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Tuesday, November 1, 2011

SPX and NDX Update: Bulls Running Out of Options

On Friday, I assigned roughly a 50% chance that Thursday marked the end of the rally, and the top of Minor Wave (2)-up.  Today, I would move that probability up to 80%.  As far as I can see, there is really only one "last hope" for the bulls at this stage.  But before talking about alternate possibilities, it's more important to talk about what's most likely, so I'll discuss that last hope in more detail a bit later.

The market has now given us solid confirmation of the bear case with the break below 1256 SPX.  If we are now in the beginning stages of Minor (3)-down, this wave should ultimately turn into a waterfall decline to substantial new lows.  First target for Minor (3)-down would be in the area of SPX 800 -- but that target could easily move lower as the move progresses.  But, obviously, it's not going to move straight down, there will of course be bounces and rallies along the way -- so first things first.  The charts below reflect the early targets for this smaller wave within the larger Minor (3) wave.  The SPX chart is first, NDX is second:



The structure off the highs is anything but clear-cut, so I am generating these targets using my assumptions of what that structure is.  The first target zone for the SPX is 1194-1220; and for the NDX 2274-2320.  Unless the market is even weaker than I'm anticipating, we should see some type of bounce in these areas.  Tomorrow, we can look at the next target levels.

It's always tempting to get excited when the market follows your predictions, especially when you were a bit off the beaten path making those predictions in the first place.  The problem with excitement is: I think emotion is the killer of most traders, and it's very easy to become too subjective and start trying to fit the market to your expectations, instead of objectively seeing what's really there.  So I continue to challenge my views, even when they seem to be right.

While doing so tonight, I came up with a "last hope" short-term pattern for the bulls.  I don't consider this pattern likely, but it's not impossible.  The bulls last hope here would be an expanding ending diagonal pattern.  Under this pattern, the SPX would put in a bottom somewhere north of 1197.34 and rally back up to a new high.  Expanding diagonals are one of the only patterns where waves 1 and 4 are allowed to cross into the same price territory, which these waves have already done.  That's why I view this pattern as the last hope for the bulls... because there is little else that's possible given the technical damage that's now occurred.

The chart below is annotated with my preferred count in blue and red, and the bullish alternate count in black:


The bulls last slim hope, as I currently see it, vanishes with trade beneath SPX 1197.34.  Please realize that I'm only assigning a 20% chance to this alternate pattern unfolding -- but as I said, it's still not impossible.  However, if there's one entity that can take a low-probability pattern and make it reality, it would be the Fed.  I'm not expecting any game-changing fireworks out of the Fed meeting, and I firmly believe that QE3 won't happen right now... but, ultimately, that's just my very strong opinion.  So, in the event I'm wrong, there's the alternate count.
 
Assuming my big picture view of the situation is correct, and so far it's played out very well, then the market is in the early stages of becoming extremely hostile to long-term buy-and-hold investors.  If the big picture view is correct, the markets could ultimately see levels that most would consider impossible.

As an additional quick update, my call for an imminent bottom in the US Dollar could not have been more timely.  I posted the dollar update on my blog on Saturday, and the dollar went parabolic on Monday.  After reviewing the wave structure in the dollar, I can say with 95% certainty that the bottom is in for the US Dollar, and last week's low should hold for a long time to come. 

Beyond that, it's getting ugly out there... trade safe.

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

152 comments:

  1. Good morning everyone!

    Wow, that spike down to 1212 in the futures and immediate rally smells a bit like intervention. Be interesting to see how the cash market goes... every now and then, the futures will do the work of the cash market and put in the low.

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  2. Yikes! Things are getting a bit "flash crashy" here especially in the currencies. Well my cycle roadmap posted this weekend calling for sharp drop into Tuesday was spot on. Unfortunately I didn't execute on trading it as well as I could have. left way too much on the table by covering near the close yesterday. Although some minor redemption in that I decided to put a small short position on in the NQ futures before I went to bed last night (with tight stop). The reason I did it was the "flash crashy" feel of the Euro and Aussie Dollar last last night. Covering this morning because I don't want to be greedy but still I would not touch the long side with a 10 foot pole. While cycles suggest we begin a bounce at some point today, it could get alot worse prior to that and as mentioned above I am getting eerie flashbacks to the May 2010 flash crash day... Trade Very Safe Today!

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  3. Also, a quick shout-out to Tina who donated a couple weeks ago... somehow I never got the e-mail for it. So, very sorry for the belated thank you: many thanks, Tina, your support is greatly appreciated. :)

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  4. Morning CTP -- this market is fugly right now. Sure "feels" like I would expect at the start of a big third wave down.

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  5. btw, don't forget to show your support for the blaaawg, and "donate"! Love you guys and gals! :)

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  6. This Greek referendum thing is really freaking the market out bigtime. From a macro standpoint it is a major game changer as it is the first time they would actually let the people vote on a bailout instead of banksters, their bought politicians, and bureaucrats over riding the will of the people with their back room deals. Could certainly be the "endgame" for this whole charade. Makes even a short-term trader like me think about adopting "short and hold" policy ;-)

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  7. 2270 NDX would be my extreme downside target if we get a flash crash today. Anything below that and we get into "uncharted territory". Very dangerous market. Short or flat is the only option I would consider today, long would be going to sleep on train tracks IMO.

