday we added a new pick to replace KMKCF which is being acquired for $2.60 per share.  Eventually I'll reveal the new pick here, but for now, its a subscriber-only pick. 

Nonetheless, here is a graphical representation of how some of the gold stocks in the portfolio are trending along with Gold and Silver.  When a sector is in a trend, this is what we want to see from the individual picks from that sector.  This also argues strongly for adding a few more names, especially from the juniors which are generating some excellent percentage returns.

 ANV Daily Trend Model

AXU Daily Trend Model

GSS Daily Trend Model

TRE Daily Trend Model

GLD Weekly Trend Model

Past performance is not a guarantee of future results.

Market Sentiment

Too much doom and gloom out there?

A new issue of Robert Prechter's The Elliott Wave Theorist came out this weekend with some striking facts about current market sentiment:

(1) Mutual fund cash holdings are at a record low of 3.4%;

(2)  The DJIA annual dividend yield is at 2.7%, lower then it was in 1929.  The S&P dividend yield is at 2.1%, right where it was at the 2000 and 2007 market tops;

(3) The Daily Sentiment Index, a shorter-term indicator, is at 83% bulls.

My own observation is of a massive wave of commentators on CNBC banging the table for bargain stocks and pee-in-their-pants bullish forecasts for the S&P six months out. 

We trade the dominant trend around here, which not surprisingly has been UP.  But it is important to keep an eye on the bigger picture and befriend caution from time to time.  This may be one of those times.

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Things have changed

A worried man with a worried mind
No one in front of me and nothing behind
There’s a woman on my lap and she’s drinking champagne.

I may have posted this video before, but its my blog and I can do pretty much what I want.  The song is by the greatest songwriter of our time, maybe of all time.  A fact that will become more evident as decades pass.

"Things Have Changed"  serves as the theme song of a 2000 move named Wonder Boys, in which Michael Douglas plays the role of a pot smoking English professor at a Pennsylvania  university who is getting divorced, having an affair and mentoring a talented young creative writing student. He is trying to publish a new book and his gay editor, played by Robert Downey Jr., comes to campus and develops a crush on the young writing student.  In other words, a classic love story.

Standing on the gallows with my head in a noose
Any minute now I’m expecting all hell to break loose.

There is something in both the movie and this song that resonates with me.  Maybe its getting older and realizing that each new experience, relationship, heartbreak and triumph carries the potential to be the last one.  Does that mean everything matters just a little bit more, or does it mean everything matters just a little bit less?

People are crazy and times are strange
I’m locked in tight, I’m out of range
I used to care, but things have changed.

I listened to the song intently last night, on a quiet ride home after a wonderful dinner in Old Town Scottsdale.  As many times as I have heard Dylan sing this, I heard it last night for the first time. That makes it a worthy and eloquent poetic four minutes and fifty seven seconds for yet another passing Sunday.


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AMZN Trend Model

Amazon is one of the original stocks covered by the Trend Following Trading Models.  As you can see from the chart below, this has been an excellent swing trading model with commensurately profitable returns:

 AMZN Daily Trend Model

Past performance is no guarantee of future results.

Bonds

Below is the Daily Trend Model for the 30-yr Treasury Yield.  Two two salient points are five waves down and a recent Trend Buy Signal:

30-yr Treasury Yield Daily Trend Model

Below is the TBT Daily Trend Model.  The key point here is how closely the TBT tracks treasury yield:

TBT Daily Trend Model

Reaching the previous 4th wave high would be a move of about 10%.  But the EW analysis on the yield chart is suggesting much higher interest rates and by implication, a more significant move up for TBT.


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Gold Miners

Gold miners are having a good day, as evidenced by this breakout on GDX, Market Vectors Gold Mining Index: 

GDX Daily Trend Model

Below a couple of stocks from our Gold portfolio that are fully participating in this move:

GORO Daily Trend Model

TRE Daily Trend Model

Is it too late to buy gold stocks?  

This is not a question for a trend following frame of mind.  Picking tops and bottoms have been abandoned in favor of capturing the meat of the move.  We are no longer vegetarians.

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REE & MCP

I gave REE & MCP to my private email list about 10 days ago.  Since then they are up 8% and 17%, respectively.  As you can see from the charts below, both stocks are in clearly defined up trends:

 REE Daily Trend Model

MCP Daily Trend Model

The path of least resistance is defined by the trend lines.  True to our trend following ideology as well as my proprietary two-second stock trading system these are both, for the time being, one decision stocks.


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VXX Trading Model

VXX had been an outstanding trend model.  Despite my protestations that this market should come crashing down at any minute, the VXX trend model has been spot on in managing the market's rally.  Below is a chart of VXX with its trend model's signals for the past 10 months:

VXX Daily Trend Model

VXX Daily Trend Model Trading Pro Forma

At its highs in early 2009, VXX traded at 118.  That suggests that if and when the market revists the March, 2009 lows, this $20 stock will rise over five-fold.  There is no way it does that without taking its trend model along for the ride.


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Past performance is not a guarantee of future results.

Elliott Wave update

Below is a chart of Primary Wave 1 down which took place from the Fall of 2007 to the Spring of 2009.  The SPX dropped about 50% in this wave and period.  Primary Wave 2 up retraced a Fibonacci 62% of Primary Wave 1. The operative assumption is that the market has just recently entered Primary Wave 3 down.

 SPX Daily Trend Model

Note how well the trend model captured most of this decline.  That is what it is designed to do, capture big trends.  It does get fooled in choppy, sideways periods, a small price to pay for riding the big ones up and down.

SPX Weekly Trend Model

Once again, the trend model captured most of the move, this time Primary Wave 2 up.  When prices break below 1000, Primary Wave 3 down will be firmly in control.  Since Wave 1 dropped prices 50%, expect at least the same from Wave 3 and probably more.  

Below is an SPX Monthly chart going back 30 years.  No EW labels or Fibonacci analysis, just the trend model.  But more importantly, let's apply my patent pending "Two-second Stock Analysis" to this chart.  To refresh your memory, here are the rules:

(1) Look at any chart, any time frame, but for only 2 seconds (3 seconds if you are in California);

(2) While looking, answer this question: "Do you wish you already owned this stock?"

(3) If the answer is "Yes," then the stock is a Buy;

(4) If the answer is "No," then the stock is a Sell;

(5) If the answer is, "Can't decide," move to California.

In other words, use the right side of your brain, your intuition, your gut feel, to tell you what to do. The right side of your brain, 

"....is visual and processes information in an intuitive and simultaneous way, looking first at the whole picture then the details. The other (the left brain) is verbal and processes information in an analytical and sequential way, looking first at the pieces then putting them together to get the whole."

 SPX Monthly Trend Model

Time's up.  What does your right-brain analysis tell you? 


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TBT

Below my TBT_15 trend model (along with Elliott Oscillator) which as you can see, has been nailing shorter-term moves:

TBT_15 Trend Model

What may be of particular interest here is the apparent triple top, except, triple tops are very questionable and there even may be no such animal.  If so, the forecast is for a break-out to higher levels, in accord with the bullish trend analysis.