Sunday, November 13, 2011

SPX Update: Crash Wave Still Unconfirmed; Fundamentals Still Bearish

While the crash wave setup remains "as good as it gets," the market has thus far stayed above the key levels I've outlined previously (1215 and 1190) which could actually spark a crash.  After Friday's rally, the market is now approaching the do-or-die level for these bear counts, and the market's short-term future will likely be determined by what happens on Monday and Tuesday.

Bulls received some potential "feel-good" news from Italy over the weekend, as Prime Minister Silvio Berlusconi announced his resignation on Saturday.  He was immediately approached by Greece, who, tired of being upstaged, asked him if he'd be willing to become their Prime Minister.  He allegedly accepted, but was immediately asked to resign. 

George Papandreou announced that he is available all month and, if needed, would be willing to resign from Italy, Spain, Portugal, and "any other European country that wants him."   

Italy officially approved an austerity package, which, in a dramatic and sweeping gesture, suggests that all citizens cut down their intake of Fettuccine Alfredo to "no more than four servings per week, unless it's really necessary."  Government officials voted themselves exempt from this rule.

Nothing here should be a huge surprise to the market, and it seems likely these events are priced in already.  We could see a case of "sell the news" next week. 

The silliness is: Berlusconi was not the real problem in Italy -- and how a "tip of the hat" to austerity will help a country whose debt is 120% of GDP and growing remains to be seen.  The problem seems to be one of debt vs. production, so unless Italy can actually get its economy to expand, there appears to be no retreat from inevitable default.  Italy's total debt is projected to hit $1.9 trillion Euro by year's end, which makes Italy just like The Titanic: "too big to bail."

People often boggle at macro-economics because the numbers are so huge, but it's really not very difficult to understand.  If you understand how to balance your checkbook and pay your bills, you have a pretty good start.  Imagine that you as an individual were earning $4000/month, but your bills were $4800/month.  To make up the extra $800 each month, you borrowed money by obtaining additional loans.  This might allow you to continue meeting your obligations for a time, but unless you can raise your income to meet the $800 shortfall each month, plus the new obligations you are incurring with additional borrowing, you will eventually be forced to default on your debt as the only solution.

This is the situation many countries now find themselves in.  To make things worse, their economies (their "jobs" using the individual example above) are shrinking, not expanding.  To go back to the example of personal finance, this would be the equivalent of you being forced to take a pay cut while your already-unmanageable debt was still growing.  Obviously, this would hasten your trip to the bankruptcy court; and the same is true of these countries.

Whether the stock market continues to take the irrational path of viewing this situation as somehow bullish remains to be seen.  There's an old expression: "The market can remain irrational a lot longer than you can remain solvent."

The charts continue to indicate that the market's next move should be lower -- however, Friday's action raised more questions than it answered, and the mask caused by Wednesday's gap down continues to present a challenge to the clarity of the counts. 

Before the open on Thursday, I warned bears not to get complacent and presented a possible ST bullish count.  This possibility has certainly gained some favor after the action on Friday (original chart shown below):

Compare that hypothetical chart with the current actual chart (below), and you can see why we are now forced to give this more weight as a possibility.  Another thing that adds some appeal to the alternate count shown in the chart above, and in black below, is the potential for a head-fake triangle breakout.  By now, every chartist on the planet has seen the potential triangle I talked about intra-day on Friday.  A head-fake would be a great final-confuser to the move, and ironically, a fake-out like that would actually strengthen the bear case -- as long as it stayed below 1292.66.

While it's certainly possible for the market to roll over directly at the open on Monday, the structure seems to need a little more upside, either to complete blue wave 2 within the blue target box (as shown, it may already be complete), or to complete red wave (ii) (shown by the black "Alt: (ii)" label). 

Sometimes, though, the futures will do the work of completing a pattern.  So the futures could rally at their open, hit the top line, and fall back down, leading to a negative cash open -- which could be the start of the roll-over.  A down-day that breaks 1245 would add confidence to the view that the rally has rolled over. 

It will be interesting to watch what happens here. 

Of course, the potential exists for an upside break to be more than a head fake.  While I continue to only give 20% odds to the bullish alternate counts, 20% still means they can't be ruled out, and the October 27 high remains the line in the sand.

I often compare trading to poker, and one of the examples I've used is Texas Hold 'Em.  Imagine you are dealt a pair of pocket aces -- your odds of beating someone who's holding 2-7 off-suit are fantastic.  Given those odds, you would be correct in playing that hand very aggressively against your opponent; however, that's no guarantee you'll win.  In fact, to the contrary, the odds actually guarantee that sometimes you'll lose.  In trading, that's why you must always take steps to protect yourself. 

Below is the "2-7 off-suit" count.  Whether this count will draw a miracle card on the river here remains to be seen.  This bullish count could stretch the rally up as high as the 1330's.

There is also another chart I feel obligated to share.  While I continue to view these bullish resolutions as unlikely, the market often does what it wants, so it is necessary to be aware of them and play accordingly.  This second bullish alternate is one that generally plays out in a recognizable fashion, and gives fair warning if it's underway.  This would be the option of a wave B triangle. 

If this is occurring, it usually plays out as a false breakdown from the triangle, in wave e (see chart), then whipsaws back up into the triangle and takes off upward in wave C.  It's generally a strong rally out of the whipsaw, much like we saw on October 4.  Be cautious of this, because you can see it when it happens, and there is no reason to get caught on the wrong side of a move like that (below). 

Wave e is completely unpredictable though, so there's no guarantee it will break down.  It could end as early as the mid-point of the triangle, as shown by the yellow target box -- if this scenario were to occur.

So the market has done its best to add confusion to the picture.  As I talked about on November 2:

I'm not saying that the top call is wrong [referring to October 27], just because there're a lot of people joining in now; in fact, quite the opposite: I'm still favoring it. But the market never makes things too easy... so, sometime soon, we should expect a curve ball to throw everyone off the trail.

Now we have the curve-ball from the market -- and the more bullish short-term possibilities, which have never been ruled out, still remain open.  So the question the market has refused to answer remains: is this just a curve ball, or something more?  The key levels to watch for validation of the bear case haven't changed: 1215 and 1190 below it. The key level to watch for the bull case is still the October 27 high.  While I remain in favor of the bearish counts by an 80% margin, deuce-seven off-suit is always out there lurking.  Trade safe.

The original article, and many more, can be found at


  1. mostly wanted to see what the timestamp is on my post (5:18pm here). And to say I need to tell myself to ignore the bottoming W formations I see all over the place. They are all ending Cwaves. Love this blog.

  2. Gert, ty.

    Doing the best I can with what I have to work with in the charts. But I might be a little early if those bullish counts come to play.

    Tops are way hard. I always trade potential tops cautiously until I get confirmation. I get in and out of the market a lot at times like this. Right now, I'm flat, after booking a decent profit on Friday.

    If I were posting my trades, which I don't do anymore, I might plan on going short again today, with a stop at the Oct. 27 high. But that would be entirely hypothetical, since I don't post my trades. ;)

    Futures just hit and bounced off the upper triangle boundary, btw. Kind of liking the alternate a-b-c count more and more, though. In that version, we head fake over the triangle -- and over the 1277 high -- and reverse.

  3. Amazing complacency out there with futures gapping up to start every week for the most nonsensical reasons. The leadership changes in Greece and Italy do nothing to change the fact that the debt burden of both countries are unsustainable. IMO all these hope rallies are predicated on the faith that the markets have that eventually the central bankers of the world will just open up the printing presses full throttle and monetize all the debt. Maybe the market's faith is well placed, but then again suppose that the Germans and ECB refuse to give in to the political pressure and instead stand their ground and hold true to their hard money principles? If that were to happen the markets are ill prepared to deal with such a reality.

  4. CTP-

    Exactly. Maybe the market's hope is that the EU will amend the charter and be forced to print at some point. That's one of the few "bullish" scenarios I can find.

    The Germans have it pretty well built-in to their psyches not to print, though. Little thing called WWII makes them a bit committed to that principle.

    Fundamentally, the whole thing is a giant clusterf*dge. Printing might be the only escape.