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  8. CTP, I agree. This is NOT the type of market to try and counter-trend trade unless you're a veteran expert trader. This is a "catch a falling knife" market right now.

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  9. Your bottom NDX target lines up nicely w/ mine, btw.

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  10. And a veteran expert would certainly know better ;-) than to get in front of this kind of momentum. To even entertain the notion of the long side I would need to see a big bounce in the Euro instead of this straight down crash action.

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  11. Yeah I noticed that, good to have further confirmation. Great minds think alike ;-)

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  12. Okay, I gotta run.

    Be very careful out there today folks.

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  13. Man, I'm really worried about Rocky today. :(

    Ok, cya CTP

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  14. Thank you PL! I am not a short-term trader, but I like to follow what traders are thinking in order to hopefully avoid major landmines like this one appears to be. It is my pleasure to send you a donation. You put it all on the line in your posts and right or wrong, I respect you for doing that.

    P.S. You may want to consider paying someone to follow you around with a fire extinguisher; your calls are so hot, you're at risk of spontaneous combustion.

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  15. Wow, William! Thanks, that was VERY generous of you. Greatly, greatly appreciated.

    My wife will be even more thrilled! I've been killing her with the hours I'm putting into this. :)

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  16. 38.2% fib retrace of the move from Pct 4th takes us to 1208 -- maybe a bounce there?

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  17. meant to say Oct 4th low to 1293 high

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  18. My thanks go out to your wife for sharing you with us. Your passion and commitment to your work are evident. We dropped quickly yesterday once 1256 was breached, seems like some others have reached similar conclusions as you (or strategists at GS, MS etc are some of your 'anonymous' readers...)

    It will be much easier to focus on my job today knowing I'm in cash and there's no reason to get long anytime soon.

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  19. Yeah, basically cooked. I'm going to have to close my positions...I simply have no idea how to re-enter this market. You wouldn't believe the losses I've suffered over the past 3 months. A true cautionary tale.

    Good luck to everybody else.

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  20. i'm a new trader and have been following this blog for awhile and very informative..glad i have not placed a trade yet!! i will certainly make a donation- i look forward to reading this blog daily!

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  21. William, thanks for the encouragement. My wife extends her heart-felt thanks as well.

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  22. P. - the bear sentiment is everywhere, makes a contrarian wonder about your 20% bull case, hmmm. You guys have balls of steel to navigate thru this market. For me I remain in cash with a small position opened in TZA last Thursday and even that has me sweating bullets. Again, very good article and CTP you made an excellent point about the Greek vote - that is definitely a first for the people of a small country to have so much to say about the potential movements of markets, and folks think Vegas is a ride well its got nothing on this market.

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  23. Rocky, I'm really sorry to hear that, man. I've been there, and it's painful. I hope you can recover.

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  24. Pretzel,

    Are the bears striking back with vengence this time? :-)

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  25. RockyTop,

    I feel your pain. I have suffered some pretty substantial losses myself this past year. I was "unlucky" enough to be on a roll when the extended rally began last fall. As they say a little knowledge can be dangerous, and I took more and more risk because it seemed I couldn't stop winning. When the market finally tanked this summer, it took a lot of my assets with it. I'm slowly undoing the damage sustained to my portfolio and filling in much needed gaps in my knowledge of technical analysis. I was always told that the focus should be first on risk, not reward. Yes, painful, painful lessons. But I hope you're still in the game. Despite everything, I am still loving trading and am finally finding a workable risk management strategy. Hope this helps to get a note from someone else who's in the trenches with you.

    Best,
    JM

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  26. anon- thanks.

    POTUS- basically, beyond the levels I've posted, I have no clue where this thing will find support. It's one of those days...

    KB- bear markets can rip the best traders to shreds. I know some very good trader/investors who pretty much sit out the entire time when bear markets are raging, and wait to go long again when the bottom looks close.

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  27. RockyTop and JM,

    Hang in there and don't give up! I still firmly believe in the spirits of our free markets, even though politicians screw it up once in a while. Think on the bright side, with securities you can just hit and button and close them and get rid of the "eyesores", unlike my house which is under water... and I can't just push the "button" to sell it... :-(

    GL to everyone.

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  28. Hey, Frank! Missed you... thought maybe you got eaten by bulls. :)

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  29. Pretzel,

    Hehee... I joined the bull forces for a couple days.. and I am ready to switch side again :-)

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  30. Pretzel,

    Quick heads up. Although extremely unlikely due to the Euro situation I do still see a POSSIBILITY (that's all it is) that we have not seen the top of wave C from 10/4 low. It is very slim odds IMO and I am not expecting it, BUT as long as we get a decent bounce early today that holds. Roughly NDX 2300 area is the area I would need to see hold. If we are making new lows after 11:00 AM EST today then scenario is not valid. But for now it is worth paying attention to. One thing in favor of it is how bearish I am "feeling", I have learned that whenever I start feeling really strong emotions toward one side of the market or the other it is often a good fade ;-) ... So, in short while I rate the odds as slim there is still the potential for new highs as long as we see limited damage after the open and the market does not make new lows after 11:00... Cycle wise we would then be primed for a bounce into 11/4 +/- 1 that could see new highs. FWIW I am not playing this on the long side though unless I see the Euro stabilize...

