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Thursday, October 27, 2011

SPX and NDX Updates: Last Call for Bears!

Sometime over the next week or so, you may remember this article and decide that I'm crazy (assuming you haven't already).  The market's job over the near future is to convince you that the rally will go on forever, so you may start to think of me as an idiot perma-bear.  I'm not... well, I'm not a perma-bear, anyway; I suppose idiot is debatable. 

The market continues to gyrate wildly, almost like it's trying to compete for a spot on "Dancing with the Stars."  Projections are getting smashed more frequently than watermelons at a Gallagher show.

So what's going on?

If we are indeed approaching a major top, the market's number one priority right now is to keep everyone as confused as possible.  If the market makes its intentions clear, there will be nobody left to take the other side of the trade. Besides, if anticipating the market were easy, the money would be so simple that there wouldn't be anyone left to actually work at these publicly-traded companies.

Tops aren't obvious until they're fading from view in the rear-view mirror.  At that point, people look back and think, "Man, I wish I'd sold back then!"

If you've read my articles, you know I happen to be bearish right now, based on chart analysis, and on the conditions I see in the world.  Doesn't mean I'm right -- in fact, a big part of me hopes I'm wrong.  I would love to see a bull market driven by genuine fundamentals (in other words, not a QE Pretend Bull Market) arise here and shake off the crummy economy; and the housing market; and the demographics of the huge over-sized baby boomer generation reaching retirement; and the potential European meltdown; and the fact that our government is buried in debt up to its eyeballs; and all the other stuff.  That would make me very happy. 

But I don't see it.  So I'm bearish.  Are you?  Now is the time to decide, because the market will try to confuse you in the coming days.  The news will be good, hope will be flowing, and the market will rally.  To quote Hunter S. Thomson: "A lot of people got off the boat in those days.  But not me... and not Nixon."  The market always wants you to jump off the boat just in time to get eaten by a shark.  If this is a major top, there will be bear shakedowns... and there will be temptations to jump in long at exactly the wrong time.  Brace yourselves for it.

(If you're new to these discussions, my long-term outlook and a brief summary of Elliott Wave Theory can be found in this article.)

The alternative, of course, is that I'm completely wrong and this is a baby bull.  Maybe I'm the one about to get eaten by a shark... time will tell.  But the charts aren't giving me any conclusive reason to believe that yet; and if they do, I'll be the first one to start calling for a new bull (well, maybe not the first one: the perma-bulls take that trophy -- but you know what I mean).

Here is what the charts are presenting.  Exhibit A is the Nasdaq 100 (NDX), fresh off its recent win on "Dancing with the Charts."  I've said it before: the NDX is very close to its 2011 high. and if it breaks through, we have to start considering more bullish scenarios.  So -- if the bear case holds water -- the NDX needs to find a way to confuse the bears as it finishes this wave; but it needs to confuse without actually rallying too much higher.

Monday, I initially called for higher prices heading into Tuesday, because I saw what looked like a three-wave move up from the 2274 low.  Based on the larger structure, that meant we still needed a fourth and fifth wave.  They never came.  We instead headed straight down at Tuesday's open.  So Tuesday, I figured we had a failed fifth wave and the rally was done.  Survey says: buzzzzz!  Wrong answer again.  (Unless you've charted Elliott Wave, you can't really appreciate how difficult it can be to project in real-time some days -- especially at major tops and bottoms, where the market's goal is maximum confusion.)

On Wednesday, we get what looks like a three-wave move down, and then the market starts rallying again.  Ah, now it's starting to make sense:  my initial impression of a three-wave rally into Monday was correct (well, maybe, read on).  So now the chart shows a three-wave rally, and a three-wave decline.  Anybody know what structure ends a rally with a series of three-wave moves?  Show of hands... yes, you sir, in the back.  No, it's not called a "dimorphous linkage distributor."  It's called an ending diagonal.  I may be starting to sound like the Ending Diagonal Salesman here, continually touting the virtues of an ending diagonal forming at this juncture and how it could save the bears -- but the chart says what the chart says.  Here's the chart:

  
Take a look at the move from blue 4 to blue (i).  It doesn't take a Master Elliottician to see that's a clear three-wave move; to see it doesn't even require a particularly good set of glasses.  It does take a willingness to look at the charts objectively, though.

I have drawn-in some gray lines and a red wedge to give an idea of the form it may take.  Until we see where wave (iii) tops and wave (iv) bottoms, this illustration is just a guestimate, though.  The market could move fast here, or it could meander around a bit, to convince people that the lows are in for the year... I can't predict that.  But this diagonal satisfies many of the requirements of the time: confuse the bears; finish off wave C; keep wave C below 2438.44.  And, more importantly, it explains the three-wave rally.  There are creative ways to count the rally as a five-wave move; they do require a little more imagination, but they're possible.  So the chance still exists that the high is in already.

Either way, the final top must be very close on the NDX, if the bear market is to remain a bear market. 

If 2438.44 is taken out, all bets are off and this count has to be scrapped... along with the bear market.  If the high is taken out, it doesn't mean we won't go lower again someday, but it does mean that the entire count up to this point is wrong and the NDX is not in Minor (1) and (2) -- and there's potentially even a huge bull market on the horizon.  2438.44 continues to be critical to the bear case.

