Yes, the market feels very bullish at the moment. Price action is strong. M&A activity is picking up. Data was better than expected the past couple weeks: GDP, unemployment, manufacturing activity, consumer confidence. A few minutes ago, the Hindenburg Omen guy just told CNBC he would not be short now until the McClellan Oscillator goes negative (I think he is still bearish though).
But beware. The volume has been lackluster during this recent rally. The market internals were extreme during selloffs and less impressive during rallies. And the wave counts just don’t support the bulls. Even the most bullish count has the market in a triangle, suggesting a C-wave flush lower (see DanEric’s chart). I’ll try to find another bullish count that supports upside from here but I don’t see it yet. Some bulls are heralding Primary [3] up but the shallow retracement (<32.8%) and time aspect makes me skeptical (Primary [1] = 59 weeks, Primary [2] = 10 weeks).
And look at today’s perfect trendline hit in the S&P. Doesn’t everyone feel good about the economy heading into the holiday weekend? This price run up is typical ahead of holiday weekends so consumers spend more money. But do you really want to be buying this market right here? Even if you’re a permabull, why not wait for a break and back-test of this trendline?
S&P Daily
S&P Futures 4-hour Chart (notice the overbought RSI reading)
I’ll have more charts throughout the weekend. Enjoy the holiday!
Please note: This is a rough road map for the market movement I expect based on the rules of Elliot Wave Theory (EWT). There may be several valid counts at any given time, but I am only presenting what I consider the most likely count based on my own objective analysis.
“It’s a bear-market rally because we have not yet turned the economy around.
Bear mrkt rallies tend to be violent.
AMEN , I agree
thanks
Love this post… i’d really want to see which way the market goes tuesday.
Look at two charts…the charts that are the most relevant. On the $SPX, the 200 day moving average creates a neckline for a reverse head and shoulders pattern. On the UUP (Dollar Index), the 200 day moving average creates a neckline for a head and shoulders topping pattern. Too me, both of these ‘patterns’ would indicate a bullish move. The real question is, will they play out? After this week and seeing the $SPX get above 1100, I’m leaning to the bullish side. I was a bull at 1040 and predicted we’d get back to 1100.
I’m entirely in cash after today and will play what I see. There is a lot at stake here in the next month or so. All the EW people are up and arms about a pending crash. I’m not sold on EW. It’s going to come down to Inflation versus Deflation. What’s ahead for us in the next couple of years??? To be honest, I would like some deflation- it would serve us better in the long-run, but Helicopter Ben wants to inflate us to the moon. That’s why you have to watch out for a bull run here…even lacking great macro news. It’s all about the dollar and the bond market.
Careful bears,even Jim Miekka says to stay in stocks until the Mc Osc turns negative,in fact he said the low could have been put in in August,he is the creator of the H.O.
Craig were you not calling for a substantial correction this week??
He had another possible elliott wave count.. but it obviously changed when the market blew it. His philosophy is that the trend is down from the top back in May. In order to please this philosophy, this is his last bearish wave count, before he starts becoming a bull.
Yes, I was and I was wrong. The Minute [i] of Minor 3 count did not pan out. This count was invalidated when Minuette (iv) violated the price range of Minuette (i). I had to re-evaluate and come up with a new primary count.
Hi Craig,
Thanks for all your posts…I have been reading them and then reading up on EW theory etc…I have a question, and sorry for my ignorance on the subject, but is there anyway that this recent pullback from april highs is actually wave 4 of the run from march 9th? and wave 5 is about to start?
The whole rally from March 2008 looks like a textbook triple zig-zag. Not sure how you would count it as an impulsive 1, corrective 2, and an impulsive 3. But please reply with a link to your proposed count so I can take a look at what your thinking.
Hi Craig,
thanks for your response….let me see if I am seeing these primary waves correctly….wave 1 was 3/09 to 6/09, then wave 2 (corrective) was 6/09 to mid 7/09…wave 3 (biggest wave usually 1.6x of wave 1) 7/12/09 to 1/10/10. wave 4 (corrective) 1/10 to 1/3/10….wave 5 (final wave) 1/10 to 4/118/10. Am I seeing this correctly? Also, the DanEric chart..it looks like we are hitting up against resistance now with the purple line extending out from the original triangle..is this the absolute line in the sand to make all of this null and void? the triangle resistance seems to line up with the 100 day and the purple line with the 200 day. And lets say these levels hold, do you expect just a huge drop from here (would that be wave C of corrective phase), or are we zig zagging some more until one of these pennant support resistance levels break either through 1106-1115 or below at 1040-1050. and last question….if 1106-1115 breaks north, are we starting another up cycle?
thanks for all your help
One more interesting fact is that 1105 is the 261.8 % of the small wave up … this was another reason why I closed most of my longs … in case we just drop from here … but if we go up then I still have a small runner position …
If we pullback and seem to be turning, then I will go long again …. that is my bias … but will try to trade what I see ….
The last 5 years the market has been up theTuesday after Labor day
Grady – like I mentioned my ideal tgt was 111.08 – 111.3 on SPY which was not tagged on Friday .. at this point, if we go up, I will keep taking portions of my remaining longs off … I still have some longs .. so I don’t mind the mkt going up ….
Not taking any shorts yet … because no matter what we almost recovered aug’s losses in 3 days … so mkt is showing strength and we need to respect that.
Last 4 weeks have been excellent for me. Sold all my longs on Friday morning and moved to 100% cash. I am focussing on high probablity trades and I don’t see anything as of now. It is hard to predict if the market will go up or down looking at charts. We have the 200 day MA that the market has to cross and the diagonal resistance from the 1220 high. Both of these are very close to where the SPX closed on Friday. If the market continues to move up, we can get another 1% up move as a number of shorts will scramble to close their positions once we break the 200 day MA and declining diagonal resistance. I is better for the market to reveal what it wants to do before committing money.
Another thing I am watching closely is when the Congress returns to session. I am not sure if they will extend the tax cuts. Hence, I am not expecting major moves next week.
Nice article!