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  31. On Friday my 6 x 100% short position had been in serious trouble. Luckily I didn't have to cover (even though I had been heavily under water) as my broker is running a competition and currently allows us to go 50% down on marked-to-market EOD margin.

    Had been a gamble for sure, but my TA over the weekend just didn't provide any reason to cover. Has to be those bear spectacles ;-)

    Luckily the last two days had been a real godsend. Four of my six positions are now back in the money and over all I'm just about breaking even!

    Think I will allow this train to run a little further down this track....

    Jaco "De Beer" Strauss

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  32. CTP- yep, that would line up w/ my 20% chance of an expanding ending diagonal.

    I'm right there with ya on "feeling" ultra-bearish right now. Those are the always the times I start wondering how or why I'm wrong...

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  33. Thanks Frank!

    As I said I am still loving trading. Luckily, I still have some capital to play with, and my short trades are *finally* playing out. The past couple of days have been very good to me.

    Cheers!
    JM

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  34. Yeah guys, thanks for the support here. I think I need to step away for some reflection. I'll stay in the blog cause it fun and educational, but I need to find my footing first and get control of my trading emotions.

    JM - my story is as follows.
    Was lucky enough to go all in at the 2009 bottom. Levered up and made a TON of money...many multiples of my annual salary. Thought I was an investment king. Seen the Interactive Brokers protfolio margin commercials? yeah, suckered me in....and paid off big time, for a while. Then it broke and I hadn't properly assessed the risk.

    Since August, I've basically given back all my gains from the 09 bottom and then some. Reckless. I'm young so I thought I could take the gamble...gamble it was. Market will punish you for excess leverage, but you never thank its going to be you. Hard lessons.

    Looks like freeport (FCX) has filled both open gaps with the drop this morning. I'm going to hold for the first hour to see if we get a small snap back and then unload and observe. Maybe there will be another opportunity, we'll see.

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  35. Pretzel, you are probably right.

    The biggest reason to perhaps cover is this "feeling" that I shouldn't. As soon as I'm sure about something in the market, the opposite normally happens.

    No wonder I was therefore actually quite surprised when the markets tanked on Monday as I expected it would ;-)

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  36. goood morninggg guys!

    its nice to see my portfolio back in green :)

    anyhow so ctptrader and pretzel, you're expecting a bounce here or tomorrow?

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  37. also, it seems to have bounced a little off of that 1220 range.

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  38. i just covered 80% of my leveraged ETF shorts. somehow, i feel this is just going down a little too fast for it to be sustainable in the short term. looking to add more on the bounce.

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  39. how big are the bounces expected to be?

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  40. Yeah, Rocky, hang around for sure. I appreciate the discussions we have. Maybe try some paper trading, although there's no emotion in that, so it isn't the same... but at least use it to help you decide on exit strategies. I strongly maintain that you should never enter a trade unless you know where your exit is, especially when it comes to stop losses.

    But I do feel your pain, and I hope you find a way to work through it. FWIW, virtually every successful person out there went bankrupt at some point (sometimes more than once) before succeeding. Life is, after all, a giant learning experience -- we aren't born with an instruction manual.

    So my other advice would be: don't beat yourself up too badly for your mistakes... in other words, don't punish yourself too much for the simple act of living. Try to learn the lessons there, then let your mistakes go and move forward.

    Trading is definitely something that's "learn as you go" -- and it's an unforgiving arena. Life is "learn as you go" too. Our mistakes -- in both -- are really the only things that can point us toward the areas we need to work on.

    I know that's small consolation, but hang in there -- one day you'll see the value in your experiences of the present.

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  41. These are very difficult markets to trade...

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  42. Of course, then you have to start thinking contrarian to the contrarian... when all the bears are nervous about being short... hmm.

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  43. Anon- a general rule of thumb for the first decent bounce would be 40-60% of the prior decline.

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  44. *IF* this is a 4th wave-up here, 1240-1250 would be a general target... but if it's a 4th wave, it would mean we've still got another low coming. The structure off the highs is still a little screwy to label accurately, so I'm low-confidence on what happens next.

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  45. So far, this little bounce looks corrective.

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  46. yeah, so question at this point is...are we at the bottom of the impulse down, or might this merely be wave 4 we're building? assuming we just completed this last leg this AM. It would only be logical that we do some sideways trading at this level considering we did that on the way up right?
    It truly would be shocking to break 1190 on the first impulse down. i'm actually favoring 1190 as the base of this impulse though, 1220 gave way rather easily this AM.

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  47. mav- you had a nice morning, huh? If I recall, you were holding your shorts overnight.

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  48. Rock- if this is a fourth wave correction right now, 1190-1200 looks like a fairly likely target for the 5th wave.

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  49. is the 40-60% off of the lows of the day. so the bounce i should be looking for is from 1228-1240 ish?