  5. Well done - you continue to prove yourself as an exceptional analyst. This is a near impossible market to navigate, as shown in your work, but you remain true and objective to the analysis, regardless of your gut instinct - very hard to do and admirable. Your EW chart analysis reflects the dysfunctional behavior of the market very well as it relates to the global environment.
    I continue to favor your alternate count, and my amateur handicapping of the EU situation is that they will indeed fire up the presses - it's their only choice because they will refuse to address the problem. Unbelievable how the US markets are married to a communist regime in China and a completely fried EU. Imagine we are one nation and can't get our shit together, what are the chances of the EU comprised of many sovereign nations with centuries of hatred amongst one another, getting their house in order - boggles the mind!!  :/
    However, like it or not, it seems the correlation of markets is here to stay in this globalized world we now reside in with the emerging growth lender nations acting as the throttle to the established stagnant borrower nations.
    Should be an interesting week - near $50 billion in Treasury paper settlements scheduled for Tuesday, which should put significant  downward pressure on the already fragile markets.

  6. Oil *might* be on the verge of a breakdown here:

  7. Thanks, KB.

    This is one tough market, for sure.

    Yeah, I'm aware of the Treasury settlement on Tuesday. There are several indicators that suggest we should follow to the upside on Monday, including the wave structure.

    It will be very interesting to see how that settlement plays into things... if it sparks a strong move down, then it's hard not to see that as THREE failures at the 200 dma. Could give bears a reason to jump into the game for real, and give bulls a reason to have second thoughts.

    And it would all line up perfectly with the preferred count.

  8. Posting the same comeent with my Google account.

    Hi Pretzel, I really love this blog and agree that this is the toughest market to navigate.
    Because things can change in BLINK-OF-EYE and that is all the time you get to make your trading decisions nowadays. For now, I am going with Irrational Behavior of MKT theory, (Fund. can be bearish but MKT behavior can be Bullish for some time) and favor run up to 1350 and then we will see how it goes.

  9. Hi, shyam,

    Thanks, and welcome!

    I'm going to delete the double-post anon comment. :)

  10. Pretzel, thanks again for your great blog and for your followers who are posting some great musings. Question, have you updated your outlook on AAPL?

  11. Anon,

    Thanks. AAPL is performing exactly as expected so far, so there has been no real reason to update it. Very ST we may or may not see one more bounce (possibly to 390 +/-) before heading down into the 370's. LT my target is still in the 270's.

  12. Great site Pretzel and appreciate the EW work and your approach to determining where we are at. I have a question I've been pondering over the weekend - it sounds like Germany is the only country opposed to printing money. If Europe does their own QE (QEEU???) would this cause the markets to rocket higher like we saw here last year? Is it possible to postpone a P3 until 2013 or beyond because this would really be the last ditched effort?


  13. Hillwalker,

    Thanks. :)

    Sure, it's possible. I don't think it's very likely, but that's just my opinion.

    Germany is vehemently opposed to printing, and the treaty currently forbids it. It was a struggle getting the 27 member states to agree on the whole treaty to begin with. Members are already opposed to the amendments Merkel is talking about trying to push through by 2012. My understanding is that these involve things like sanctions against states that violate budgets and so forth.

    In my view, the whole EU is likely to fall apart at some point. There is just too big a difference in cultures, philosphies, economies, and INTERESTS for it to hold together as the ground shakes. In 2008, I suggested that eventually the EU would crumble. I suspect that reality is getting closer (although, I would imagine it might still take a couple years).

    When people's interests become strongly divergent from the group, they almost invariably choose the course most beneficial to themselves. I think this basic aspect of human nature will eventually be the EU's undoing. At some point, certain nations will see leaving as an unavoidable act of self-preservation, and the whole thing will come unglued.

    Just MHO.

  14. Please remember to show your support for the blog today! :)

  15. Interesting. ES futures (SPX) spent most of the night bouncing along the bottom trendline of the triangle, and after spending most of the night up, have now moved into negative territory. It will be interesting to see what happens next. As mentioned in the article above:

    "While it's certainly possible for the market to roll over directly at the open on Monday, it seems more likely that there will be some additional upside first, either to complete blue wave 2, or complete red wave (ii) (shown by the black "Alt: (ii)" label). Every now and then though, the futures will do the work of completing a pattern. So the futures could rally at the open, hit the top line, and fall backwards, leading to a negative cash open."

    There should be ST support in the 1257-1260 zone (ES, not cash). Whether that holds or not may determine whether Monday is red or green.

  16. Oops, meant to post a chart to go with the comment above:

    The yellow line on the chart represents the upper boundary of the triangle.

  17. Since there is so much discussion about Germany, I thought I will add my two cents worth. Agreeing to let the ECB print more money = allowing wealth to be distributed from the fiscally prudent to the fiscally unsound (i.e. taking money from hardworking, thifty Germans to compensate for the misdeeds of tax-evading, free spending you know who). No longer just a matter of being stubborn, or having cultural or historical differences.

    Now, the only way Germans will allow this is for those who need money to give up control over their financial sovereignty and impose upon them the same sort of financial discipline that Germans have been practicing. This happening is highly unlikely, in my view.

  18. The other option left is to breakup the EU in some form or the other so that those that need money can print and inflate their debt away without affecting Germany. On this, a lot of people actually talked about the PIIGS leaving the EU, but there is also another likely event: Germany leaving the EU (and I think this is more likely since it only involves one country leaving the EU). Should this happen, German Mark becomes the safe haven currency, euro crashes since the strongest member left, but ECB can now print money to save the weak members, Euro crash more. When the dust clears, Germany can always join back on better FX terms.

    Whether this news (Germany leaving EU and ECB printing) will be viewed as a positive or negative event, given the market these days, who the hell knows

  19. Well, a nice so great Italian bond auction and Buffet on CNBC actual saying negative things for a change should help the cause lower. I sort of like the call from late last week. Let the market go down beginning this week and close the shorts out then see if we either break lower or not to re-enter short or long. Right now we are range bound between 1220 and the 200 day

  20. Pretzel

    By the way, seems like ES just broke your support zone. What do you make of today?

  21. thank you warren buffet...go bears!

  22. LOL - he's usually the eternal optimist. He must have woken up on the wrong side of the bed or didn't get enough fiber in his breakfast

  23. TJ, yes, very good insights. Basically a case of divergent interests, but your post is much more eloquently detailed than mine. :) When I mentioned leaving as an act of self-preservation, I was thinking of the strong countries, not the weak.

    Vulture, right, once wave (iii) gets some confirmation, it will be "easy money." I've been in and out of this market a dozen times over the last 2 weeks. I've gotten so used to trading ES and NQ futures, I can barely remember what it's like to trade the cash market anymore... it's been awhile.

    I've been trying to figure out what the dollar is doing tonight. It's either another corrective wave, or it's gearing up for a moon-shot.

  24. TJ, been watching everything, and still nothing definitive over and above what the article outlines. Even on the ST charts, the *really* key levels haven't broken yet, just some minor levels. Still 2 and a half hours 'til the open, so maybe it will be clearer by then.

  25. Starting to see some impulsive-looking structure out of crude, which is down 1%. But it's too early to tell if it's an a-b-c or 5-wave move.

  26. Actually, I think that was probably 5-waves down in crude for wave 1 down, so we should be seeing a 2nd wave retracement rally soon. 99.69 is the KO and would indicate something else is going on.

  27. Pretzel, by "really key" level i am assuming you mean 1215 and 1190? Since it is highly unlikely that we will reach those levels today, do you mind sharing some key intraday levels to watch for for those thinking of unloading some shorts in case your headfake triangle breakout materializes :)

  28. Yeah, gimme a little bit here, TJ, I'll try to do a quick chart.

  29. "What The Hell’s A Technocrat?

    Technocrat: An expert in some technology, especially one in a managerial or administrative role.
    How is that any different the legions of ass-covering bureaucrats that litter the administrative landscapes from Beijing to Bombay to Brussels? I am no more hopeful that Europe will pull its fat from the fire today, now that the technocrats are in charge in Rome and Athens.
    The problems we face today built up over generations and won’t be solved by a knight in shining armor. There are no magic bullets and removing Berlusconi and Papandreou from the seen changes the debate at the margin but the problems will not be solved at the margin."

    LOL! So true. And I would add that it is the "technocrats" that created the flawed Euro system in the first place. So, really the technocrats created this whole unsustainable mess. Why is it that now we should be placing our faith in them to save it?

  30. Merkel's message? All we need is more Auterity then everything will be OK. LOL!

  31. The several billion italian 5-year bond sale today was a very negative event. Italians had to give 6.3% interest, to get it done, an extremely high interest rate for 5-year bonds. As comparison, only last month, the Chinese also bought several billion in italian 5-year bonds, and they got approx. 5.3%, and even that was an extremely high record interest rate, for those bonds; since I read that those very same bonds, were going for around 2% a year earlier, so as you can see, the current free market's faith, on italian bond risk, is deteriorating very fast, and that, is very bearish, because of the size of the italian debt, which dwarfs the greek debt.

