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January 3, 2009Posted in: Intraday Commentary
- It’s hard for me to see wave 4 ending this abruptly at only 1.5 months old. Wave 3 lasted nearly 6 months!
- It wouldn’t surprise me to see wave 4 last somewhere in the range of wave 2, about 2.5 months. That would give us about another month to rally.
- Check out the the price action in wave 2 in regards to the 50-day moving average. I expect to see this rally move decisively above the 50MA during this wave 4 as well.
- Psychological perspective: If I were a short fund, where the money is being made, I’d be getting more excited every day the market rallies. View the light volume as the bears just letting the market catch a bid with minimal downward pressure. The more bulls that get excited about this rally, the more money the bears will make on the ride down.
- Don’t confuse me as a bull. I fully acknowledge this is a bear market rally. But at least through the rest of wave 4, the trend is higher and I wouldn’t fight it. A sharp pullback from here wouldn’t surprise me. I’d view a 50% pullback as a buying opportunity.
- A wildcard I have not thrown out yet as that we are still in wave 3 and another retest of the lows is coming to complete wave 5 of 3. But I think that’s less likely.
About Craig
Stubborn Bear from Boston
One arguement for being in Wave 3 of the Primary wave may be the abrupt reversal in November, rather than a slower foundation curve that we see between 1&2 and 2&3. A deep drop next week seems to add merit to being in Wave 3 rather than a very short 4 being complete.
(Disclosure: I’m still learning!)
Me too!
I think we can all agree we are in Wave 4 up and we are eventually due for the development of Wave 5 down. Until we see the final 5th Wave down I believe that the “A” Wave down of a longer term “ABC” correction hasn’t finished. Once the final 5th Wave down does occur then this should be followed by the “B” Wave up. This is where I believe McHugh’s analysis could be wrong because he has the “B” Wave starting with the bottom of Wave 3 which was the 11/20 closing low. It would seem based on EW Analysis that the “A” Wave down should complete with the 5th Wave down and not the 3rd Wave down unless I’m totally missing something. It’s possible the final 5th Wave down will not drop too much below the 11/21 intra day lows which could potentially end up looking like a Double Bottom pattern. The time frame on all of this is hard to say. Like Craig said I could see the market zig zagging higher through the end of the month possibly into early February which would then be followed by the final 5th Wave down.
I could see the final 5th Wave down ending sometime in the late Spring with the “B” Wave up leading to a Summer Rally followed by some weakness in the Fall and then more strength into the end of the year. Once the “B” Wave up ends this would then be followed by the “C” Wave down beginning at some point in 2010 possibly. That’s my two cents.
Thanks for the post. The only caveat I would add is that I don’t think “we can all agree we are in Wave 4 up”. Wave 3 looks complete to me, but I’ve underestimated the length and persistence of wave 3 for some time, and I think the possibility exists that its not over. Check out some of Uner’s posts for more on this possibility.
Just good to keep an open mind and set stops accordingly.
Wave 3 is over (with very high probability). Look at the russells or the qqqq which present the clearest pictures. Triangle in Oct is 4 of 3. Wave 3 ended on nov 21. This scenario is perfect.
The more important question is what form will wave 4 (which we are in) take,
A double zig zag? or a flat? or a triangle? Some stocks like the homebuilders have already fulfilled their potential 200d targets.
“A wildcard I have not thrown out yet as that we are still in wave 3 and another retest of the lows is coming to complete wave 5 of 3. But I think this is less likely. ”
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It’s the only thing that puts everything together for me. The S&P could make a new 700ish low before Inauguration because of weighty factors in
http://social.stocktock.com/photo/somewhere-under-the-rainbow-1
(And $VIX gets back to 80ish.) The inauguration rally and subsequent wave pattern in a long Obama honeymoon would then have 4 bringing us to a top in our bull ETFs (bought about Jan 19 and dumped in late April), as the sobering springtime realization sinks in to the masses (except for CNBC) that we are in a mess that a few months of enthusiasm will not fix. Everybody decides to “sell in May and go away,” as we watch a two-day bloodbath reset the greedy suckers to zero who were hoping for the levered bull ETFs to do more than a lousy triple after Cramer and Kudlow told them happy days are here again. We, OTOH, will celebrate the emergence of lilacs and irises by loading up on the usual bear suspects, using the proceeds of selling to the lost sheeple into the April top. Then we harvest another trio of four-baggers by correctly playing the squiggles in Wave 5, only to have our ill-gotten riches from all this greedy manipulative profiteering confiscated by the “Market Fairness Act of 2009″ and distributed to all the bankrupt suckers as government earnestly assures us that there are too many of them to be allowed to fail.
Seems there is 7-months between $CPC sell signals. This one is right on schedule. The $CPC 20ma is now at it’s lowest reading in the Bear market thus far.
It better CRACK soon or I will eat my hat, what’s left of it anyway.
http://social.stocktock.com/photo/cpc-update
so that last purchase of SRS i made at $51 is the last ill make? i wanted to load up more at $49 and $47 before it heads higher.
Here’s a new interview with Tim, John, and Tony.
http://www.cyclesman.info/Articles.htm
I listen to these guys regularly. John is full of bluff and bluster. Tony is more thoughtful and introspective. Tim seems to resist predictions altogether and mainly follows his CTI. I’m just about to step out for my evening walk and have this week’s show queued up on my iPod.
Re speculation about wave (3) terminus. I hope Uners is right because I have a large short position and if we still have 5,(3) to go that would be sweet. But I really don’t think so. Wave (3) looks mature and complete to me. I think this is (4) with a minor pullback. Re what Craig said about wanting to see (4) go on longer, the guideline for wave (4) is that it should last 1x to 2.7x wave (2). So that means (4) still has more shelflife, if that’s what this pattern in fact is. I’m giving it to the Obama innaugural…then wave (5) sets in. We’ll see.