In the S&P 500 (SPX), I've actually been looking for an ending diagonal for a week now.  At times, it seems to materialize into existence and then, moments later, vanishes into the ether... only to reappear somewhere else.  Maybe it's due to the proximity of Halloween: the ghost diagonal.  Anyway, I think I may have started looking for it a bit early.  It's possible that the wave (iii) label is actually wave (i).  In fact, I view this as likely, based on the NDX... and the fact that shifting the wave 4 position allows the SPX to reach up to tag the head and shoulders neckline. 

You may recall that Elliott rules state that wave three cannot be the shortest wave.  Since wave three is already shorter than wave one, wave five must be even shorter still.  Now, the following assumes my count is correct, of course, but wave three's length was 82.84 points and wave four bottomed at 1197.34 -- so that puts a hard cap on this fifth wave of 1280.18.  That allows it to tag the head and shoulders neckline, and even overshoot it by a hair to suck in the last buyers before reversing.  Here it is on the sixty minute chart:


The chart above reflects the shift in my preferred count for the ending diagonal; in other words, the chart above is the view I am favoring.  I have also updated the 10 minute SPX chart we've been watching with the preferred labeling.  The old count is still shown in gray, so that readers have a reference point: wave (v) of this count would go where the blue (iii) is.  After Wednesday's price action, the old count is still possible, but I am no longer favoring it.  However, again my view remains that the top is much closer than the bottom here. 

Please please please note that the gray ending diagonal lines as drawn are purely hypothetical, wave (iii) could top anywhere south of 1280.18.

Also notice how well the simple support and resistance lines I drew worked.  The market bottomed right at first support and topped right at first resistance.  Sometimes, when the market confuses the Elliott Wave counts, traditional technical analysis can save the day.


I haven't presented a Dow chart in this article, but the hard cap there is 12,093.50. 

Any violations of the hard caps listed for the NDX, SPX, or Dow would mean that my preferred counts are wrong. 

And there are certainly other interpretations of the wave structure.  Many Elliotticians are labeling my wave 4 as wave B, which allows for much higher prices.  I don't prefer this interpretation for a series of reasons:

1) The NDX would almost certainly exceed its 2011 high under their counts.
2) The strength and tenacity of the rally to 1220 was too strong for an A wave.
3) The targets under my count line up with the key levels: the NDX yearly high and the SPX head and shoulders neckline -- and the Dow's hard cap is about 1% above its 200 day moving average.
4) My preferred count is NOT what most are expecting... which I think makes it more likely.

So these are the levels to watch.  If the market holds below these key levels, the prospect of a crash in the next few weeks to months looms large (understand that Minor (3) down will likely start off as a series of lower highs/lower lows, sharply lower, but not an insta-crash).  If the market breaks through these levels, the NDX starts signalling there may be a new bull market in the cards.  The coming days will probably be filled with news noise, and there will be confusion and gnashing of teeth on the bear side.  Personally, I'm still bearish and will remain so until objectively proven wrong by the NDX.  I'm looking for a major top soon -- now I'm just trying to nail down exactly where it will be.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

165 comments:

  1. sitting on the edge, wondering if i should go through my plan to dump all my money into FAS

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  2. Personally, I generally make it a rule to never trade during the first half-hour the market's open -- unless I have a really clear grasp of where things are going. A lot of reversals come in that time. Think about yesterday... if you went long right at the open, you spent the rest of the day waiting to break even, and probably eventually closed at a loss.

    Not telling you what to do, by any means -- definitely make your own call there... just telling you what I do.

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  3. Pretty convincing.
    Also this gentleman is also convincing on what happened on the last summit meeting. Maybe I'll wait till there's a clearer picture before initiating on the short side? Would you short into this rally?


    http://ciovaccocapital.com/wordpress/

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  4. Legally, I can't give you trading advice, you're supposed to talk to your broker.

    Hypothetically, I can tell you that I'm convinced the top is pretty close. Honestly, though, if this is going to turn into the big wave (3) crash, there will be "safer" entries. If we test the big h/s neckline, that's a safe entry with clear defined stops. One won't need to nail the exact turn to make money. The key is to maintain one's capital, so it's available when the high probability entries show up.

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  5. That said, I might be tempted to short the rally with tight stops, because of the potential that this is indeed wave (v) of the original diagonal; and we could see a gap-and-crap day. I would want to be able to watch the market closely though, and IF it moves down thereafter, see what form it's taking.

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  6. I haven't even finished the article yet and have to say, for someone dog tired, you did an excellent job. Clear, no bs, informative and entertaining. Well done and thank you for preparing me for the market action to come.

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  7. Pretz
    You mentioned it will not be a plunge but rather choppy downward movements (if your count is right). What is the probability of choppy instead of plunge? I tend to use leveraged ETFs..

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  8. Good morning folks!

    Nice surprise this morning to wake up and see the longs I put on last night during Asian session are up huge :)... Took profits and reversed short (call me crazy) with a very tight stop of course ;-)

    Early this week regular readers will recall I was looking for a top Monday then a fakeout decline back into the range (specifically SPX 1220) then a final short covering panic up to 1275 SPX. Well this morning the futures are hit the equivalent of 1273 SPX cash and THAT my friends in close enough for me. ESPECIALLY with it occurring smack dab in the center of my 10/27 +/- 1 cycle turn date. Since this turn date does not specify polarity and is open to my interpretation I thought on Monday that it would be a low so that we could get the final run up to 1275 coming out of it. However, I didn't think that final run would take all of 1 day :) ... So, now odds are very high that the 10/27 +/- 1 turn date will in fact be a high. At least that is how I am betting now.