    Here's a link to an interesting article I had saved on largest world debt nations. It also discusses the difference between externally and internally held national debt, which is an important factor in terms of external political pressures.

    BTW, PL, what the Germans remember most (even more than WWII), is the Weimar Republic of the 1920's, and the total hyper-inflation destruction of their Mark currency, due to demanded repayment reparations made to France, due to the WWI surrender treaty. And of course, they also clearly remember, the result of that 1920's currency hyper-inflation destruction, which was the rise of a totalitarian brownshirt dictator in the early 30's, named Hitler.

    And the main reason the little corporal rose to power so quickly, was by promising the populace the quick strengthening of their currency and economy. BTW, Hitler also confiscated his citizens gold, just like FDR did, in the early 1930's; and they both did it with the excuse, of making their country stronger, and getting their people out of a financial depression.

    But discussing socialist 16-year czar FDR, is another story. (BTW, Hitler also confiscated all guns along with the gold, thus totally disarming his populace--and only his nazi soldiers were armed, after that).

    Back to the present EU predicament: I do not believe there is even 1 chance in hell, that the entire EU experience will not blow up into deflationary depression, in the next 2-4 years. All EU nations will retrench back to their old borders, to their old currencies, and their will even border wars, trade wars, currency wars, etc, just like the good old days, of ancient Europe. And all that is still in question, is how exactly it will all play out on a daily basis, and when will the final blow fall, to the entire EU failed experiment. (And BTW, I also see inernal secessions within countries themselves, as already in Spain there are several separatist movements, and I understand Italians also has great animosity, between the Northern and Southern Italians).

    What will be even more interesting, IMO, is watching the "United" States of America, go the same rout shortly after the EU, and the State secessions commence to take place. Because when the Federal Government only becomes a tyraneous yoke to the States, and they cease to provide sufficient financial help to them (because they are too broke), I am fairly certain some of them, will want to break off and form their own countries, just like the USSR broke off into independent nations. And it would not surprime for Texas to lead the way in seceding, since they are probably the most historically large and unique, to have the guts to do so.

    Anyway, all the speculation above, by practically everybody on the blog, on what the modern-day Germans would do next, triggered some of my own historical thoughs on the matter.


  32. PL, technical ew question, on your preferred count chart above:

    Shouldn't -Alt:(c)- go further higher (at least slightly) than -Alt:(a)- ?
    Because you drew your green rectangle target area for (c) aligned on top with (a), as though (c) shouldn't exceed it, yet I've always understood that C always exceeds A, even if it's just by just a tiny amount.
    What am I ew-misunderstanding here?


  33. "BERLIN (MNI) – German Economics Minister Philipp Roesler on Monday
    demanded that Eurozone states unable to make their economies competitive
    be punished.
    Speaking at a conference on EU legislation here, Roesler said all
    Eurozone member states should in the future have to pass a test
    regarding their competitiveness.
    “There should be automatic sanctions for those states that fail the
    test,” the minister said, explaining that those states should have to
    pay a fine.
    “We have to fight the main causes of the crisis, which are the debt
    situation and the lack of competitiveness,” Roesler said."

    Yeah this is gonna end well... not.

  34. Germany is a bit of a bully and they've been sending out mixed signals - one day it's do whatever you can to stabilize the Euro and the next it's back to protecting themselves from weaker players. That "mixed" message is pretty indicative of the whole situation - not really any consensus - just sort of a hodge podge

  35. Anon20,

    the Alt (c) would go where the Alt (ii) (black) is. I didn't label the (c). The target rectangle would be for blue wave 2, not the alternate count. Hope that makes sense?

    TJ, okay, sorry been doing Minyanville stuff... I'm a little confused at what you're asking, since the headfake breakout would actually be bearish if it reverses, and I'm not sure why one would want to unload shorts in that scenario.

  36. CTP, I love the news updates and sarcastic commentary! Classic.

    Anon20: yes, I didn't give the whole backstory behind my WWII comment, but I was thinking of Weimar and the rise of Hitler and how it all lead to WWII.

  37. Pretzel, in all your scenarios above, you are predicting a rise (which happened in the futures market earlier), a drop (which is what is happening now), and a potential headfake later today or tomorrow, before the plunge. I want to know which levels to watch out for if I want to unload some of my shorts today before shorting again at the headfake level.

  38. CTP - isn't today +/- 1 your cycle top ?

  39. TJ, no-

    In the preferred count, there will be no headfake. That count says we're rolling over now, or after a very marginal new high. The blue "2?" box is the preferred count. The first alternate is the headfake scenario.

    The ST structure just isn't clear enough to give super-solid levels, which is why I've been sticking with 1215 and 1190. But if we break below 1245 before the headfake, the headfake *probably* won't happen. If we break the 1226 swing low, the headfake is pretty well off the table. If we break out after that, it's probably fer real.

    Hope that answers your question?

  40. Pretzel, that was really helpful. Thanks.

  41. CTP,
    in the same way all should "beware of greeks bearing... bonds",
    all should also beware, of germans using the word... "punishment".


    PL, I understand now. So your target range for Alt(c) is between the 2 horizontal red lines, with 1292.66 as a max. I now see the faint zigzag you drew into that range, which I had not seen before. Seems very plausible to me, that just that is what will occur.

  42. So now we find out what the cash market thinks of this. This could still be a fourth wave in SPX, leading to a tag of at least the triangle boundary after some downside action. Below 1245 would make that tag much less likely.

  43. Vulture,

    Yes indeed it is. In fact Friday was also in the 11/14 +/- 1 trading day window, so Friday's high may have been it.

  44. The dollar is starting to look what I would call "sort of impulsive or something," so that might be helpful. Oil is looking like it wants to continue breaking down here.

  45. If 11/14 +/- 1 cycle top came in Friday that would be very good news for bears because cycle tops that occur early in the window indicate bearish forces are strong.

    Also, the next cycle turn date is quite a ways away on 11/23 +/- 1 which I expect to be a low. So, if Friday's highs are not broken today and we start to accelerate down then the next 2 weeks could be a rough ride for the extremely complacent bulls.

  46. CTP, you watching CL here? My ST on-the-fly count has oil entering a small 3rd wave down... sure look like it right now.

  47. Not watching it too closely, but I would expect all risk assets to nosedive here if my cycles and your wave count are correct.

  48. Spanish 10 year yields @ HOD of 6.1%. Click on "1D" in Interactive Chart area to see today's price action:-

  49. Pretz,

    Hopefully I have a better day in the market today than my blogging "income". My blog made a whopping 4 pennies yesterday :-O

    BTW guys don't go too overboard or anything but some modest support would help ;-)

  50. Of course, I decided to get fancy and buy some OTM puts on PCLN at the open... and of course it's up 1% right now, lol. Couldn't nail down a count on it, but looking at that potential top on the daily... eww.

  51. CTP, been having the same issue this weekend. Bears are too stressed out to show much support, apparently... lol.

  52. Ah - I was going go ask about the turn date - thanks.

  53. Well, I'm certain if we can finally get a good push south, you'll get rewarded from the winnings. At this point I suspect the followers are to the negative and may start their own links looking for donations !

  54. Not sure why bears would be so stressed. I guess they shorted into the hole last last week near the lows I could see that being the cause for some stress. Based on my cycle work, I was not shorting late last week, but instead went long on Thursday based on my 11/11 +/- 1 cycle low that was due and I was expecting a quick 1-2 day spike higher for my 11/14 +/- 1 cycle high so I shorted mid-day Friday just a tad early (thus far). Currently shorts are in the money and while I am not celebrating just yet, I am encouraged by the action today which is not inconsistent thus far with my 11/14 +/- 1 cycle top.

  55. HAHA - no pouting ! I'm ready-ing my paypal account for the largess if we can stop this bullish bullshit and start taking out some targets below :)

  56. I wasn't pouting, I was sad over red accounts.

    And I appreciate the second thought fer sure. :)

    Definitely tired of this bull. Time for this thing to roll already. What I'm waiting for now, as the ultimate stab in the back from bully, is the expanding ending diagonal to play out... and do so in a stupid fashion. Like, it'll break 1292 and end at 1307, then crash.