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  50. Rocky,

    There is definitely an irony in trading that it is better to not have too much success right away. When I first started out trading 14 years ago I started out gangbusters as well, Was nailing every turn in the market and thought I had it all figured out. Went massively short via index put options just prior to the 1998 late Summer mini-crash and did a 10X on my account, then proceeded to lose it all shorting the final tech bubble blow-off in 1999-2000. The worst part was that I didn't have enough $$$ left to take advantage of the true crash from 2000-2002. The best advice I can give you from someone who has been there is:

    1) Don't worry about making it all back quickly. Focus on one trade at a time. Revenge trading is a killer.
    2) Figure out what style of trading best suits your personality and stick to it. Also spend some time developing a SMALL manageable set of technical tools that you have confidence in. Don't jump from one style or one indicator to another, or try to look at too many things (analysis paralysis)
    2) Always plan out ahead of time what you will do if the trade goes against you and then be disciplined about honoring your stops. A trading journal is helpful for both pre-trade and post-trade analysis.
    3) Don't use excessive leverage.
    4) Be patient and selective about when you get involved in the market. Sometime the best trade is no trade.
    5) Be very aware of your own emotions. When you feel strong feelings of fear, greed, or excitement, use extra scrutiny on your trades and consider how you might be wrong. Confidence is essential but over confidence is a killer.

    Sorry if there are too many cliches in there but following those guidelines have helped me tremendously.

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  51. Not seeing any positive divergences yet... usually means we'll make another new low.

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  52. Thanks CTP, good advice...your absolutely right about revenge trading, that's what I've been doing. I've read about the need to remove emotions from trading, starting to understand what that really means now.

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  53. Pretzel have you covered your shorts? Seems like the market is trying to cover the gap today

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  54. Sorry if I got too philosophical there earlier, Rock. One of the times I busted out my trading account some years ago, I had a really hard time dealing with it for a while. Had a hard time letting myself "live it down" so to speak.

    That's where that whole tangent came from, anyway. :|

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  55. Don't forget my bull scenario I presented this morning that as long as 2300 NDX support area holds today bulls still have a chance as cycles should be turning up into 11/4 +/- 1. Low made between 9:30-11:00 AM EST must not be violated for bulls to stay in the game.

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  56. I did, TJ. But I still think we make a new low for this move before we rally for real.

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  57. I just want to thank William again -- you really made my day today, William. :)

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  58. SPX so far has held on first test of rising 20 day SMA since Oct. 10... Not a time for bears to get complacent IMO. FWIW, I am flat since covering overnight shorts at 8:00 AM.

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  59. P - maybe a true contrarian's contrarian bear would hope for more QE by the Fed tomorrow! Wow, too much to think about that it stretches my brain beyond it's small capacity - Lol. And BTW thanks for the advice on bear market strategies. Really love the honesty of all the guys here - too many times people lie about there market positions to look good even in the virtual world.

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  60. Thanks Pretzel, it actually does help to hear that others have experienced this before and recovered. It's fairly damaging and difficult to deal with but I'm getting there. I really do appreciate the perspective, helps make sense of it all.

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  61. Pretzel,

    As far as macro... what do you think of Bank of Japan intervening their currency appreciation (devaluation). Do you think this is an early sign of competitive devaluation? I know this is a big question.

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  62. CTP- I agree, the bears do need to push it through here.

    Apple still under 400, and currently looking like yet *another* island top.

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  63. CTP - excellent advice, discipline is always the key and that's something that none of us learn easily. I've been a horseplayer for over 20 years and I am just getting a grasp of being disciplined. You hit a few big ones and you feel unstoppable, then you hit some losers, swing even harder for the fences and BAM in the hole! Like you said know when to get in, when to stay out and more importantly when to get out!

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  64. KB3,

    I got kicked around pretty good by the market too. My account is having a drawdown in this choppy market. I am hoping a big fat trend will re-emerge soon (up or down).

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  65. Pretz - take a look at the Russell 2000 (R2k) - if we hit the uptrend line from the oct 4th low - 728 and kiss it goodbye -- then that would leave a nice island reversal from Oct 27th and today .. what do you think? r2k has been the leader on the dips and laggard on the rips

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  66. Market has certainly been hit with alot of bad news what with Euro situation seemingly spiraling out of control and MF Global bankruptcy bringing back Lehman memories. But at the same time technically speaking this is where you would expect bulls to step up and defend, and they now have ST cycles as a tailwind. So, today will be a true test of the bulls mettle, will they step up or fold like a house of cards? Not a good day for making big bets either way IMO. But if I didn't know anything about "news events" and was trading purely off the charts and my cycles stuff I would be leaning bullish. Unfortunately this has been a news driven tape so news does matter in this case. Murky cross-currents like this make me happy to be in cash, but for those who may be long or short this mornings low is the line in the sand for bull vs bear scenarios IMO.

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  67. And here comes Frank with the heavy questions. :P

    Honestly, I didn't read much into it. BOJ has done it before.

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  68. Just went to cash. Wait for the AM snap back and get out. My plan before the open, so I'm going to stick with it and not try and get it all back here.

    Pretzel or CTP - let us know the next time you see an appealing entry point to consider.

    If this market is going lower, I tend to agree with Pretzel that we've got another leg down to complete this impulse down to 1190s.

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  69. POTUS- yeah, right at the line now. Hadn't noticed this before, but the RUT looks like a clean (w)(x)(y) double zigzag. I initially had it pegged as a 3-wave move to the 713 high. And it now looks like a clear 3-wave from 679-769.

    Suppose the bull argument there would be to see if they can put together a triple zigzag for a new short-term high. The structure sure argues very strongly for the long-term bear case in RUT.

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  70. CTP and pretzel,

    I am in cash now but I started again layering in small short positions as the indexes work its way up here on a comeback. If the SPX gets above 1285 to new high again I'll bail again.

