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Monday, December 26, 2011

SPX, Euro, and Dollar Update: Are the Bulls for Real?

On the exceptionally light volume of Friday's session, the SPX staged a breakout over its 200 dma and a major resistance line.  The Dow Jones Industrial Average also knocked out my preferred count, which had held its ground since October.  The SPX did not KO its count, however the assumption now should be that it will.  This has shifted preference to the short-term bullish alternate count, which sees everything since August as an ongoing correction to the first leg of a major bear market.

Now we find out if the dip buyers are serious about driving this market higher.  From the standpoint of the global economy, it seems that China and Europe are in worse condition than they were back in July of 2011.  However, any trader worth his salt will tell you that the stock market sometimes has little in common with the real economy.  So the question now is: are the bulls for real?

The first thing I'd like to address is the shift in preference from the preferred count to the first alternate.  While this rally was anticipated by the alternate count, I can't claim victory in that regard; clearly I was in error selecting the more bearish count ahead of the alternate.  My analysis was based in part on the fact that several markets (such as the dollar and Euro) seemed to be indicating that equities were due for lower prices.  This is one challenge with market correlations: sometimes they work, and other times they don't.  Clearly, this is one case where they didn't work -- since August, the dollar is up more than 8% while the Euro is down more than 10%.  In the past, these situations which have often led to lower equity prices, but despite that, the SPX is up 15% from its August lows.  My analysis on the Dollar and Euro has been spot-on, but perhaps I gave the currencies too much weight in my equities analysis.  Or perhaps it's just the market's nature to keep everyone guessing sometimes.

One reason equities and the dollar have correlated fairly well in the recent past is that equities were being purchased as an inflation hedge against the QE printing.  Whether equities can sustain an uptrend in a deflationary environment remains to be seen. 

Along those lines, the first chart I'd like to share is the US Dollar, which has performed according to my projections since early September.  The chart below is an update to an article posted on October 29, and so far it has tracked perfectly.  If it continues to do so, the current equity breakouts are likely to prove to be nothing more than light-volume hope and hot air.



  The Euro has also tracked well, hitting and exceeding my most recent published target.  The current move in the Euro appears corrective and is suggestive of new lows to come.  I have not listed the target on the chart, because it is still possible for this to be the b-wave of an a-b-c correction.  However, if the preferred count on the Euro is correct, it suggests prices will ultimately fall toward the 1.10-1.15 range, and potentially even lower.


Moving on to equities, I want to focus on the Dow chart first, since the Dow has now made a new high above October 27.  The Dow chart shows a possible target, if it follows a similar path as it did in October.  There is no requirement that it does so.  The dashed red line indicates the knockout level which needs to be held by the bulls over the short term.  A trip back through that price territory in the near future could be devastating to the bull case.


The next chart is a one minute chart of the SPX, and is an attempt to gain a handle on the micro structure of the waves.  This chart suggests the rally is nearing completion.


If the micro-labeling above is correct, it implies a cap of 1295.42 for the rally.  If it's not, the larger structure suggests a target of 1269-1310, as shown on the intermediate term chart below.  The next two weeks are seasonally bullish, and the week between Christmas and New Year's is another low-volume week.  That could allow the market to drift higher into the target zone before the Big Boyz come back from vacation.  Note how light the volume was on Friday's breakout (below).


In conclusion, I remain bearish.  If the current count is correct, the market is trying to lure the last of the buyers on board before turning south in a big way.  My current view is that the technical breakout being staged is likely a head-fake, paving the way for a nasty reversal.  Trade safe.

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

107 comments:

  1. Thanks PL! Latest Tom DeMark interview. 

    http://www.bloomberg.com/news/2011-12-22/demark-says-s-p-500-rising-to-oct-27-level-critical-to-extended-advance.html

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  2. Do you think that there could be a super bullish count that shows we are in a bull market correction? My eyes still cant seem to find one but maybe you know of one? Just trying to challenge my assumptions. 

    I am holding on tight to my BAC calls for the time being. But am going to scale into March SPY puts till I am "All-In" as soon as we head towards the higher end of your target range. Of course, I have been humbled by the market before and use stop rigorously. But the 3rd wave down that I am expecting after this rally shall be too good to pass and am not walking into it unarmed!

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  3. Great post, per usual pretz. No worries on the bull vs bear call. You're analysis is still first rate.


    PS. I ended up buying that book you recommended, hope you reaped the commission

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  4. TY mav, I'm sure I must have.  :)
     
    Amazon is a bit on the slow side, but I'm sure it's in there. 

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  5. There is one possible super-bullish count, which would have 2010-2011 as a nested first wave (2009-2010 would be Primary 1 and 2010-11 would be intermediate 1, with the mini crash being 2), but I don't like that count due to

    1)  the high degree of overlap, and
    2) the fact that my higher degree Elliott count has tracked perfectly since 2007, and that bull market isn't in the cards yet
    3)  the fact that it would imply a monster move.  I just can't see the fuel for that move in the current climate.