  57. Eeeeks - not until it goes down first so I can close out

  58. Yeah, Vulture, I'm still not favoring it. But it would be the ultimate flip-off from ol' bully.

    And sure, CTP, it's always about entries. Once we had that big move down, that was so close to the confirmation level, which is also *support*, there's no reason to front run that move. At that point, you wait and see what happens. If support breaks, there's plenty of much safer points to be picked up afterwards.

  59. Pretzel - bad news on the PCLN front. I bought PCLN puts on Friday after some "technical analysis" of my own. I recommend that you bail, pronto.

  60. Triumph, just a small spec put position. Why the recommendation to bail, though?

  61. Oh, you're making a joke about fading you... lol. Gotcha.

  62. only reason Italy was able to sell all of their bonds was that the ECB bought them all. EFSF is going to run out of cash soon...let's see, Italy has 1.9 trillion in outstanding debt. EFSF is a levered 800 billion at this point? Sounds like this charade will end at some point.
    What moron would buy Italian debt right now, especially considering CDS won't cover them...the only one was John Corzine, and he's gone.

  63. Wha...? I just bought a bunch of Italian bonds for my kids' college funds! You're saying that might have been a bad move??? Man, that's disappointing. ;)

    Alright, guys and/or gals, I've gotta run for a bit. Try not to break anything. :)


  64. What just happened? landslide beginning now?

  65. My biggest fear about being short is that ECB at some point decides to monetize this debt. I really don't think the Germans will let it happen, but if it would rally 10% in a single day IMO.

  66. floundering fish. dead. buying exhaustion, gasping for air. just tired. tired. gonna drop like a dead fish. no movement no life. Gonna disagree with you, PL. I believe 1190 will be taken out like sliced butter.


  67. CTP: I think your cycle top count was spot on. next low 11/23? gearing up for it for sure.

    Pretz: sorry, but I don't like any of your alternative counts; somehow they just don't "feel" right. I know one shouldn't go by feelings, but I just don't know why. Looks all kinda "irrational" to me; your preferred count on the other hand seems spot on.

    Both of you: donations coming in to ya both tomorrow!

    AAPL? Looks like toast to me.

  68. tidbit of news: "Options traders exchanged about 1.48 million contracts [Friday] on the Financial Selected Sector SPDR fund (Pacific: XLF) -- 3.6 times the average daily volume -- as puts outpaced calls by a factor of more than 13-to-1, according to Trade Alert." (Yahoo finance news; "Greek and Italian drama for stocks"). Seems like a lot of bets that things will go down to me.

  69. Test of 1245 SPX should be on tap today. Once 1245 SPX is taken out with some authority and then used as resistance it should be "on like Donkey Kong" for the bears ;-)

  70. text book repeat of oct 24-26 and oct 27-31 declines (i am not betting on a repeat of nov 1 decline yet), but tomorrow will tell.

  71. CTP, today's action so far does not indicate any bounce to the upside. IF we don't see any rally momentum, would you say that we are close to the short and hold scenario, or do we need to see more support levels taken out?

  72. Arnie,

    Thanks for the heads up on the XLF put volumes. That is the footprints of BIG typically smart money. Definitely ominous.

  73. I personally am already in short and hold mode since mid-day Friday. But I sold into strength Friday because that is the best way to get positioned short. I personally HATE chasing weakness. So, if I was not already short it would be hard for my to short into weakness today even if that does turn out to be the right move (which I suspect it will). If I was flat I would probably be looking for a bounce at some point today or tomorrow to position short, but that is just me saying how I would handle it, please don't take this as advice for anyone else out there, you all have to make your entries and exits as you see fit.

    That said IMO the 11/14 +/- 1 cycle high is in place and based on my cycle work 11/23 +/- 1 is the next turn date which should be a cycle low. Rightly or wrongly, I am personally expecting the best down leg that bears have seen since the 10/4 low coming up over the next 2 weeks.

  74. The gap up on nonsense news Sunday night and then reversal lower is one of the more ominous signatures that had preceded many severe drops in my recollection. There are probably many examples but 2 that really stand out in my memory were 6/20/10 and 7/31/11.

  75. arnie, your provided yahoo article, "Greek and Italian drama for stocks", convinced me even further, that the spx is going right through 1190, like it was melted butter. And as to your snide cynicisms, about "feelings" and "irrationality" in the markets, kid, the markets (nor anyone) is rational, when panic sets in. You have much to learn. You shall soon see, how "irrational" is all of mankind, and how guided by panicked "feelings", they all are. spx 1000 is not far away, you'll see, kid.


  76. CPT; that's exactly why I put the info on XLF up there. Those are the big boys. The rest of the article is typical Y!-soso, but that's key info I believe.

  77. Thanks CTP. One reason I asked was because in an earlier comment Pretzel said:

    "I always trade potential tops cautiously until I get confirmation. I get in and out of the market a lot at times like this."

    I'm trying to learn when to transition from the short trade to the longer. Every day I get some new nugget to mull over, thanks everyone for sharing insights.

  78. Here's another indicator for the bear case

  79. CTP,

    I have noticed your cycle dates usually seem to correspond perfectly to the dates on the Bradley Siderographs.

    For example, here is the 11/14 turn date on the New Bradley:

    And the 11/23 turn date on the Standard Bradley:

    Are you also using astro-cycles (astrology), as the Bradley model does, for your dates?

  80. Arnie, no offense taken regarding the alternate counts... they're alternates for a reason. ;)

    I don't view them as likely, or they would be "preferred."

  81. Spiker,

    Most traders have different styles. I am definitely not a "confirmation" trader. That may work well for Pretzel, but I personally hate shorting into weakness and then getting whipsawed, plus usually you have to use a really wide stop when you short into the hole which I don't like. So my style is to short into strength near key resistance areas when my cycle work is confirming and then place my stop fairly tight. For instance with the manic melt-up Friday morning and with my cycle work looking for a spike high into 11/14 +/- 1 I was on the look out for a spike up to short. Plus we were at the .786 fibo retracement level for ES futures which is often a reversal level. So, I put on a short position with a hard stop just above the 11/8 high or alternately a mental stop if we were making higher highs after the 11/14 +/- 1 turn window had closed.

    Hope that helps to see my thought process, but every trader has a different style and what works for me may not work for them and vice versa. So, each trader must develop their own method of entries and exits that suits their personality.

  82. Arnie, re: puts to calls. That's actually often considered a contrarian indicator, and high put volume relative to call volume (as you cited) is usually interpreted as *bullish*.

    But as with all indicators like that, they have limited value taken in a vacuum. So high put volume isn't always bullish, and high call volume isn't always bearish.

  83. Pretzel,

    No not using any astro in my cycle stuff, although I do like it when astro indicators also confirm my cycle dates, the more confirmation the better ;-)

  84. 11/23 is also the deadline date for the debt reduction "Super Committee" to reach a deal. So, lots of stuff lining up for 11/23 +/- 1 trading day...

  85. CTP, re: confirmation trading

    I am generally not a confirmation trader. However, I am a much more nimble trader than most here I suspect. I jump in (and out if necessary) at potential inflection/turn points.

    If the trade goes against me, I take a small loss. If it goes with me, like on 11/08 when I got short at 1271 (and hinted I was doing so in real time), I generally make a nice profit.

    Personally, I hate draw-downs. So if the trade's not working, I know my exit ahead of time and I get the hell out. If it is working, I let it ride. I use my chart analysis to indicate where the potential turns are, and I'm right more often than wrong, so it works.

    But there are points where you can't front-run a trade, which if you read my post, is what I was addressing. If the market is hovering right above support, as in the example I used, you don't get short trying to front-run a break of support... that's suicide. At that point, you wait for confirmation in the form of a break. Plenty of traders make a good living doing only that.

  86. ah its nice to hear how you and CTP trade pretz. Also I'm surprised that you're up!

  87. Of course, none of that is trading advice. ;) However, I felt my philosophy was being misinterpreted and/or misrepresented. In that case I mentioned, I was talking about a very specific situation.

  88. Mav, me too, lol. I really need to go to bed. Couldn't sleep, kept checking the market.

  89. CTP,

    What do you bet the debt-reduction thing is a complete fiasco, lol.

  90. Pretzel,

    Yes shorting breakout can certainly work, alot of it also depends on the character of the market. This year's market has been an ultra-choppy transitional type market and thus shorting confirmed breakdowns this year would have turned most traders into hamburger.

    But to your point even worse would be front-running selling into weakness but before the breakdown. I don't care what kind of market you are in, shorting right on support is a surefire ticket to the poor house.