    If I see individual names that look good I'll open a long position to "hedge" my shorts :-)

    Sounds good?

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  71. Rockytop, my sympathies. I had been lucky this time round, but am definitey not proud of this trade (and it is not even over yet either ;-)

    I also made bad trade last week, going short too early and then didn't get out when I should have. My risk management was terrible and I (hopefully really) realise this had been a get out of jail free card. Will have to try harder to avoid similar positions in future.

    I've mentioned my March 09 disaster on this list before as well, but in short I went long too early and lost 70% of my playing capital that had been 5 times larger than what I'm currently playing with. I got bumped out at the very lows. Lower than the closing lows and then tried to fight the tape the next two years...

    And with my cowboy behaviour of last week I will not give myself anymore either at this stage LOL

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  72. Frank, from what I gather, you seem to be making things work for ya, and that's all that matters. :)



    Might be building a nice little head and shoulders on the 5 min SPX chart.

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  73. Hey all,

    I don't know if any of you pay attention to the bond market, but I find it to be one of the best "fear" gauges out there. In that regard yesterday the real interest rate (interest rate - inflation rate) on 30-yr bonds was 0.85. That is lowest since 10/4/11 record low of 0.83, and with today's action we might break that 10/4 low. The only other reading close to this was 0.87 on 9/22/11 and 0.88 on 8/10/11. Do you think this sort of thing might get the Fed's attention?... As I mentioned before not the time for shorts to be complacent.

    And for those who may have forgotten, my cycle roadmap for this week which I posted here over the weekend was for a "sharp drop into Tuesday" and then a rally into 11/4 +/- 1. So far the first half of that forecast has panned out perfectly. Time will tell if the latter half pans out as well...

    Trade Safe!
    CTP

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  74. Frank, so you're playing for a move lower to complete the impulse? that's a possibility (that's why I went to cash).

    FWIW- note that I went long friday to catch wave 5 of the impulse up, so don't make the same mistake I made. All in to catch wave 5 I've learned is a dangerous animal. Looks like you're taking small bets so that's probably prudent. Good luck buddy.

    Jaco - thanks man. Makes me feel like I'm not alone in all of this. It's like an AA support group here..."My name is RockyTop, and I'm a bad trader" lol, I'm gonna get this figured out...but I need to slow down to get there.

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  75. Market flirting with a pretty important level right here:

    http://www.screencast.com/t/HcGKoVfMQP

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  76. Pretzel,

    My account is having a drawdown as I said. I have been trading on and off for the last 10 years... and I just recently came back to trading. I always gave up just right before that "big" trend emerged... I always got "chopped" up before the good ride. This time around I am a gonna "hang" tight. But I realize I need to keep my powder dry to enjoy that big wave (bull or bear) which will eventually come. Some trader said the longer and the more choppy the consolidation, the more explosive that trend will eventually "blast" out of the range.

    the 5 min and the 13 min chart also looks like a H&S formation to me intraday basis. I hope this is not H&S hallucination :-) The two sharp break (gap down) yesterday and this morning seems to be forming the right side of the head and the right shoulder to me...

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  77. If the bulls can't retake 1230 with conviction, they've got (more) trouble.

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  78. yeah pretzel, would be surprising if it didn't bounce off that atleast once before failing. Actually might be healthy for the bears to see a little letoff here? or does the same logic of a rally not apply to a drop...healthy corrections?

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  79. Rocky,

    Hang in there. Also remember bear markets are very difficult environment to make serious money. In the 90s where the big fat bulls were charging at full speed, even my aunts and uncles made a few bucks and they absolutely knew nothing about trading... Unfortunately I started trading right at the top of the biggest bull market in history... so I never got to enjoy those go-go internet eras... I am a bear child and grew up in bear markets... :-)

    Hang tight.

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  80. Oh, sorry Frank. I went back and reread -- I initially read your post TO KB3 as being FROM KB3.

    Yeah, patience is always key. Discretion is the better part of valor, as they say.

    There will be BIG trends down that will reveal their potential ahead of time. One thing to look for is an area where you have a clear stop not far overhead, so your risk is minimal if the trade goes against you.

    I am of course speaking hypothetically and not offering trading advice. I'm sure your broker is probably the guy to talk to. ;)

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  81. Well, that area represents a bull/bear battle line. If we get sustained trade above 1230, bears will take cover and bulls will step in to buy. Below that level is solid bear turf, theoretically.

    Right now, it's looking like a failure to retake 1230, and we're oh-so-close to getting the new lows I was looking for.

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  82. One possibility I like is a break toward 1190-1200, then a rally back to 1230ish before we head down again.

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  83. Thanks Pretzel,

    My account is not big enough to have a broker/financial advisor to give me advice :-) so I always consult my little sister and she says flip the coin. Some trader told me once that random entry works just as good as long as you have solid money management.

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  84. I was joking about random entry of course... :-)

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  85. There's the new low for the day. We could see 1200 before the close.

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  86. Rocky-

    re: wave 5. fifth waves CAN be some of the safest trades, as long as you *know* you're in an impulse wave and can be sure you'll *get* a fifth wave. your biggest mistake was assuming we were forming an impulse up with a fifth wave coming. FWIW, for future reference, when I say something in my article like "I'm about evenly split on whether we see new highs for this move" it means I'm only giving about a 50% chance we'll get another leg higher, and a 50% chance we're at THE top. Not saying I'm always right, but I do try to call it like I see it. If i'm going to play something that has a 50% chance of going 100% against me, i'd use very tight stops.

    know what i mean?