Wave I lasted 110 trading days which was followed by Wave II that lasted 44 days. 38.2% of 110 is 42 trading days was very close to the peak of Wave II. From the peak of Wave II to the bottom of Wave III was 131 trading days. 38.2% of 131 is 50 days and so far the rally from the bottom of Wave III has been 28 trading days. Thus it’s possible we could zig zag higher over the next 22 trading days (give or take a a few days) before Wave IV completes. The 38.2% Retracement Level from the peak of Wave II to the bottom of Wave III is 1008 so that could be where Wave IV completes some time late this month or in early February.
Also I would like to add the best case scenario for Wave IV up would be a rally for 81 trading days (roughly 16 weeks or 4 months) which is 61.8% of 131. If that were to occur then Wave IV could end up going way above 1000 and not peaking until sometime in March which apparently is what McHugh is forecasting based on his ABC pattern as the “A” Wave ended with the 11/21 low and we are now in the “B” Wave up. If that were to occur I believe that would set up a situation similar to what occurred in the early 1930′s. The Dow dropped 49% in 1929 from September through mid November which was then followed by a 50% rally from mid November through mid April of 1930. If we saw a 50% rally in the S&P 500 from the 741 low that would be a rise to just above 1100 if it could rally for 81 trading days to complete Wave IV up (McHughs “B” Wave). This would then be followed by the final 5th Wave down (“C” Wave) which could last through mid 2011 if the pattern from the early 1930′s repeats itself as the Dow bottomed in July of 1932. The Dow lost 89% of its value from late 1929 through July of 1932 before putting in a major bottom. Can it happen again I don’t know however it appears the government is making the same mistakes that they did in the early 1930′s. I think the key think to watch is the unemployment rate. As Mish has stated on his blog the government fails to address the real unemployment rate which was at 11% in November versus the 6.7% which is the altered number. If by chance the real number eventually rises to 20% or more by late 2009 or 2010 then this economy is in big trouble and a repeat of the early 1930′s is not out of the question imho.
I have added charts of the 1929-1932 period versus the 2007-2009 period at
http://tinyurl.com/7a89lp
I think looking at the last chart that it should read 4 and not 2 on the current chart.
Craig,
Outstanding analysis !! I am new to this website and am impressed excellent analysis being presented by a number of people.
One of the people I follow is Nouriel Roubini. He predictions for 2008 was very accurate. In hindsight, I wish I had followed it. This week, we published an article in which he talks about further downside. You can read it at http://www.guatemala-times.com/opinion/175-year-end/663-will-banks-and-financial-markets-recover-in-2009.html
Here’s what is says
“Equity prices and other risky assets have fallen sharply from their peaks of late 2007, but there are still significant downside risks. An emerging consensus suggests that the prices of many risky assets – including equities – have fallen so much that we are at the bottom and a rapid recovery will occur.
But the worst is still ahead of us. In the next few months, the macroeconomic news and earnings/profits reports from around the world will be much worse than expected, putting further downward pressure on prices of risky assets, because equity analysts are still deluding themselves that the economic contraction will be mild and short.”
It’s difficult to measure sentiment. Most of the traders I talk to are very bearish and anxious to ride the next wave down. The average Joe probably assumes the market has to go back up, but how much money does the average Joe have invested?
A lot of money that was in the market has been destroyed by the decline, and a lot of money is badly burnt and too scared to get back in.
I try to figure out what the “amateur” trader is doing and take the other side. I don’t mean “amateur” as a slight to those traders, because I’ve been on the “amateur” side many times. But where is the fast, inexperienced, thrill-seeking money going right now, and I would venture to guess on a very short time frame, amateurs are loading up the boat short. And the smart money is being patient and waiting to get short. This rally might continue to creep higher until the amateurs have taken too much pain and cover for a loss. Then, wave 5 down begins.
As Mish pointed out in a recent article, Wave 4s usually end with good news. Something to watch for.
If you’re short, I’m not calling you an amateur, and you may be on the right side of the trade. I am just trying to explain how I try to think about market psychology There is never a shortage of opinions on the market, and trying to figure out sentiment is more art than science, although plenty of people try to quantify it.
im simply going to load up on SRS. buying it at every $2 fall until all of my cash is positioned. started at $57 and bought last at $51. have 600 shares so far and i’ll max out at 2,000 if it keeps falling. ill stop buying when it stops falling. maybe thats tomorrow? im tired of trying to guess which way we are going this week or next week. im just looking to double my money over a six month period and im happy with that. amateur i am and this bear market has me tired out. once ive kicked some SRS tushy i’ll re-evaluate what to do. man… i need a rest.
If we are in Wave 4 (getting more convinced of that), then I bet it ends on 1/21. Consider the slide that took place from Nov 4 (after Obama’s acceptance speech) to Nov 20.
Look for all “The Good” to be priced in by Obama’s inauguration date of 1/20. The carnival is being set up to be the biggest in history. As Craig wrote above, “As Mish pointed out in a recent article, Wave 4s usually end with good news. Something to watch for.”
I’m going to ride wave 4 and get out of the water when the swell gets to big.
oh, and BAC reports on 1/20!! Unbelieveable timing.
My Guess ,the way i read McHugh is 950S&P target into Jan 17-20, a .pullback and then a move up to 1050 S&P .He has a turndate around Feb 21 indicating a ugly move down at that point
Are there individual stocks that you’ll watch that give early signals that a new wave has started or is about to start.