    For me I really love shorting into the dummy run buying panics on silly news that solves nothing. Since I've been here in the comments section of you blog I have called out realtime swing shorts at the close on 10/24, and then at the open on 10/27 (was a little early, but risk/reward was fantastic), my latest short on 11/11 mid-day at about 1267 SPX (1254 ES futures) I forgot to post here though. I also will do day trade scalps now and again that I don't post here, but I try to call out my cycle based swing trades in realtime not so others can follow blindly but just to give an example of how I put my cycle work together with your wave counts to execute a trade.

  91. Pretzel, I didn't expect you to be up and conscious. I realize I quoted you w/o context. Didn't mean to misrepresent, but in the end you both understood the gist of my question and were good enough to provide detailed answers. Much appreciated.

  92. above should day 1264 ES futures not 1254.

  93. say not day UGH! I can't type today :-O. I wish there was a way to edit comments after you submit them LOL!

  94. Just chiming in on the astro-cycles comment I noticed. 11/24 is the start of a Mercury retrograde. And it lasts until Dec. 14th.

    I am NOT an astrological expert nor would I ever time a trade by an astrological 'development'. But retrogrades are very statistically correlated with down cycles in the market. And the pros ARE aware of them. Bull runs are not well timed to occur during one.

    The last mercury retrograde we had occurred on August 3rd.

    The big 2009 low also occurred during a retrograde.

  95. Pretzel,

    You sounded a bit peeved about the confirmation trading thing, I hope that you did not read anything into my comment that wasn't intended. Spiker had made the comment about waiting for confirmation to short and I just wanted to share my favored approach with him which is to be anticipatory selling at resistance. I never had seen you original comments on waiting for confirmation so I did not know in what context they were made, but I was not trying to insinuate that I even know what your trading style is, I just was sharing my thoughts on waiting for confirmation to go short. Hope you did not take offense.


  96. CTP,

    Agree that shorting breaks through the fourth wave of August-October would have ground most up. That's where one has to know the position of the market -- in this case, I think a solid break of 1190 leads almost certainly to 1000-1050.

    Once we break that level, the character of this market will almost certainly change dramatically, and we should see a clear downward trend emerge. I'm not waiting for that break (in fact I shorted the tag of the triangle boundary in ES this morning because it's obvious resistance -- but I'm afraid to post my trades in real time now!)... but I'm also not sitting on huge drawdowns as some seem to be.

    Just different trading approaches. I think when you trade the cash market, you're really limited in what you can do. Other than spec options trades, I haven't traded the cash market in years.


  97. CTP, ty. I was a tiny bit peeved, so thanks for clearing that up. NP. Probably just massive lack of sleep. :)

  98. Spiker, yw.

    Brian, interesting info on retrograde. I don't know a thing about that stuff, but used to work with a guy who was always waffling on about "Mercury is in retrograde" and what have you. So everytime I see the word now, I hear it in that guy's Boston accent, lol.

  99. The one thing I know about Mercury retrograde is that you are not supposed to make important decisions during that time period, and of course that is right when the Super Committee makes their decision. Good timing LOL!

  100. CTP, lol, nice.

    Market is potentially setting itself up for a very interesting overnight session.

  101. Pretz, not that it matters much but i always thought that when investors are bearish the put/call ratio will be high (since speculation in puts gets excessive and put options are used to hedge against market weakness -or bet on a decline-, whereas call options are used to hedge against market strength or bet on advance).

  102. FYI for anyone who likes the bullish alternate triangle count... the market has marginally entered the zone where an "e" wave could theoretically end.

  103. Pretz,

    Was just thinking maybe your earlier irritability ;-) was a sign that we are finally near big payday for the bears. I have noticed on message boards that I used to frequent was when posters started getting snippy at each other it was usually near major turning points. :-)

  104. Arnie, now you have me confused. Yes, when investors are bearish the put/call is high. But that's contrarian -- in other words, if the majority are bearish, that's actually considered bullish for the market.

    As I said, though, I'm not a huge fan of using put/call ratios for trading. Sometimes at extreme readings, they're helpful, sometimes not.

    And sometimes they go in the direction they should -- for example, at the March '09 bottom, the put/call was relatively bullish (which to many said the market should go down) -- but it went up anyway.

  105. Except in 2008 when massive put buying in financials was a sign that the insiders knew the house of cards was about to come crumbling down.

  106. CTP, nah, I wasn't THAT annoyed. :)

    Being misquoted has just always been a pet peeve -- I didn't realize it was a mix-up, so I took it as a misquote. But I really wasn't that annoyed, just mildly -- and really tired. :p

  107. Also, I remember back at the March 2009 low I saw some extremely low put/call ratios that were driven by massive buying of calls on financials. In could be that since the big smart money inside Goldman et. al. know their businesses best that maybe put/call ratios on the financials are the one type of options volume that is not a good contrary indicator. Just thinking out loud, not sure if it is true or not...

  108. OK, then maybe really tired and exhausted bears is a sign of a major top ;-) ...

    (or just a sign that they live in a bad time zone for trading) :-)

  109. CTP, good example. That's why I don't use it as a contrarian indicator. Got burned by putting faith in it some years ago, and realized it doesn't work often enough to have any value.

    I was mainly just mentioning it to Arnie for the sake of academic knowledge as to how many traders view it.

  110. The bulls better hurry up quick and find some more Prime Ministers to resign over in the Eurozone so we can get another nonsense rally. What about the Portugal or Spain PM's? Maybe they can replace them with "technocrats" too LOL!

  111. Okay, CTP, now I *know* you're not thoroughly reading what I write. :P I just mentioned that in March '09 that the call buyers were bullish! LOL

    So yes, your memory is correct.

  112. Pretz,

    Yeah over the years I have seen many surefire sentiment indicators come and go due to inconsistency. But now there are only a small handful of sentiment indicators that I even have on my radar screen that I have found continue to give decent signals. Rydex fund flows is one of the better ones IMO.

  113. Sorry, I was skimming over posts I missed your comment about March 09... At least we both remembered it ;-)

  114. Well, certainly you read the *completely true* news item in my article:


    George Papandreou announced that he is available all month and, if needed, would be willing to resign from Italy, Spain, Portugal, and "any other European country that wants him."


    I think we're going to see him resigning from a whole slew of countries soon... definitely bullish.

  115. sorry for causing all the confusion; I was hoping to add to the bear-argument, instead of causing an additional one... lol.

  116. OK, I gotta go get some work done... plus I am afraid I might put my foot in my mouth and get myself in trouble with Pretzel again :-P (j/k)

    Let's go bears, take out that pesky 1245 SPX support!

  117. Yep, as I said in that article about fund flows, Rydex investors are generally "dumb money." If you can't bet against them, you can't bet against anybody. They're like the fish at the poker table, lol.

    "If you can't spot the sucker in your first half-hour at the table, then you ARE the sucker."

    Alright, on that note, I gots to gets some sleep. :(

  118. You didn't cause an argument, Arnie, no worries, lol. ;)

    See what you guys can do about knocking out support here.

    Where's Private First Class Jaco today? OUT SICK??? Bully don't GET sick days, soldier, so we can't either!

    alright, I'm gonna get some sleep. :)


  119. Aw, Pretz and CTP, the exchange between you two to 'clarify' everything I just read was actually rather nice. You both respect one another an awful lot. It shows.

    CTP, i didn't think that offering your perspective about your preferences and approach for initiating a new position was misrepresenting Pretz (or backhandedly suggesting that your is 'better' ) at all. It's sound, solid and sage trading strategy no matter whose approach it may be in relation or comparison to. And it deserves consideration simply alone and on its own merits. That sort of thing is a service to readers here (IMHO) no matter who it comes from.

    And Pretz: your points about not front running a trade at a major resistance level is well-taken as well. What trader hasn't done it before? And often unknowingly at the time?

  120. bulls show a charging...BTW this blog is awesome. thanks pTZ.

  121. Don't worry Arnie, I am the one best at causing unintended friction.

  122. "Options traders exchanged about 1.48 million contracts [Friday] on the Financial Selected Sector SPDR fund (Pacific: XLF) -- 3.6 times the average daily volume -- as puts outpaced calls by a factor of more than 13-to-1, according to Trade Alert." (Yahoo finance news; "Greek and Italian drama for stocks"). Seems like a lot of bets that things will go down to me.

    The above factoid (by Arnie) I would tentatively take as a bearish indicator IF it is an outlier from the rest of the put volume initiated on Friday.