    I am going to be pretty busy at work today so I will be checking in only sporadically, but if I see something major I will post it, but as of now my focus is on the short side.

    Trade Safe!
    CTP

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  9. OK, now HEAVY short ahead of GDP report. Wish me luck ;-)

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  10. CTP- Funny you say that. Sitting here after the post, looking at the charts... now I'm thinking maybe the gray count on the 10 min chart SPX IS right... the original diagonal count. Gap and crap and that's all she wrote.

    The NDX hasn't made a new high and could be topping the second wave retracement, so it wouldn't need a diagonal.

    The dollar looks like it should make a bottom very soon.

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  11. What if GDP report good numbers? You dont think that it can take the sp 1275 ish?

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  12. and the futures hit 1273?

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  13. And Pretzel, youre talking about the chart on tuesday?

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  14. Umm... anon, I didn't say it wouldn't plunge, i said it would start off a series of lower highs/lower lows. That doesn't mean choppy. Choppy to me is sideways.

    Thanks, Spiker.

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  15. According to my CNBC app, the economy grew 2.5% in the Q3. Is that what you were hoping for CTP?

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  16. News is noise. Never trade the news.

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  17. Pretz, any hard stops for the Russell 1000 financial services index?

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  18. The GDP number was in-line. Generally chart followers aren't too concerned with EU pronouncement and economic data. The GDP numbers are looking backward and market/charts are looking forward

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  19. Hey Pretzel,
    Hypothetically I am taking your advice ;). But I was wondering if and when that point in time happens, could you wave a flag or point it out?

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  20. anon, no clue on russell 1000, never charted it. They should all be moving roughly in sync, so use one of the other indexes as guide... hypothetically, that is.

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  21. which point in time... you'll need to be more specific...?

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  22. So if I am understanding CTP's comments correctly, we could top out as soon as today given the crazy velocity of SPX futures? If so, the speed with which the top has been reached is a complete doozy. I never thought that this counter rally would peak within October. Thanks for all your analysis, Pretzel. The past few weeks since October 4th have been mind-blowing to me. I appreciate all your analysis (and comments.) This has been a great blog to discover.

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  23. Also, as CTP said, we're very close to the cash KO level on ES. 10 pts or so risk ES vs. a LOT of potential downside. It's a pretty safe short entry, hypothetically of course.

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  24. I was referring to the "safer" entry points in the wave 3 crash you were talking about before.

    It seems like theres more than on Anon here haha

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  25. SO... the definitive answer at this point is: yes I would short the open, stops at SPX 1280.19.

    Please remember I am speaking hypothetically and am in no way giving trading advice.

    But I'm already short the futures, so the open is a moot point for me.

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  26. Yeah, hard to keep up with all you Anons!

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  27. Not sure which anon I'm talking to anymore, but remember earlier I said: "If we test the big h/s neckline, that's a safe entry with clear defined stops." We're there now.

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  28. So do you expect today to be the "gap and crap" to occur in one day? or today will be the "gap" and tomorrow will be the crap.

    all you answers are hypothetical of course and are purely for educational purposes ;)

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  29. gap and crap refers to a gap up open which gets sold hard immediately. so if that's to happen, we'll reverse down pretty quick off the open.

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  30. they're trying to take the futures parabolic here. very interesting to see how this plays out.

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  31. Looks like I was a bit early. Tight stop taken out. Will be looking for other low risk opportunities to short rips with tight stops throughout the session.

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  32. Man, you must have some seriously tight stops. I always give it more play.

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  33. dying to see how the open goes here...

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  34. did you say if NDX goes above 2438 it is a bull?>

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  35. dow just went past 12106

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  36. so does that mean the bear count is officially dead?

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  37. I said if the NDX goes past 2438, the whole decline has to be seen in light of being a bull market correction.

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  38. "
    I haven't presented a Dow chart in this article, but the hard cap there is 12,093.50. "

    ?

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  39. what do you make of RUT going past your 739 level

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  40. Count's wrong on the RUT and Dow. It's that simple. Ugh. Back to the drawing board.

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  41. SPX and NDX still below critical levels, though.

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  42. That neckline on the SPX is still holding. Runs right about through 1276 right now.

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  43. Your comment "wow" said it all.

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  44. The bear call is not over yet, I think it's still too early to say, rigth Pretzel?

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  45. They are all on slightly different counts, though. So, while similar, the Dow going down does not negate the NDX count, for example.

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  46. look at AAPL, perfect ABC 2nd.
    look at Crude oil, 5 waves down.
    volatility bottomed at the open..
    Could me major reversal day

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  47. Still to early to say. And the whole point of the article is to emphasize that bears will be in pain before the rally ends.

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  48. dibidabo, welcome!

    and yes, that's what i'm hoping.

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  49. oh one of my stock forums, all of the bears are covering their shorts right now.

