Financial history doesn't repeat itself, but it often rhymes. You can't be stupid enough to trade off anything I say.... I'm lucky they let me out of the straight-jacket long enough to trade.

J. P. Morgan

"Sell down to your sleeping point"

Friday, February 8, 2008

Trend Violations

In our first Lesson of the day, we talked about Elliot waves.... the Elliot waves build Trends, and trend Channels.. Wave 2 and 4 in the trend define the width of the trend channel... In the Trend below.
With the Thursday Closing value, as the end of Wave 1,
Wave 2 Being the day's high.. Then defining the Trend Channel... Which should end in wave 5 being a Violation of the lower blue line... Probably defined in the futures on Monday.

What I'm pointing out is a Trend Violation.. Which indicates a Weakening in the Downward momentum of the move... both in a Micro and Macro Level.. This starts pointing to an increased likely hood of a Double bottom at the 11500-12000 level... I'm not calling for that... But it reduces the likely hood of the 115 low on the Spy......
This is still the developing:
Wave 1 Mini Move(2days),
of wave 3(1 week) MICRO,
of Wave 5(4 months) macro...
of Wave 1 MEGA(Multi year)..(ok one could dispute that this is Wave3 of a secular bear starting in 2000)
it's tough to keep track.
What we should see develop is that the Longs that jumped into this market on Thursday... when this move fails... As the Head and shoulders, and the Flag formation point to. We should see many of those longs move into the market short... and move some sideline short money in.... This should create WAVE 3 of the Macro WAVE 5 we have been looking at. Yesterdays Up 25 and today's Down 60, indicate an accelerating downward move.
overall, without the chart pattern indicators.. This market is still officially Neutral till we violate 1320

4 comments:

Tony said...

I agree, but I am unsure of the significance of the trend violation-- to be significant I think it would have to be sustained into Monday.

I've been watching FXI and it looks like we are about 60% through a Wave 3 which should bring us to about 133 upon completion. Technically, this graph looks very weak with lower highs and lower lows in stepwise fashion. It looks like Elliot mechanics but I'm not sure.

Fundamentally, I see the Chinese markets as more vulnerable with their generous run-up over the last couple years and the reliance on the western consumers who are currently pinched. Even the Germans are pointing to the subprime meltdown as damaging their consumer markets.

Add to that the increase in dry grain commodities and they could have a problem feeding their multitudes.

Thanks. Have a good weekend.

Eric said...

Ag is still a great place to be... it would be nice to bleed off some of the "Momentum"

Trend violations just show a slowing IMHO, if they continue it will be a reason to think about a double bottom...

But. Someone pointed out another Head and shoulders, which they target at 124 SPY.

I just looked at the FXI, and it looks a little more bullish than our market... as it should be, but it will follow our market. I would look to the FXI and materials as an outperforming short in the Summer, late spring. and if they get into a food crisis it should help. But the Chinese are doing price controls.

I heard a lot of talk conceding Stagflation today. going to be a good 5 years to be a farmer.

IMHO you are off on your TA for the FXI, as with our market it is just starting it's 3rd wave. Take wave 1 and double it. Then multiply by your fibonacci.. that will give you a solid range to work with... 111 ish.

I'll expect that we will drop down to 12000 on the Dow(wave3)... then ass drag along that line for most of that week(wave 4). Then another low (Wave 5).

I would look to the FXI, and technology to near term low, a day before our market does... since they trade a day ahead of us.

I'd love to see us form a nice U bottom this time.

A little disconcerting is that this is setting up just like the last low. Where we had wave 5 as options expired, then had those scary days that were Near term lows..

I just doubt it's going to repeat itself exactly..... Even though it's like we are re-enacting that play exactly. Doug Kass called a bottom in Financials at the Wave 2 correction, last time. And I think he did it again with Tech... Calling a bottom 2 waves too early.... Again... We had a 2 day Semi rally Just like last time, we should wave 3 down to 12000, Just like last time... Only this time I think the Fed, isn't going to cut... nor should they... I say that is what will make the U bottom..

The interesting thing will be the bond insurers...

that will be the "Pass-Fail" for the next weeks

Tony said...

Thanks. I was not doubling Wave 1 before using the Fibonacci multiplier. It does make a difference-- I have to get this Astrology thing right.

I didn't understand it when Kass called for a buy on CSCO, but in his defense it did dip below $24 briefly when he was making his call, and is now above $26. But for anything but a very short-term trade, I can't see CSCO doing anything significant real soon. Odd. Is it really time for early cycle sectors again?

Ag? I was just thinking how toppy it looked. I sold some DBA 2 weeks ago after a nice several month run-- obviously too soon-- I should have held it for this melt-up. (My problem is selling too soon and not trusting the stop-losses, but that's another issue.)

Have a great weekend.

Eric said...

Ag needs a good correction... and materials.. and Watch out for it.. I say march... when the ECB starts cutting, the the dollar stregnthens.

Targets are a Bitch, I do better guessing them with my mojo, than doing math...

I think if I look at it right you are better to multiply fibinachi with the distance from wave 1-3.. the total is Wave 1-5.

Wave one... can be 23.6%-38.2%(depending on how agressive the move is. of the entire move. Obviously the middle of wave 3 is the midpoint of the move.(roughly)

Wave 3 can end 61.8%-76.4% of the entire move.. Then it retraces 23.6% of the entire move... Then you get that final move.

By doubling legnth of wave one, it gives you a likly place to start looking for the move to finish.

I think what you are doing is getting out at the end of wave 1, as wave 2 developes, you hit your stop.

Most of the time I try and enter as wave 2 fails and turns into wave 3..

If you notice.. I struggle untill wave 3 is apparent.. since it's the longest wave.. Then I just wait for wave 5...

But it's still rough... and Chart Astrology.

I swear Sometimes I think I should Get out at the end of wave 3, and just wait for the wave 5 entry's to go long... or short depending.

The other nasty part is diferentiating between the micro and macro moves.

I'll find some time and show you the waves, as I see them in the FXI.

The trick is that wave 2(micro) was a sad little thing... and it was still wave 1 of the Macro move.

New Economic Indicators and Releases

What does Blue Horse shoe love?- Blog search of "BHL"

cnbc