    The XLF is a SPECIFIC and specialized ETF that is not traded heavily by the retail investing public. That's more likely to be pro and experienced trading territory. Especially puts, rather than simply shorting it.

    If it were put volume across all equities and indexes spiking and outpacing calls (on say the SPY or QQQ) 13 to 1, well that could indicate general investor sentiment.

    But it also coming on a low volume up Friday with the banks and bond market closed? Hmmmm. Again that sounds like pros to me. Taking advantage of a nice opening. You'd expect the retail crowd to go heavily into calls on a day like that in anticipation of finally breaking through 1,275 with authority.

    The fact that the volume is so specifically targeted precisely to an ETF that would be likely to fall hardest on more soon to be forthcoming bad European news leads me to believe that it's an 'in the know' kind of thing.

    The 'average' investor is simply not that savvy nor targeted.

    One question might be asked: what was the general put and call volume across all indexes and equities for Friday? If the XLF is an outlier to that, then it probably tells you the answer to who was initiating the positions there.

  123. Hi Pretzel,

    How about todays PB is headfake for bears and market is ready to take off from here? Basically your alternate count will prevail.

  124. Thanks anon.

    Brian, the funny thing about the whole thing is, CTP and I have similar trading styles. I was just a bit misinterpreted. When I said "I trade potential tops cautiously until I get confirmation" I *didn't* mean I wait for confirmation to trade. I meant I use tight stops on my trades until I'm more sure of the new trend - to me, that's cautious. So when CTP said the thing about confirmation trading and waiting for breaks of support, I felt misrepresented, b/c I only trade that way at certain times, if I need to.

    I also refer to that style of trading as "nimble" - meaning you get out quick if the trade moves against you. Even though nothing here is trading advice, that's how I trade 90% of the time - short strength and buy weakness.

    Anyway, hopefully that's finally cleared up, lol. :D

  125. As of right now, it doesn't seem like we'll break through the 1246 barrier. Pretz does this add to the wave e theory?

  126. Nimble of course would be in reference to using tight stops, *not* confirmation trading LOL

  127. Mav, posting from my phone, I'll have to look at the charts later.

  128. Anon,

    Or the late session minor surge by bulls could be a headfake by bears to lull bulls into thinking that all is well. The very narrow range today is certainly the market holding it's cards close.

    With the upcoming possibilities (and realities) of:

    1. Italian and Spanish yields spiking (which is not going to get better; who the f*** is going to buy those bonds?)

    2. The falling Euro.

    3. Continuing whispers of a EU 'restructuring'.

    4. The growing understanding that there simply are no buyers for the bond sales coming out of Europe.

    5. The soon to be very much in the daily headlines friction and impasse over spending cuts and raising taxes (neither party is going to pass up the headline opportunities here and they MUST play to the preferences of their bases, so there will be a mini-drama with a 'compromise' finally arriving when the price paid for not reaching one becomes the paramount concern.

    5. The seeming impending and unfolding slide in the price of crude oil and many commodities.

    6. The possibility of a dollar breakout in the near future.

    7. The 'good news' about the change in Italy and Greece PM changes now behind us.

    8. German admonitions of the rest of Europe.

    9. The 'Mercury Retrograde'. Had to throw it in there for fun. It's not a good thing for positive news at the very least.

    I think it's likely that there is an awful lot of 'smart money' who isn't calculating right now that a third test of the 200 dma is likely to be successful. Especially in the next few weeks.

    Those Italian and Spanish bond yields in particular are not going to get ANY better.

    I think their best shot at quelling the yields issue was in the immediate days following the Italian yields crossing 6% last week. They may have gotten an initial surge of buying to push yields back down, but where is the sustained buying power going to come from now?

    And if I were a pro trader, I wouldn't be calculating that a run above 1,300 could realistically be sustained if ANY bad Euro headline breaks out. Or if the dollar breaks out to the upside. Or if crude really slides.

    And ESPECIALLY once the spending cut committee 'impasse' is part of the daily news cycle and reporting, I don't like my chances there either. Every pro remembers last August. This could easily be another reprise.

    And you can take to the bank that both parties want to use this for maximum political gain and leverage and sound bite delivery of talking points with blame to be assigned to the other side. That opportunity is not going to be passed up for sure.

  129. Bulls not going down without a fight evidently... 1245 SPX was well defended. With this being OPEX week I am sure the MM's would love to keep us locked in the "triangle" until Friday, but I don't see how that would be possible from an e-wave standpoint.

  130. Following up my thoughts about the likely impact of an impasse with spending reduction committee:

    I think the dominant calculation by the participants (and the Obama administration) will be: how do we simply inflict maximum electoral damage on the other party.

    With the most likely party to 'lose' the public perception battle being the GOP. Dems are well aware that the GOP did not fare well last August and were (rightly imo) blamed for contributing to the market meltdown through a manufactured crisis.

    I may think that the US has out of control spending and it needs to be reduced dramatically, but even worse is ANY kind of suggestion that we will fail to make good on those financial obligations that have already been passed by past Congresses. We're on the hook for all of that whether we like it or not.

    The GOP simply did not pick their spot well to force the Prez's hand. And having your stalemate with the Prez timed perfectly with a f***ing market meltdown that wipes out a few trillion in equity valuations doesn't win you more friends.

    Dems aren't blind to this.

    So I don't think Dems are going to pass up the opportunity to hang something on the GOP if it worked like a charm last time.

    And you cannot hang something on the other party unless something BAD happens. The worse the better.

    So if I am THEM: I am thinking how do we make sure something very bad happens marketwise during this process? Which has screaming headlines that we can hang on the 'obstructionist' party that is creating all this market mayhem just like last August.

    The GOP may be thinking along the same lines about how they can blame Dems and Obama , but I'm not so sure how they get there.

    Since they want the spending changes, anything that deviates from status quo that is also perceived to have a negative economic effect is probably going to fall more at their feet perception-wise. It is what it is.

    In any case: during the upcoming spending cut committee breakdown and impasse, the actual underlying incentives are to make the market perform worse not better. And to then blame the other side for it.

    And neither side can afford with their bases to capitulate to the other side's demands anyway, so there will be no easy agreement here.

    I could be entirely off-base here, but I cannot imagine a likely scenario where this works out nicely for equity valuations near-term.

    Politics is a bruising and bare-knuckles business. The public good generally has nothin to do with it. And the parties know full well that they tend to win most when very shitty things happen to the American economy and the other side is seen as either to blame or not up to the task.

  131. It's over. over. 1190 will be taken out like knife through butter. PL, this is the end of a grandsupercycle 5, not a 3. that's right, doomsday is nigh. the bell curve of lying is coming to an end. lies are less accepted each day. and ctp, like I told you, DB is a tell. here look they fired their longterm leader today . you guys wanted another prime minister to step down? well this guy is bigger than both greek and italian ministers together. I dont even look at the market anymore its over. go to the movies or to the beach its over. its all a coverup. and those big puts today are not smart money, are you 10 folk here that naive. its insider money, those that know what will happen. they know. its over. kids, do you wonder why there are only ten of us here.


  132. CTP, since you track money flows and cycles, what is your understanding of outstanding put and call volume for opex? Especially in terms of what incentives the smart money and pros have.

    I read in a two separate and seemingly credible articles at the end of October that many fund managers were 'trapped long' (for reasons relating to how they have to legally manage and trade their funds; certain valuation funds cannot be accused of trying to time the market).

    So through the end of the month, when they wanted to go short, they were buying puts and selling expensive calls at the market top in anticipation of declines that would follow the run up.

    However, I have no way of verifying (that I know of) whether this is true or not.

    Nor if those put positions were closed out in the two days that the market fell after the run up.

    Just wondering what your insight might be there. You seem like the best person to ask. Or who could find out the answer.

  133. I think this article should attribute the trading volume to Pretzels blog! :)

  134. brian,

    Well I try my best, but unfortunately I am not privy to the kind of info you are asking about, so it would be sheer speculation on my part regarding who is behind certain options trades. I know there is a paid service that calculates outstanding puts and calls and purports to predict that the OPEX Friday will close at what the call "max pain" being where the most money will be lost by puts and calls expiring worthless. From what I have seen it is hit and miss. Sometimes it nails it but other times it falls flat. Unfortunately there is no Holy Grail out there and if there is only the guys at Goldman have it ;-)

  135. 'and those big puts today are not smart money, are you 10 folk here that naive. its insider money, those that know what will happen. they know. its over. kids, do you wonder why there are only ten of us here.'