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  50. But yeah, it's supposed to hurt right now... for bears.

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  51. Why on earth would they cover here? The head and shoulders neckline hasn't even been broken.

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  52. This is where you short, not cover. But that's the point of these runs.

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  53. This is what a top feels like? All the bears in panic?

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  54. True. I initiated half of my portfolio on shorts right now. Rest in cash to average down just in case

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  55. Just make sure you use stops. Hypothetically, of course.

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  56. The question is, how long will the 1276 neckline hold? natural point of resistance, so it's expected that we're going to fight to get above it. But wouldn't the most painful move for the bears be to see that resistance break? that would cause the last of them to cover. Including yours truly.

    My concern at this point in the cycle is the money managers are chasing and they are the ones with the buying power. That's what leads me to believe we won't stop here. How much firepower do the bears really have at this point. Something has to crush sentiment...where will that come from?

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  57. Amazing how this remember me 2008 before the crash...a real mirroring story...
    i just get short s+p and naz100 via sds and qid

    Nothing is solved in europe..IMF need to send 100 billions more next month in greece...

    Elliot waves has taught us how fast we can to go from mania to depression.

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  58. I believe only some hedge funds and the more "active" money managers have been sitting out on the side lines and might try to get back in at this point. But the majority of the mutual funds/pension funds have been pretty "fully" invested all along, so there shouldn't be too much more "natural" buying from this point. Right Pretzel?

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  59. Rocky-

    Yep, that would definitely be the max pain point for bears. Doesn't *necessarily* mean it won't hold.

    As to where a sentiment shifter might come from: no clue. :)

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  60. i sense we have another push to a slightly higher high now, then the plunge...getting ready my shorts

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  61. theirry- yep. Europe is still a mess.

    Frank, I haven't checked mutual fund inflows/outflows etc. in a while, so I have no clue what kind of capital is sitting there or not. One of the things I remember from '08 though is the whole way down, bulls kept writing articles about "how much cash was sitting on the sidelines" and how it was just going to come pouring into the market at any second and take us back up. Never happened. Market lost 20-30-40% and the "cash on the sidelines" never showed up.

    Long story short, I don't pay a ton of attention to mutual funds anymore.

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  62. This morning reminds me a bit of the morning after the TARP plan and short selling ban were announced I think it was September 18th or 19th (???) 2008. A real emotional short covering frenzy.

    Anyone here an expert on the "three drives to a top pattern"? It looks to my untrained eye that the NDX daily chart could be sporting that pattern here.

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  63. 1 trillion, leveraged.
    A - it's not enough, everyone was saying they needed 2 trillion.
    B - it's leveraged, more debt to solve a debt problem? it just doesn't add up.

    Chinese markets just can't rally. Nothing pulls them up, and while greek CDS are down 5% this morning, China CDS are up 12%!!!

    Rumors are that a run on Italian & Spainish bonds are coming. Why would you buy one of those bonds if a 50% haircut could be in the cards with only a 20% backstop from EFSF?

    I believe the question isn't if, it's simply when. Problem is the when could still happen after another bull run above May highs.

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  64. Rocky,

    this article spells it out pretty well IMO...

    http://www.ft.com/intl/cms/s/0/d89b0c32-fb51-11e0-8df6-00144feab49a.html#axzz1bvJAPRSp

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  65. I remember that TARP day. That was a gift from God, I shorted it like crazy. It was like a 50 point up day on SPX, wasn't it?

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  66. NDX lagging the rest of the indices, 10 year TSY bouncing off of the 2.30% yield, credit markets are off of their highs (Investment grade) as well as high yield (HYG) -- early tells?

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  67. Pretzel - your charts now say this is the 3 up...logically we should cover on a 4 down to the support of the ED trend line right? Could the wave 5 simply retrace to 1276 and die there?

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  68. CTP and Pretzel:

    Will today session be choppy like yesterday?

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  69. i am more an economist than a trader, but let me offer my humble opinion on cash on the sidelines. stock prices rise or fall depending on who is more eager, buyers or sellers, not because money moves in or out of the market. every dollar held by someone is a dollar invested either in bonds or stocks, so money is always fully deployed somewhere

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  70. Problem with the bull case also, even if I want to go long... there aren't too many names out there I feel like they have the "right" setup to hop on...

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  71. Rocky,

    FWIW my count is that the move is that wave C off the 10/4 low has completed this morning. I would not be looking for a 4 and 5 here, but that's just me...

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  72. So CTPtrader, youre expecting the S&P to hit the 1070 level again?

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  73. Frank,

    I am looking for a continued fade today. Time for playing buying dips is over IMO...

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  74. Rocky- I personally wouldn't look to cover to early if we start declining. Too much ambiguity in the charts... might get another pop might not. Or, maybe we just rally right on up to 2000 and it's a moot point. :D (I'm joking... I think.)

    Hey, TJ, ty for the input. Is that the same TJ I know already?

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  75. The only thing I am interested in going long is GLD (yes with a stop too). But even that can get dragged down if the market does sell off if Pretzel's bear case is correct. Stocks don't really look too good to me at this point to go long.

    I am still holding on to my shorts :-) I am with you guys still.

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  76. Also, Rocky, that trendline isn't actually support. It's just a theoretical line I drew in.