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  6. Interesting.
     
    "DeMark of Market Studies predicted on Dec. 5 that the S&P 500 would advance to between 1,330 and 1,345 this month before the rally reverses."
     
    Well, he's got 4 trading days, so we'll see. 

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  7. Also, on Dec. 5, the SPX was at 1266.

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  8. Which, btw, is when I was suggesting it was forming some kind of top.
     
    Not bad for an indy trader blogger vs. a BigWig who advises George Soros.  :)

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  9. Actually,  DeMark's original top date was 12/21/11.  The date projections are ancillary to his main work on sequence, however.

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  10. PL - interesting point on USD/Euro and the SPX -- one scenario that may get more traction and catch participants off guard is the following: everyone has been "trained" to watch USD/EUR to figure out where SPX is going - but the ECB tarp that is formally known as LTRO is effectively QE - once they report that they are having difficulty sterilizing - so this will be determined to be inflationary in the long term and the Euro will decline against the USD while the SPX will go higher as the wave of liquidity/inflation will raise the equity world. Not my preferred scenario - pretty sure not Anon20 either...... but - seems to be unfolding  - as you pointed out in your piece today with the divergence in performance.

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  11. PL, if we turn down here that Wilshire 5000 chart could very well play out. It's make or break time for that fractal!

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  12. Your post today  sounds like the commentary was written by ME.  Almost all I posted 2 days ago is in there, including MY eyeballed mid-1290's call to occur this week, due to the weakness of the volume Friday, which so easily broke MY most important closing-price multimonth trendline, by a full 7 spx points. 

    However, I am now seeing things this morn, that do NOT coincide with this fast bullrally I expect, and they are these:

    1.  gold and silver are down today, and looking like the want to break down fully.  I have stated gold and silver will NOT decouple with the spx, so if they fall further today, spx will follow.

    I have never used the dollar as an indicator of anything, as I consider the usa dollar a trailing indicator, of the spx.  And I never even looked at the euro before, as anything else, than the distorted mirror image, of the usa dollar.

    HOWEVER, I have always consider what gold does, as extremely important to the markets.  And silver always follows gold, sometines leading, sometimes not.

    2. and even more interestingly, despite the near 1 percent spx rally friday, all MY putted-against usa homebuilders, FELL several percentage points.  and, so far, they look like they don't have much conviction, to even retrace what they lost on friday.  and unless they turn up strongly soon, this does not bode well for the spx today, because the housing index has been very strong, over las 3-4 months.  For this rally to continue, homebuilders must continue among the sector leaders.

    3. I just took a look at the banking index kbx, and it is still anemic, only managing still a 35-40 trading range since august, no breakout of any kind, during these last few rally months, and it continue deep under its 200day ma.  And NO REAL general spx bullmarket large rally can occur, without the kbx AT LEAST breaking up strongly from its current 40 area.

    BOTTOMLINE:  TODAY is an EXTREMELY important day, IMO. 
    IF the spx CLOSES substantially under MY major trendline (say low 1250's, minimum), friday could have been, incredibly, an extremely rare 'fakeout breakout' CLOSING price day. 
    However, IF todaythe spx closes UP for the day, even minimally, there is the FAST sharprally in the works this week, that I predicted 2 days ago, up to mid-1290's.

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  13. PL, could you please post the link to the above mentioned book?

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  14. officially KO'd the spx bear count....I just covered some shorts, considering going deeper. Not sure I'm bold enough to purchase any longs at this point though.

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  15. You're funny, Anon. What you REALLY predicted was that the market crash to end western civilization was going to happen last week. Then it was going to happen FRIDAY AT THE LATEST (all caps yours, not mine). Then it was going to happen Monday, but oops, U.S. market was closed. What world do you live in?

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  16. pretzel - can you see any counts out there that could end the rally here despite the KOing of the previous primary bear counts?

    Shouldn't a false breakout take us to atleast 1292?

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  17. Rocky- if it is an ABC from Dec19th - then 1269 would be where a reversal would take place - 2 equal legs up from the Dec 19th.. also -PL noted that the target box for the new preferred begin at 1269 - this is probably the reason i'm guessing

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  18. I live fukking your daughter's and wife's ahole every day, cam buttfuck moron.
    If you could READ, you'd stop being the clown around 'home', you already are.

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  19. thanks potus, i'm completely torn now...is anyone adding shorts right here?

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  20. Covered TZA in the premarket flat. Waiting to see what the next move is, which I'm assuming is reentering TZA sometime later this week when we start looking toppy.

    My guess is that the Italian auction will go off much better than expected, somewhat like the Spanish Auction magically did. That will be the last boost to whatever top we get, then the leg down start.

    Or not. 

    But not willing to put anything on the table at this point, up or down. This feels too much like the summer of '08 to me, except that the outcome won't be as much of a surprise this time.