    I like your posts overall. They do both instruct and entertain. And there is no questioning your overall market insight, especially into sentiment and psychology.

    But you do have a way of implying that most posters here are some combination of naive and stupid (not always but from time to time) that I find curiously endearing.

    My initial (and unfortunate) admonition of you aside, you are impossible for me to truly dislike.

    I don't think you mean anyone ill will nor to be outrightly demeaning (at least not generally), but it is curious. And notable.

    I do hope you are 'right', btw. And I like your confidence and sense of certainty, even if I find a sense of certainty to be a dangerous thing often enough when it comes to the marketplace.

    Today's close seems rather ambiguous to me. Lots of ways it could be interpreted, which I suppose is the whole point.

    For now, I am looking ahead to what's coming up in the next couple weeks. It doesn't *appear* to be particularly good for the long scenario. But I don't pretend to know how it'll actually go.

  136. Got it, CTP. And thanks for the reply.

    Yeah, I guess I'll have to call the guys at Goldman for an update. Ha, ha.

  137. Was thinking about a potential alternate count that could be playing out. Posted over at my blog...

  138. Saw that. The 11/14 top doesn't mean we can't go up for a day or two between now and 11/23, just can't exceed the high from that day

  139. CTP,

    I saw your alternate count. Please correct me if I am wrong. Triangle is a continuation pattern, i.e. if previous trend is up, then the trend after triangle will be up also. Therefore,
    it is better for the bear that the market doesn't form a triangle in the near future. I hope!


  140. Since the subject of OpEx has come up, current max pain for SPY is 124, which equates to 1240 SPX. I've never been a huge follower of max pain, but here's a cool calculator for those who do:

  141. Ray,

    In the chart I showed the triangle would be a continuation (b wave) of the move down off the 10/27 top.

  142. Vulture,

    Yes 11/14 top doesn't mean we have to drop in a straight line between now and 11/23 +/- 1, although that would be nice ;-)

  143. wow, that option pain calculator looks very interesting. Has anyone tracked its predictive capabilities?

  144. Rock,

    Max Pain ("options pain") basically operates on the premise that the market seeks to fleece the greatest number of participants. The idea behind it is that options SELLERS will collectively attempt to move the market to the point where they lose the least amount of money on their options sales.

    It seems to work sometimes, and seems off at other times, so I'm really not a huge follower of it, but it's sometimes interesting to check out nonetheless.

  145. Rocky,

    I concur with Prezel, Max Pain is hit and miss, not nearly consistent enough to trade off of. The also offer a for pay "current pain" which is supposedly more accurate but again from what I have seen people posting the current pain numbers on other blogs/message boards those are inconsistent as well.

  146. Interestingly, Uncle Buck seems to be forming a triangle as well, though it may not be a true "Elliott triangle" as that doesn't jive well with the LT count.

  147. btw, Arnie, thanks in advance for the offer of a donation tomorrow, that didn't go unheard. :)

    Arnie will always hold a special place in my heart as one of my very first "non-anonymous" posters. Arnie was following the blog back when the market was in a much clearer pattern, and I was nailing almost every turn within a few points, lol.

    Arnie was here back when the blog only got about 100 hits/day, as opposed to the 3000-5000 it gets now... in other words, to paraphrase the old song: "Arnie was PretzelCharts before PretzelCharts was cool." :D

  148. Pretzel,

    I remember when I first discovered your blog it was not even 1 month ago and buy has it changed alot since then. I was just looking back at some of the older posts and they usually got under 10 comments. The last few weeks now you are getting 150+ comments per post. It has become more like a trading community now. Pretty cool. Keep up the great work!

  149. ty, CTP :)

    Man, the market didn't do me any favors today as to ST clarification. Going through the charts, and they're all a mess.

  150. And that's all thanks to you guys and gals!

    It's nice when it becomes an exchange of different viewpoints and ideas, as it has now. It's taken on a life of its own, which is very cool.

    I truly appreciate each and every one of you for helping make this blog the place it is! Thanks to everyone for their thoughts, observations, news items, and input each day. :)

  151. Quick update on China at my blog

  152. Hi Pretzel,
    Was wondering whaat you thought of fellow Minyanville author Toby Connor's article today second guessing himself on the dollar ("Dollar Teetering On the Abyss")? His dollar cycles have been pretty darn good lately, scares the hell out of me if what he is worried about comes to pass.

    thx for all your work here. Can't read - or trade - every day but stop by when I can. Good stuff!

  153. Does that triangle on the dollar's chart indicate an eventual breakout in any particular direction, Pretz?

    And I suspect that Pretzel Charts is a LONG ways away from maxing out the 'coolness' factor it will soon enjoy. And the site taking on a 'life of it's own' is very much a sign of vibrancy and health.

    My own two businesses employ around 120 people between them, and the 'life' they have taken on is well beyond anything I could or would want to control.

    Any new brand or business venture tends to take a year or two minimum to really see its potential, especially when it's primarily driven by public awareness of it's existence. I doubt it matters what the field might be.

    And that process tends to seem so gradual to the owner and principals involved (trust me, I know this rather well).

    I don't know how long you've been doing this, but it sounds like you are still in the early stages.

  154. Curt,

    I know you asked Pretzel, but as a cycles guy myself I just read Toby's analysis and let's just say I am skeptical of his analysis. I have done quite a bit of studying market cycles over the years in developing my own cycles methodology and the long-term cycles he is using are very unreliable based on all research I have done. First off the turn windows on such large cycle tend to be +/- several months if not +/- 1 year. Not only that these long-term cycles often will "skip a beat" so to speak. So, I am not too worried about the his potential hyperinflation scenario. I would say chances are slim to none and slim just left town ;-)

  155. You guys got me curious and I looked back at the blog history. Weird to see day after day in Sept with none or maybe one anonymous comment.

    Arnie certainly was the early adopter. Other early commentators were Frank and JakoS.

    I'm sure many were following quietly back then. The volume of comments jumps in mid Oct.

  156. brain,

    do I recall some mention that you are in the restaurant business? If so in what city?

  157. Spiker,

    I think I was the blabbermouth that started posting a zillion comments back in mid October ;-) and then maybe that encouraged other lurkers to join in. Pretty soon we had ourselves a trading community. I would expect that within a few months we might be up to 300-500 comments a day as the community grows. This is the new hot blog in town :-)

  158. Curt,

    I haven't. I'll check it out later.


    triangle is generally a continuation pattern, but in rare cases can be a reversal pattern. So triangles *imply* a consolidation and continued movement in the same direction as the previous move. To gain insight into how far the move will be, measure the width of the triangle, and add that price to the breakout point -- that's the implied target.

    But yeah, been doing "this" (trading and analysis) a long time, but this blog's only a few months old. Got a big lift from the fact that I knew some of the right people in "the biz" as a result of being actively involved as an online trader for so long (and because I've made some pretty darn good calls during the past decade!).

    Anyway, it's all very cool to see how fast it's taking off. In fact, one of my articles just went up as "Article of the Week" at Money Morning, and that site is a big time player. Really big. Huge. :)

    The article was first cross-posted at Global Economic Intersection - and I really owe them for the Money Morning exposure - so they definitely deserve a plug here too:

  159. No CTP, I'm going to take credit for all of this, they flock to the blog to laugh at my horrible trades. ha!

    ...or it could have something to do with Pretzel's minyanville articles ;) that's how I got here.

  160. I should also plug Lee's site again, 'cause he has been hugely instrumental in all the exposure as well:

  161. But, yeah, readership has gone up 50 fold in 3 months... crazy to think where it might be in another 3 months... :o

  162. P. -
    All this love for your followers, does this mean you will give your original minions discounts if you ever start charging real $ for your analysis? ; )
    Good props to your buddy Lee - I've been following Lee for a good while now, great guy. In fact, Lee kept pumping you up so much that I had to check you out.

  163. PL, when is your next update. Need you to set us straight on what could happen tomorrow and the rest of the week.

  164. KB-

    I would do better than that. :)

    But honestly, as long as the blog does well, I'd like to keep it free for as long as possible.


    Later tonight, but based on what the market did today, so far I haven't had any earth-shattering revelations. That could always change after I dig in more.

  165. I love the pretty charts and the original analysis on this blog. I still don't understand EW. My only understanding of ew is 12345 and ABC xyz :-) mucho to learn about the market

  166. haha yeah pretz, give us a discount when you start charging ;)

  167. And a quick shout-out to Rob in Vermont for the donation --

    Thanks Rob, I very much appreciate both the donation and the sentiments that came with it. :)

    btw, Rob, I grew up in PA and my father was a huge fan of Vermont. Spent several summer vacations driving around New England... beautiful country up there.