    Remember this from the article:

    "Please please please note that the gray ending diagonal lines as drawn are purely hypothetical."

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  77. Pretzel, I don't think we know each other, but your blog is a start.

    I am happy to find your analysis, because it gave me more conviction to go short since my research on fundamentals already screams overvaluation, poor market internals, and flashing red leading indicators, and most of all, ST overbought conditions. Your technical analysis jives in nicely

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  78. Yeah, but VIX slammed right into the 150 day ma. Indices are all hitting those key supports and holding...for now.

    I was long VXX going into today. That is a 10% haircut on the open. Yikes. Holding in there for now.

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  79. CTPtrader, when does your cycle hypothesize the low will be?

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  80. Do not forget then...that italy,spain, portugal ,ireland...will scream for an haircut..which they deserve after Greece...
    all of this looks promissing...!!!!

    the mania could go to depression very fast

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  81. Dollar and Euro gave way on their 200 day ma.
    That's not good for bears. Now I'm worried.

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  82. will do.

    also, it seems like we're slowing inching to the 1275 level in the S&P again...

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  83. S&P at a new high for today

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  84. curious to see what the 3 pm train wil do today....???

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  85. definitely. I think there will be a selloff. What about you?

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  86. This market is doing a fine job making a bear nervous. Can we give the bulls a heart-attack for a change?

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  87. Sorry Pretzel for the mess :-P

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  88. I can't see the market exploding to the upside on the close, 2 options IMO...
    1 - we selloff
    2 - we hold flat below 1280.
    But tomorrow could be a whole new story. I really think we need a close below the 1276 moving average or we may be destined for a retrace to the 1307 fib resistance.

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  89. Is it just me? Or do other people feel like they're being eaten alive? I am floored by the velocity and momentum of this rally.

    Question for PL & CTP whenever they return: given that the timing of the counter rally has far exceeded any expectation, could it be that momentum caused by this intense velocity will defy typical EW measurements? This all has the feeling of a tsunami. So when will the water finally start receding seems to be the question that neither TA or fundamentals can pinpoint at the moment. Just my observations though it's probably just being redundant.

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  90. JM... I feel ya.. my P&L not looking too hot right this moment.

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  91. hold steady folks... Russell2000 just tagging it's 61.8% fib retracement from May to October lows ... max pain is being felt by many - that means we are near the top as pretzel has said. Upside/downside from here is IMHO +2%/-10% -- in next 2 weeks -- i like the short side on those odds.

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  92. It's my understanding that, after the fact, any movement can be counted in EW. That's one of my frustrations in trying to use it, there is always an alternate count out there indicating an opposite scenario. The correct count may only be verifiable in retrospect (correct me if I am wrong someone!). Looking at the comments over on Daneric's blog today there are folks staring to consider bullish EW counts.

    Great blog here btw, thanks Pretzel for sharing your analysis.
    Curtacoma

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  93. what is the 61.8 fib on RUT?...766?

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  94. If you want to know the definition of a blow-off top, how about 20% rally in 3 weeks capped off with an 6% rally in 10 hours. That is what SPX has accomplished today.

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  95. are all bearish bets off?

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  96. These kinds of hysterical moves are NOT the sign of a healthy market. From hysterical panic one day to hysterical euphoria the next. This is in serious need of prozac. :-O

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  97. Anon,

    Not as far as I am concerned.

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  98. can you explain your thinking? didn't we just break through the hard stops on SPX, DOW, RUT

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  99. However, this kind of momentum could take a few days to dissipate even in the bearish scenario.

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  100. This reminds me of 03/09...

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  101. Anon,

    My thinking is based on my wave count and cycles work. I don't recall mentioning any level for my hard stops, maybe Pretzel did but those would be his not mine.

    No guarantee that I will be correct in my bearish stance but then again that is what makes a market. Just remember I was bullish at the start of the week, went bearish at the close Monday and then was leaning bullish from the lows Wednesday. So maybe I am due to be wrong this time in my new found bearish stance. Only time will tell.

    Best,
    CTP

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  102. One other point, I would caution against getting caught up in the emotions of days like today. I always try to stay cool, calm, and detached from the frenzy. Sometimes this is easier said than done. But coming into days like today I have a plan and I try to just stick to it and tune out all the news and stay focused on the charts.

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  103. And a last comment before I will be away for the rest of the session. In my experience, a massive move like we see today would be very bullish if it was coming off an oversold bottom, but coming at the top of an already extended move such a move typically means something entirely different. But, like I had warned several time earlier this week they are NOT going to make it easy for bears to get positioned short, so could even be a few more days of punishment as this momentum works off with a drives higher.

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  104. PL and CTP,

    So my question is are we past the fifth wave of the ED into a throw-over? Please tell me this is so!

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  105. And BTW, I think this market is probably beyond the help of prozac. It's needing some heavy-duty lithium.

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  106. Well...now what? LOL
    I wonder if pretzel has a count for spx hitting 1293.

    Only reason I'm still short is I'm only holding a BIDU short which seems to be fading at 140 resistance and some VXX which hasn't moved since the open becuase VIX is holding 25...for now at least.
    Oh yeah, have some TZA, probably should have covered that on the open, that has been exceptionally painful. I've burned this much cash, might as well ride it to the 1307 fib before throwing in the towel.