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  87. Well, we're making new lows past CTP's 11 am window... so it looks like his cycles are on board with my read on the wave structure.

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  88. That makes sense...why press ur luck on the last wave when it's a 50/50 shot. Bad odds considering we were obviously near a top.

    That was en emotional trade..."I've missed all these legs up, I don't want to miss the last one up"

    Over the weekend I knew I had made a mistake.

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  89. Hmm... trannies haven't made new lows yet, so I'm not crazy about that. Bears still need to keep SPX below 1230 here, or there could be trouble.

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  90. Rock, yep that's how the market gets ya.

    To go back to the poker analogy, it's a bit like drawing to four of a kind on the river to try and beat the guy who has an obvious full house -- simply because you've "missed all these draws" so far. You start chasing emotionally to "make up" for something you feel you've lost... when really you haven't lost anything yet.

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  91. here is a question...how can stops get you around gaps up and down?

    because you trade futures, does that solve the issue?

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  92. Yeah, that's one of the things I like about futures. You get stranded a LOT less. Every now and then, you'll get a Monday futures gap or what have you, but you don't get these every-other-day gaps you get in the cash market... especially during a bear market.

    I honestly would hardly even consider going long at all during a nasty bear if I weren't trading futures... especially overnight, in cash longs? No thanks. Not unless i had an incredibly solid read on the market.

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  93. Rocky, for what it's worth I've found it generally inadvisable to open positions on Fridays (unless it's a day trade). There's just too much that can happen over the weekend. If I have swing trade I'm holding and I have some cushion then that might be ok, but a new position with no room for error is too risky. These gaps have been very frustrating, think I need to learn more about trading futures (though it has occurred to me that the ability to trade virtually any time might not be a good thing for my family life! or my day job.....)

    Thanks for the great blog Pretzel and regulars!

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  94. Thanks, Curtacoma, and welcome!

    I have to run guys, so I'll catch up w/ ya later. Watch that 1230 level (if we even make it back up) for clues. Otherwise, I think 1200 or lower might be in the cards today.

    Cue CTP, he usually shows up right when I leave. :)

    Trade safe.

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  95. *** A little trivia from WSJ***

    The magic number for the S&P 500 is -2%
    -------------------------------------------
    November 1, 2011, 10:57 AM

    Bespoke Investment Group has helpfully run down the data for the the worst starts to November.

    The early 2.7% slide in the S&P 500 would qualify for the third worst after Nov. 4, 1929, and Nov. 1, 1932.

    The S&P 500 has fallen more than 2% on the first trading day of November four times.

    On each of those occasions it’s gone on to fall for the rest of the month.

    However in Novembers when the first-day slide has been less than 2% but greater than 1%, the index has gone on to end the month higher.

    -Tom Bemis

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  96. What just happened? S&P just shot up?

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  97. Yep, huge spike...what gives?

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  98. Pretzel,

    I was away but just saw your comment regarding the new lows after 11:00, but be careful because the Euro has held above it's 11:00 low and T-Bond have held below their 11:00 high, which makes for a bullish divergence versus equities. The drop in equities below the morning low could have just been a typical scumming of the stops before turning it higher... I could be wrong but I so not like the short side at these levels and at this point in time.

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  99. http://www.zerohedge.com/news/so-europe-fixed-again-referendum-basically-dead

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  100. 1230 seems to be resistance for SPX for now.

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  101. Just an observation, I notice that alot of traders are really hungry for a big trend in one direction or another. This is a normal reaction to the recent Mega-trending behavior we have seen with the 2008-2009 relentless bear and then the 2009-2011 relentless bull. But it is also possible that after having essentially a once in a century type crash down followed by a once in a century type rebound rally over the last 3 year that we could be entering a prolonged period of choppy trading range type action. One thing I have learned over the years is that once every one figures out the key to the market they change the locks. Just something to consider...

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  102. 2011 Sor far has been pretty choppy in general

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  103. Frank,

    Yes very much so and it is quite possible that it could stay that way much longer than most traders would expect it to. Which is why I will leave it to others to chase momentum in either direction. Maybe I'll end up missing the start of the next Mega-trend but better than than to get chopped to pieces trading false breakouts in both directions.

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  104. Hi CTP,

    Also many markets are too strongly correlated now so that's why many hedge funds having a hard time as well. Hard to find a good trend in any market except silver and gold earlier in the year. The bear trend is hard to ride with all these violent counter-trend rallies. 2011 makes 2000 - 2002 and 2007 - 2008 a walk in the park??

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  105. Yes very difficult year for most traders. Hyper-correlated assets, highly news driven tape, no clear trends to ride. If you go to sites like collective2 where developers sell their trading systems to subs, the majority of the systems are performing extremely poorly this year because most the developers coded up trend following breakout type systems that chase momentum. This year is not a good year to be chasing momentum IMO.

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  106. When will that end CTP? I am thinking even if we can a long term bear trend going down it will be a slop and chop bear trend.

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  107. Frank,

    The somewhat flippant but probably true answer is that the chop will end when the majority of traders stop trying to get positioned for trends and mean reversion type strategies get very popular.