  168. Mav,

    *IF* I were ever to start charging, which I really don't want to at this point, my tentative plan would be along these lines:

    1) discounts for original members, since I know all show support in whatever way they can -- and those efforts do add up.

    2) I keep track of all donations. So I would reward those who donated with subscription time equal to approximately *double* whatever their donation was. Just for example: if the subscription was $50/mo., someone who had donated $100 would receive 4 free months -- and a discount on top. Certain members who really went above and beyond (and here I am thinking of William!) would be entitled to something else extra (which I haven't figure out yet. Maybe an autographed t-shirt, or the collectible Pretzel Logic action figure, lol).

    That's my tentative plan on how I would approach it, anyway. I firmly believe that good deeds should be rewarded with more good deeds -- whether that philosophy makes "business sense" or not. There are more important things in this world than money (although nobody's kids can "eat" goodwill, of course).

    As I said, though, I really would like to keep it free forever if possible. It will pretty much all depend on how the money-flow is going the "free" route... because my wife ain't gonna let me devtote 60+ hours a week to something that don't "bring home the bacon" as they say. ;)

    So, anyway -- a great many thanks to *everyone* who's been working to keep it free. You guys are the best. :)

  169. Arnie, thanks. :) You're a good man, brother.

  170. History is supposed to repeat it self, right? I was looking at the S&P's weekly candlestick patterns and noticed that the last 2 months have almost played out exactly as the March-April time frame of 2008. BB-pattern, candlesticks, MACD, SSTO, RSI, CCI all are moving now similarly as in spring 2008, have identical values etc (but maybe moving a little faster 1-2 weeks compared to back then).

    Week of March 23 so a 1440 top, which is 1-2 weeks away from where we are now, and then a rapid 2-3 month decline to 1200...

    I know "it's the season" now (santa rally y'all.... ;-), and March 2007 ain't Nov 2011, but still something to keep in mind.

    Just not sure what that means in terms of EW and where we are now (man it's such a mess these days) HELP!!!

  171. Pretz, u r welcome. Sorry for the minor contribution, but that's all I can afford for now (wife and kids ain't cheap ya now... lol). I am thinking of making a donation of every profitable trade I make based on your "forecasts". Fair enough? Haven't traded much lately, way to busy with my 9-5 job. But, some opportunities down the line, and I am more a long-term trader, not a day trader (boss doesn't like it if I am on E*TRADE during work hours, lol... I do like it though... hahaha)

  172. Arnie LOL,

    The market is reflecting the uncertainty out in the world -- so it's hard to predict exactly what happens next. We can analyze what's likely, and I'm still favoring a top here... but I could always be early and we get the real top in a week or two.

    I have to tell you: this is NOT an easy market to analyze right now.

    My estimation is that we are at, or near, a very major turn/inflection point. Think of the time-frame you just mentioned... did you have to pick the exact top in March/April '08 to make money as a bear that year? Not even close!

    So if you're too confused, or don't know where to jump in and out -- just wait for the market to get a bit clearer. It should get quite a bit clearer soon, and things will get much easier. If the downdraft is coming, what's the big deal missing out on 50 SPX points trying to pick the *exact* top? There'll be hundreds of points to make tomorrow, ya know?

    Depending on how you trade, discretion can sometimes be the better part of valor.


  173. Arnie, I am in the same boat as you. FT job, kids etc and not enough time to keep track in a market like this. very frustrating. I's like to transition to longer time frames but recognize this may not be the best time. And it is very difficult to be short when you can't watch very much.....

  174. Arnie, the LOL was at your prior post of "HELP!" It looks totally inappropriate after your second post!

    And there's no need to apologize. I appreciate it very much, and I know how expensive kids are -- I've got 3 myself. :)

    Also, I meant what I said... often you get a "feel" for people just by how they talk (even online), and my feeling is that you're a good person. We'll try to find you some more profitable setups as we go. :)

  175. This market is so challenging to say the least. I am wondering if it will ever get easier... Or, is this just the beginning?

  176. Okay, Arnie, I think I found a pretty safe and potentially profitable (purely hypothetical!) play in BKX. I'll present the charts tomorrow.

    I might not have the ST count right, so the trade might run away, in which case, no biggie -- but if it sets up, it's a pretty low-risk/good reward scenario.

    All of this is purely hypothetical of course, and not intended as trading advice. It's for educational purposes only. ;)

  177. "Also, I meant what I said... often you get a "feel" for people just by how they talk (even online), and my feeling is that you're a good person. We'll try to find you some more profitable setups as we go. :) "

    same goes for your pretz, i've got this small feeling you'd be a great guy to hang in the bar and just have a beer with. you'd probably great stories too.
    sorry, no charts allowed in the bar

  178. IMO the high put-call ratio on Friday was an act of hedging considering the situation in Italy.
    As suggested by majority here, there should be a fall. In that case two cases are possible:

    1) the slide is gradual as everybody knows markets are screwed.

    2) consecutive large intraday slides.

    The first case can happen if the US market shows positive and encouraging data (which off late is the case) and, of course, chinese fiscal easing begins in a large way. These two have been underpinning the markets all this time.

    The second case happens if there is no hope of first case triggers. The only question for the second case is: which market is going to trigger it? (my guess- Asian markets). Also all the events have been bearish off late, so the mood is pretty much upset, so the element of surprise should kick in, i.e. the second case happens when least expected.

    Just my 1½ cents.


  179. I just went back and re-read the put/call post, and for whatever reason when I read it yesterday I read it as being high put volume on SPY.

    (I end up trying to do too many things when the market's open and I'm watching charts and trying to answer questions, not to mention positioning my own trades.)

    Anyway, I just went and re-read and saw it was XLF not SPY, and I would agree that that's bearish. Not that I was really saying it was bullish as SPY, just that some people would view it that way.

    But a specialized sector (financials) is something else entirely.

    And Mav, thanks. But NO CHARTS? lol

  180. Pretz, your welcome...the blog is one of the best reads on the web and the technical stuff is fascinating...reading most of the finance and market news on the web is like making a meal of cardboard, I'm full but not sure if I am going to get at your site I can sit down and savor the musings , dine at the charts, and feel like I just read a good book that reads like(for you Matrix fans), I took the pill that offered a real glimpse of what is down the rabbit hole...that should alone should be worth the price of admission...errrr I mean donation ...and yes Vermont is beautiful...mountains, can't see my neighbors, hard working values, a great perch to see the world unfold...errr I mean deleverage

  181. 1237 on the futures and Italian bonds above 7% this morning. Is it on like Donkey Kong today?

  182. Arnie,

    Thanks for the donation to

    You are officially my first donator. :-)


  183. CTP - anyway you can coordinate a link to Pretz's site that is clickable so its easy to get from one to the other and vice versa ?

  184. Anon,

    I hope so but Es futures testing the underside of what is equivalent of 1245 SPX resistance as we speak. Hard rejection down from here is needed for the on like Donkey Kong scenario today. Otherwise we might have another day meandering in the range.

  185. Vulture,

    You gotta ask Pretzel to post a link to my site in his blogroll ;-)

  186. Just a quick heads up everyone, I am going to be in an all day seminar today so chances are I won't be able to find the time to post here or on my blog during the market hours. But you are in good hands with Pretzel.

    Trade Safe!

  187. Pretzel - you're definitely welcome, you've earned it through your hard work, insightful analysis and clear communication style. And if there's ever a set of bobble-heads, I'll definitely raise my hand for one :)

  188. lol, bobble heads are a great idea! With little suction cups so people can put them in their car windows...

    Update's posted, so let's move future discussion over there. :)

  189. CTP, this may be a little late in responding to an earlier question about owning restaurants. And you may not see it, since it's on an earlier thread.

    But yes I do own two establishments located in Seattle. Dining, cusine, wine and spirits are my actual realm of expertise. I'm still a (relative) investment novice, though I'm not a total newbie either.

    Thanks for asking.

  190. brian,

    If I am ever traveling to Seattle I'll have to let you know ahead of time, would love to visit one of your restaurants...

  191. I'm a new subscriber and find your charts very helpful. You have generously invited your readers to request new markets for EW charting. Would you be nice enough to do one on gold? Thanks,

  192. Hi Ffred, welcome --

    I plan on updating gold in the near future, as soon as I have time.