    Easily the worst day of my personal trading history today...ontop of my worst month in history.

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  107. ditto on that RockyTop. I've lost around 30 percent on shorts this month only

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  108. come on spx, ride this last 10 minutes below 1276. let me see that beautiful shooting star top!

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  109. I feel ya RockTop.... I was holding TVIX and it got a nice haircut this morning... :-(

    Are the sellers back for real?

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  110. This entire month has been a short squeeze month for the history books and today caps it off with a day that will go down in history as on of the most vicious short squeeze days of all time. That is what happens when crowded trades like the short Euro trade go wrong. We certainly are living in interesting times.

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  111. apparently not...looks like daytraders covering longs, faded at the end. 1284 spx doesn't sound bearish to me. In another forum a guy was calling for 1284 as the top. But I have a hard time believing a top closes like this. 1276 put up no resistance, that's what shocked me so much today. Bears have all got to be looking at 1307 fib, but if everyone is watching that level, how can it really serve as a top?

    Let's see, the bear killer is NDX 2438 (July high) according to Pretzel, that's 40 points or 1.6% higher. SPX 1307 (fib retracement) is 23 points or 1.8% higher. Those line up decently. Question is, can Pretzel find counts that jive with these levels? We've already blow past the caps on SPX & DJIA for his current counts.

    Question for Pretzel relative to EW rules, how hard a cap is the NDX 2438 high. Can we violate it intraday and still count this as a countertrend rally or does a cash market print above 2438 officially kill the bear? If I recall correctly, you were telling me 100% retracement is all that is allowed. Just wondering if there is some type of intraday exception.

    Atleast the bleeding is over for today.

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  112. Did Pretzel throw in the towel with his mysterious absence from this board?

    FWIW, it just seems everyone was expecting the rally to end at the 200 dma or the H&S tredline. From this fact alone, the market is probably going straight to 1300+. I actually liked Pretzel's count the top was in at 1256 since no one was expecting it. We all know that didn't end up working.

    I have no idea where we go from here. I'm kind of net short as well and just lost my ass like everyone here. Hopefully this rally fades at some pt.

    Peace!

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  113. blackjak-

    No, lol.

    It's not mysterious, if you read all the comments. I live in Hawaii, which is 6 hours behind Eastern time. I usually pull an all-nighter to watch the open at 3:30 a.m., then go to sleep in the wee hours of the morning.

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  114. Wow, what a day. Counts were clearly off on SPX and Dow.

    I continue to be of the opinion that the NDX is the canary in the coal mine here. I'd be curious to hear thoughts to the contrary, though. CTP, anything?

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  115. daneric has some interesting counts...he sees this as a wave 3 up of C with the base at last thursday's 1197 low where he ended the B consolidation... expecting a 4 down to roughly 1265 and then a rally back to somewhere around the fib at 1307. He's still bearish. Not sure how he reconciles the moves in other indices though. How many bears can be left after a move like this?

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  116. He might be right on SPX. I'm still bearish too, btw.

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  117. RockyTop I agree. I feel like a traitor, not trader, but I can no-longer stand trying to short against the avalanche - I'm long until we really look like the mojo is gone

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  118. daneric called the wave 2 dump to 1220 fairly well. He's also tracking many breadth and sentiment indicators. He wasn't impressed with the only 90% up day in nasdaq and says bull sentiment is relatively high.

    CNBC keeps reporting about money managers being underinvested though which makes me think the market will be supportive near term while they try and get 'attractive' names on their portfolios by month end...could align with danerics' view of a wave 4 & 5 still to come with the move back down starting next week in November. Would be interesting to see what CTP says about his cycles.

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  119. Working on some charts right now... I think tomorrow is a good day to focus on the big picture. It's easy to lose perspective after a day, and a month, like this.

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  120. Sorry for blowing the count on SPX. :(

    This rally has been one for the history books.

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  121. Vulture, I agree...it's hard in the face of a move like this. As Pretzel says, you will be tested up here to stick it out. Until we see an SPX print above 1307 and Pretzel's NDX canary at 2438, I'm going to stick with my bearish stance. I may buy a dip down to 1265 and unload it around 1300. That's scalping though which has not paid off for me in the past couple of weeks. Be interesting to see what Pretzel comes up with tonight...or on Maui time, today.

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  122. AA investors yesterday:

    43% bullish
    32% neutral
    25% bearish

    Top is in sight.

    FWIW, today didn't feel like just short-covering. Felt like a buying panic to me.

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  123. no problem pretzel, you win some you lose some...that's the beauty and the terror of this market.

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  124. buying panic, lol...I like the sound of that :)

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  125. Pretzel, it would be interesting to see an intrad day wave sequence from today's rally?...my novice eye sees a 1,2,3,4...maybe a small pop on the open tomorrow to complete wave 5 before an A,B,C down to complete wave 4?

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  126. and any charts on the Euro/dollar would be interesting as well

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  127. Thanks, Rock. I feel like crap about it though. Trying to give everyone my best analysis... that's why I've been devoting so much time to this. Sucks to devote 8-10 hours a day to something for weeks at a time, and then just blow it anyway -- I feel like I owe everyone an apology for letting them down.

    Sorry, guys.