    If you want a more fundamentalist macro explanation then my take is that the reason for the chop is that we have this debt overhang looming that prevents a sustainable bull trend, but at the same time we have very vigilant activist central bankers around the world in whose minds the 2008 crash is still very vivid and they are not about to let another one happens if they can help it, so no effort will be spared to prop it up, which makes a waterfall decline much more difficult to envision. The end result? Lots of chop, directionless trading and news driven bouts of panic and then euphoria on the turn of a dime... rinse, lather, repeat.

    In short it is a very tough market and one where it is imperative to not force things, but to pick your spots very carefully.

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  108. AAPL bounced today off first test of rising 50 day SMA since Oct. 10th...

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  109. Thanks for your take CTP,

    What do you think of coffee on the short side? I have been watching it for a while, it seems like a good market to go short since an apparent bear trend forms already where the upside violent gap ups in the equities market don't affect it as much.

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  110. CTP,

    I also notice Coffee has been finding very tough resistance at its 65 day EMA over the last several months. Doesn't sound like people are talking about Coffee much since the world focus is on Europe.

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  111. CTP,

    I tend to think AAPL has formed its long term top already since it retested its 9/20/11 high and reversed with a gap down leaving a beautiful island top/abandon babies kind of formation. I am thinking if it breaks the 50 day MA on heavy volume it might be finished.
    Not to mention the OBV, RSI, and MACD divergence..

    Also as far as sentiment goes, so many people love Apple and the Iphones. And the Iphones are becoming like a "commodity" where people are trading it. I thought that sounds like Tulip Mania...

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  112. pretz; spot on dude! i was unable to sell on the peak on Friday (was vacationing on Maui... I might have been ur next door neighbor.. hehe), so sold on Monday (incl AAPL); close enough for a top. not sure what to do with my 401K... that's that stupid long-term buy and hold thingy everybody has for somewhere in the long-term unknown future....What a concept...! Otherwise, your articles have really improved in clarity and understanding; I am surprised to see the top is already in; didn't expect that to happen already. S&P is right in your first target zone: low 1220s... Keep up the good work.

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  113. Frank,

    I'll have to take a look at coffee. It really hasn't been on my radar screen so I can't give you an opinion until I study the chart. Maybe later tonight...

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  114. ps: interesting article on the Chinese economic bubble in TIMES last week, written by Ken Miller (managing partner of Keylink Capital International). I've mentioned it in earlier posts; but the one thing needed to get to S&P levels at 700 or lower is for China to "collapse" (i.e. growths much slower, say a few percent instead of the usual 10+% per quarter). All signs are there for such a "collapse", all positive thinking is more wishful thinking than anything else IMHO.

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  115. How's the final push of the day shaping up guys - looks like it may be getting ugly again? Interesting stat on the first trading day in November posted by Jaco earlier. BTW, Frank I'm on my IPad sippin' on some coffee, if that helps your theory any!

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  116. i don't think S&P will break 1230

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  117. Greek referendum back on again...

    http://www.forexlive.com/blog/2011/11/01/greek-spokesman-referendum-to-go-on/

    LOL! What a tremendous Clusterf^&*k they have going on over in Euroland :-O

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  118. lol. i'm wondering if I should buy some vxx now and/or load up on some shorts.

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  119. I have no glue what these Eurocrats are doing... I think I am better off just watching the market. But it's definitely very amusing!

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  120. Based on TA and cycles I still would be looking for a bounce, but with the tape being held hostage to every rumor coming out of the 3-ring circus over in Europe I guess anything goes.

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  121. what do you think CTP? purely from an EW perspective, was that a 4? end of a 5?

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  122. all the materials stocks I've been watching have huge gaps up above that probably need to be filled.

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  123. The Greek referendum is just noise imho. If the market rose today you would have heard it had been because of better than expected UK GDP figures (or some other arbitary piece of perceived good news). But because the markets tanked today, UK GDP barely got a mention.

    Face it, the markets were massively overbought in any event, shorts had been shaken out and bears running scared. TA as well as EW pointed to an imminent decline. Then, when the inevitable market decline happened, we try and fundamentals to explain it?!?!

    The talking heads needed "reasons" to explain the red day, so they looked around for some negative news to offer. Rounding up the ususal suspects they couldn't have asked for a more "convincing" story to spin than some Greek whammy, erho that simply HAD TO BE the reason for al the woes.

    Does anyone around here really believe that if Papandreu(sp?) did not offer a referendum, we would have resumed a bull market and ride the santa rally into the proverbial sunset?

    As Pretzel loves to point out "News is Noise"!

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  124. Rocky,

    From EW perspective there are too many viable options to list out here ranging from ultra bullish to ultra bearish with just about everything in between. Unfortunately from where I sit it is going to take at least a few more days of time and price action before many of these possibilities can be eliminated and we can narrow down on just 1 or 2 possible counts.

    For example I can count the decline from the 10/27 top as either impulsive or corrective and both counts work from my perspective, but what they imply is totally different. Not only that but if it's corrective it could be a completed correction (wave 4, wave B, or wave 2 all possible) and if an impulse it could only be wave 'a' of a correction or wave 1 of a new bear leg down. Just too many possibilities right now, so I am ambivalent about the e-wave count and instead relying on my cycles stuff for near term direction.