    It's definitely not the first time I've been wrong as a trader -- and I'm sure it won't be the last.

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  128. We don't expect you to be perfect Pretzel. We just deeply appreciate your hard work - giving us your best perspective on the markets. Tomorrow is a new day.

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  129. If we feel like we've been shorting an avalanche, that's because we have.

    If it feels like this is one for the history books, that's because it is:

    For the S&P, this is currently the biggest month rally since 1974.

    For the Dow Trannies (transportation average), it's the biggest month since *1939*. That's 72 years ago... pretty sure none of us were trading back then.

    This type of rally doesn't come along but once every few GENERATIONS. And wouldn't that be fitting if this is going to be a generational bear...

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  130. Rock, looking at the intra-day chart, from 1221 to 1292 looks like a complete wave. My guess is that we keep correcting lower tomorrow.

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  131. Pretzel,

    I just want to comment that no one knows the future moves of the market with certainty, the best we can do is try our best to analyze the objective facts and evidence of the market and make educated guess and come up with a plan to trade it. If the market is so easy that you can read it like a book, every trader will be rich right? We appreciate your hard work and hours in puting together this blog for us to exchange ideas and learn about Elliot Wave and your methodology.

    It's ok that things don't pan out as predicted. But that's what stops and money management is for. Keep up the good work!

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  132. Wow what a day! If this is still just a bear market counter trend rally, this has to be the mother of all counter trend rally!

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  133. Keep up the good work Pretzel. No one blames you. You're not my broker, financial advisor, or my preist. I follow you some, fade you some, and generally enjoy your commentary. See you on the Stool.

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  134. Also... The rally that fools them all has to fool Pretzel as well!

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  135. OK,

    Here's my 2 cents. Today's intraday high becomes the line in the sand. Above that and this 5th wave rally is extending.

    Now as I think about it, maybe selling the news was just too obvious this morning. If the job of this rally is to purge all the bearishness then a gap and crap on the Euro news almost certainly would not have done it. On the other hand if the rally continues into next weeks Fed meeting AND the Fed does something to goose it further THEN we would really have a full scale rout on the bears. Sentiment measure like the AAII that Pretzel mentioned above are finally starting to get into the frothy zone, so another coupe days of rally and maybe sentiment hits the bullish redline.

    My original cycle read was for the 10/27 +/- 1 to be a low this week, but then this monring with such a hysterical rally I figured that HAD to be the end of it and that the 10/27 +/- 1 would be a top instead. It STILL may be as long as today's highs are not violated, but if they are then I would be on the lookout for possible continued melt-up into Fed day next week.

    Very tough market. Pretzel and I kept saying it wouldn't be easy and that there would be maximum confusion at the top. I guess we just didn't consider the fact that we too might be among the ranks of the confused ;-)

    Best.
    CTP

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  136. On the bright side for bears is that we got a clear 5 wave impulse down on the intraday chart with that late day selling. But on the bull side that 5'er was almost too obvious and thus smells like a trap to me coming so late in the day.

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  137. Yeah, the last hour of trade was the first time all day the 5 minute moving averages were violated...that was one helluva straight up rally.
    Good to hear that we completed 5 waves yesterday. I'm game for selling from the outset. Unless Pretzel finds different support level, I'm eyeing today's low at 1265 to do a bit of covering.

    It would be ironic if the largest one month rally of a generation were followed by the largest one month drop of a generation, that would scare the crap out of mom and pop. But I tend to agree that when the drop does come, it will unfold a little slower at first. Maybe wave 1 down is subdued and wave 2 retraces close to 100%? a failure like that would definitely scare the bulls and give power to the 3 down.

    I bet after gyrating through 4 and 5, we're sitting at today's highs or near the fib suppport when we get the Fed announcement. With a 2.5% GDP print, no way Bernanke can get away with a QE3 right here. When he says no, we start wave 1 down. I bet jobs is lousy next week too and that's when we really start to back away from this TOP.

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  138. We head down tomorrow for a continuation of the 4th wave as mentioned by Rocky I think citing Daneric work. This gets everyone to add to shorts going into weekend. This takes us to next week where the Fed gives us a full out inflation target of 3% and more QE3 talk and this is then followed up with some IMF and China involvement with the Euro spiv - this will be enough to take us up through 1300 by Thursday and finish wave 5 of C and that will have the most people in the elevator for the quick trip to the basement.

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  139. POTUS:

    Good analysis; I am inclined to agree with you. Now that my preferred count has been eliminated, the A-B-C count becomes the most likely alternative.

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  140. And thanks for the supportive sentiments everyone.

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  141. I like it POTUS...actually I like it more than mine. A different timeline but the same bearish outcome 8)

    Wow, if this crash doesn't come, I'm going to be very dissapointed...am I getting too emotional?
    Come on Rocky, Rein it in, stay objective.

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  142. I'm keeping it simple here. It's all about Thursday's range. If we take out the highs then what I am counting as a 5th wave is extending and top would be next week around Fed day. If not then I have a completed top count in as of today and it will be confirmed by a drop below Thursday's low, in which case my 10/27 +/- 1 cycle nailed the top.

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  143. NDX put in a high volume spinning top today. That is a bearish topping stick and would be confirmed by taking out the low of the stick tomorrow.

    "Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend."

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  144. To start with, I really appreciate all of the hard work you have been doing. It's very informative and I've already learned alot by reading the analysis and comments.

    I've been keeping up with the information that all of you have provided for the last six or so weeks and have tried using it on occasion to adjust my strategy. But I have had a hard time attempting to reconcile EW analysis with my macro view in this environment.

    In another less chaotic period it seems that the analysis would provide very good entry and exit points, but this period feels and acts different to me. I feel that this market will continue to go higher because governments are forcing it to and the emotions of traders have less of an impact on the swings in between. Algorithms layered on top provide the volatility that we've experienced but those gyrations will trend the way the sovereign entities want it to.

    That being said can EW analysis or TA in general be predictive in this environment or is this really a buy and hold market until the FED, ECB, Chinese and the rest of the gang feel that things have stabilized and decide to stop interfering with it?

    Sorry for the long comment, but I haven't contributed to the discussion in the past and didn't want to piecemeal it.

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  145. persistent drip lower in the futures tonight.

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  146. big downside reversal in Copper too... looks like air may be leaking out of the balloon tonight.

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  147. Watch the $SSEC it tested it's falling 50 day SMA at the open and was rejected. If $SSEC contines to fade here that would be another sign that today was THE top.

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  148. Speaking of the NDX...

    Been re-drawing all charts, and discovered a potential game changer in the NDX. It's potential good news for bears actually. It will be posted in tonight/tomorrow's update.

    Good stuff, btw, CTP. Thanks for your contributions here. :)

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  149. Pretzel, thank you so much for all the hard work and analysis you put into this blog. I think it's very high quality, and you always make a strong case for your projections. And when your wrong, and your count is off, you acknowledge it and explain your rationale. In the past I've subscribed to other newsletters) and always felt they didn't provide nearly the detail they should for the money (I'm not going to say any names, but one starts with a P and ends in a R, and the other guy seems to obsess about some river trend?). Rarely, if ever, did they break down wave counts on an hourly chart, let alone a 10 or 1 minute chart. Nor did they ever incorporate other technical analysis. Anyway, thank you again; this is some really good stuff.

    What is your target for wave 4 tomorrow on the SPX, and RUT if you happen to have it?

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  150. RAL,

    Thanks. :)

    Haven't gotten there yet on ST targets. I'm still working on the larger wave forms and structure. Just a quick glance at the 10 minute chart and I would say 1267-1270 SPX is probably a fair target.

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  151. CTP - don't scare me like that and call a top already, it flys in the face of my game plan ;)

    Seriously though, do you have a count that would make thursday's 1292 a top? I'm still favoring a 4 down first where I plan to get long. Pretzel's range of 1267-1270 sounds perfect.

    I suppose if we break the wave 1 monday high of 1256 I'd be on board with your top call here. Can't wait to see Pretzel's NDX game changer, sounds exciting.

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  152. For fwiw, I went long around two weeks too early in March '09 and kept adding to my positions. In the end I got bumped out, forced to cover on the last massive down day (opposite of what we saw yesterday) and mostly at prices lower than the lowest closing prices.

    This time round I'm not prepared to make the same mistake, so I won't cover even if I were to lose my entire (current) playing capital in the process. Even though I'm 100% short, I play with only around 5% of my "venture" capital, so I will ultimately survive in order to come back and fight another day.

    So if I blow it this time I'll simply sit back, wait for the market to settle and then start afresh.

    They say Bears make money, Bulls make money, but Pigs get slaughtered. In March '09 I ended as a slaughtered Pig, hopefully I can ride this one out as a living Bear.

    By next week we will know!

    Jaco

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  153. Oh... you guys are going to love me after tonight's update. :)

    It all just came together. Almost everybody has it all wrong, except maybe for CTP. ;)

    I've figured it out... I THINK... I'm so friggin' excited, I'm probably posting this before I should; I haven't yet checked all my numbers twice and made a list to find out who's naughty and nice, and all that crap.

    So let me take all that away... preliminary indications are for a holy crap eureka moment.

    BACK TO WORK

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  154. Ah, no, sorry. Got ahead of myself... maybe not quite as exciting as I thought initially. I think I need to take a quick break and eat something, lol. You guys are slave-drivers! ;)

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  155. RockTop - I like your last take. Friday will see some profits taken and I can see an upward move to the Fed meeting where Bernake says there has been a slight improvement of conditions and that thwarts QE3 talk for now. With that there really isn't much left to propel upward. The charts listed in the article look fine for shape, just some of the top numbers were a little light, but the form looks good

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  156. Am I crazy or can someone explain this to me? How can the S&P futures be negative (-4.5) this AM and the SPY is trading up .75? I'm confused and can't ever recall seeing such a vast divergence

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  157. Ah... update finally done. Can relax for 26 seconds.

    Jammer-

    For some reason, your comment went into the spam box.

    To answer your question, the only way the government can interfere in the market is by generating liquidity, either by printing money, or lowering interest rates. Interest rates are about as low as they can go. And I don't think they'll print right now. QE/QE2 did nothing for the real economy, except send commodity prices skyrocketing.

    High oil prices are very detrimental to the economy and to consumers.

    Personally, I think the Fed has shot all its bullets. That's another reason why I think the crash is inevitable.

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