    I really wish I could join the bearish orgy right now but unfortunately my read of the e-wave count as well as my cycle stuff just is not confirming such a stance. I wish it were because with all the negative news out there it is much easier to be short, it "feels" like the better trade, but my trading discipline won't allow it right now because for better or worse my TA does not support it.

    Hopefully over the next few days things will become clearer based on my stuff, but for now keeping positions light and remaining open minded is my focus, but FWIW so far my cycle roadmap from this weekend has been spot on thus far.

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  125. jaco,

    Well I must disagree to some extent because in this case the correlation between the Euro and SPX is at a record high and SPX is overreacting to every rumor out of Euroland. There are certainly times such as now when the tape is very news driven, and such news can certainly effect the velocity and magnitude of moves even if the market was headed in the that direction eventually anyway. Sure the market was overbought and due to pullback but would it have happened as quickly and violently without the Greek referendum news? I would bet not.

    Now that does not mean that one should trade off the news because that is mostly a recipe for whipsaws. I almost never trade off news but I do try to be aware of it and of times when the market is very news driven (heightened volatility), since these are good times to keep positions small.

    Best,
    CTP

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  126. CTP is your preferred cycle count thrown out then? any chance we'll catch a low instead of a high and bounce up?

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  127. mavrich,

    The market has thus far followed my cycle roadmap darn near perfectly with the exception of the marginal new low today after 11:00, so I certainly see no reason to throw it out yet. So still looking bounce into 11/4 +/- 1, but with volatile news driven tape not willing make any big bets either way.

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  128. so ur saying 11/4 +/- should be another ST top, right?

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  129. I am new to EWT. It appears that corrective is the opposite of impulsive, but I don't grasp the significance. Please explain.

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  130. Yes, that's my interpretation of the cycles FWIW. I could be wrong but that is how I am playing it.

    Nothing is 100% but as the old saying goes "you pays your money and you takes your chances" ;-)

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  131. Anon,

    Impulsive moves are in the direction of the Primary trend, corrective moves are counter to the Primary trend.

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  132. noob question, but what does ST stand for?

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  133. Could be count from doc:
    http://content.screencast.com/users/doctor_jr/folders/Jing/media/8d243d21-1f76-4e21-bb0e-e2ae7313cc9c/2011-11-01_1753.png

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  134. ST is short-term, even I know that one. :-)

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  135. Tushar,

    That is a pretty creative count, but I think it would take massive QE3 announcement tomorrow to get it. I think marginal higher high or retest double top is probably about the best the bulls could hope at this point. Although I would put the best odds on a wave 'b' or 2 bounce to maybe 50% to 61% retrace level into 11/4 +/- 1.

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  136. CTP,

    Don't forget to take a look at coffee for me please. Thanks.

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  137. Thanks CTP, maybe you are right of course. I do believe events moves markets, but that would be the millions of events around the world and not just the most obvious suspect IMO.

    I used to think events had more of an impact until I couldn't spot the JFK assasination or 9/11 on the appropriate graphs. Intraday, sure - but try and pick it out on a weekly or monthly graph, no impact.

    I suppose I have listened to so much noise on Bloomberg, etc over the years that I just can't buy any of it anymore.

    But who knows!

    I also plan to go to cash if the JSE takes another nice dip down tomorrow morning!

    Jaco

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  138. Tushar-

    That is my alternate count, as outlined in this article! I didn't draw it up, b/c I didn't have today's price action to benefit from... but that's the expanding ending diagonal. Maybe George Carlin reads my blog... from that big Comedy Club in the sky... (the chart has a pic of Carlin, for those who are wondering why I'm making this reference).

    Looks like the 1230 zone stopped the rally dead again, not a good sign for bulls. The whole move today looks like a big 4th wave.

    I have a Dr.'s appointment in a few, and also need to run a few errands, so I will bbl.

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  139. Oh, and hi Arnie, welcome back! Was wondering what happened to ya. :)

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  140. And a quick shout-out to Kenny! Thanks so much for the donation, Kenny. (I noticed in your message you were down-playing your contribution a bit, which, while noble, is unnecessary.)

    Very very much appreciated. :)

    You guys are the best!

    Gotta run, be back later.

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  141. "Here’s the snap from Reuters:
    Greek PM says G20 must decide policies safeguarding democracy, not markets.
    Someone casting himself as a great defender of democracy is:
    trying to write his own political obituary on the way out the door
    a political genius
    batshit crazy"

    http://www.forexlive.com/blog/2011/11/01/its-also-the-tone-of-g-paps-comments/

    I vote for #3 LOL!

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  142. futures are up. looks like its going to bounce tomorrow?

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  143. mav-

    lol!

    just got home, and you made me rush and check the futures, thinking ES would be up 28 points or something... ES is up 3 bucks!

    Anyway, I haven't even eaten dinner yet, so I'll be back on later... but I just had to comment on your comment.

    ;)

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  144. lol i said they were up, never said how much ;)

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  145. Oh, I see... that was a little deceptive... looks like they spiked 'em right after the cash close. Got it now. Behind the curve, here, been AFK all day.

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  146. haha big day today. I held onto my shorts, hoping I can cover them tomorrow if pre-bounce

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  147. Futures are way up now

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  148. Das update is posted. Please move future discussion to that thread. :)

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