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  21. not a bad place to short - keep stop tight if it breaks thru 1270 is my guess -if it drops it should go to 1260 - where it will look to bounce back up and thru 1269 if it is the bullish count playing out

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  22. Not only can I read, I can cut and paste. Here's your Friday prediction:

    Gap down on Monday.  A slamdunk.  Party is over.Cannot wait to wipe smile off all comfy amerikans.

    Great call on that "gap down" when the market was closed.

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  23. anon is the ultimate contrarian indicator. 

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  24. Just a FYI ....

    Tomorrow, Italy will be auctioning off sovereign debts of various maturities worth 20+ billion Euros. All eyes will be glued to the tube. :)

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  25. Thanks for the heads up.  With that in mind, traders might close out their positions today to minimize risk.  So there may be a sell off at the end of the day.

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  26. SPY tops Selling on Strength list AGAIN.  SPY being near the top of this list so many days in a row is NOT common.  Indicates smart money is unloading at these elevated prices.

    http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html

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  27. In light of the fact that 20+ Euros is not a great deal of money, some are of the opinion that Super Mario will not let Italy down. :)

    According to that camp, it may be a non-event. But who knows. :)

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  28. im hating myself for being so bearish i missed a very easy 70 points on the upside... not sure if this disaster drop everyone is expecting is going to happen anytime soon... ps im still bearish her, but 1300ish seems in the cards

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  29. i hate having been bearish through a 70 point run in the spx- permabear isn't my thing, and seeing apple solidly above 400 makes me wonder if this isn't just the start of a new rally (?)

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  30. Reuters says auction is on Thursday, not tomorrow. http://www.reuters.com/article/2011/12/27/markets-forex-idUSL6E7NR0WC20111227

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  31. Year-to-date Gold vs SPX crossed ....

    A case of dumping gold to buy equity?

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  32. If the great collapse happens, $20 billion Euros might not buy a person a loaf of bread. : \

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  33. NO, you worthless piece of FOLLOWER GARBAGE, you CANNOT read.
    I wrote above--- TWO days ago, and NOT FOUR days ago, TRASH.
    SO GO  R-E-A-D  what I WROTE,  2  t-w-o  TWO  DAYS AGO, idiot.

    Then, go read what your wannabe 'leader',
    also wrote FOUR days ago, in just his title,
     'this the top 'fore christmas?'
    (of course, being a whooped bitch, he cant commit to anything, so he questionmarks).

    We BOTH got smacked, 4 days ago, by the breakage of a MAJOR multimonth trendline.
    Now you tell ME, FOLLOWER GARBAGE, what did you do about it, obvious IMBECILE?

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  34. Today is like Friday's drifting.

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  35. Don't forget ....

    In less that a week, Super Mario opened the ECB coffer and gave 500+ billion Euros to banks all over Europe, for three years, practically free. :)

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  36. are you the ghetto graffitti negro nyc wannabe artist from the 90's?
    nothing else needs to be said, ghetto boy.  go graffitti a wall.

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  37. It is so difficult to tell.  There are all these acti0ns banks are doing that tell you they are preparing for the worst, and as BrianHut reminds us of the constant SPY top selling, yet for many weeks the market has been drifiting and closing in the green.  It could be just a very well played out trap for buyers at these price levels; but I don't see this going on much longer.  The ones laying the trap will need to eventually realize their profit.

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  38. It certainly is annoying to both bulls and bears.

    It is not a wild ride up, but no one is dumping, yet. :)

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  39. im expecting a marginal new intraday high to complete a nested 5 wave move...then tomorrow will be a drop below 1255 to complete wave 4 of the move off the dec lows. That will set the stage for the wave 5 that gives us a top. IMO

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  40. morning guys, I am patiently waiting for the top, which is near imho, and then boom! In the mean time enjoy some negative news, that suggests this rally is indeed fueled on nothing (or money printed by the ECB at the most). All this news shows that THE american consumer is not consuming as much as we'd like... since that is 2/3rd of our economy you can add 1+1 and figure it out. Given that at least 9% of the working force is unemployed, disposable income is decreasing, etc who can afford buying stocks if you can't even afford groceries...

    SEARS to close 120 stores http://www.marketwatch.com/story/sears-holdings-to-shut-up-to-120-stores-2011-12-27  (SEARS is mid-low end, adding to the fact that even this socio-economic class can't buy china's products anymore)

    This is all Detroit wrote: http://www.marketwatch.com/story/car-sales-may-soon-peak-confidence-data-suggests-2011-12-27 

    Who wants to buy my house??? http://www.marketwatch.com/story/us-home-prices-drop-in-october-case-shiller-2011-12-27

    Where will SPX go next? DOWN!? http://www.marketwatch.com/story/fall-melt-up-ends-winter-resolution-begins-2011-12-27?link=mw_home_kiosk

    Follow the big boys: Short it! http://blogs.barrons.com/focusonfunds/2011/12/27/merrill-hedgies-sell-gold-silver-bet-short-on-sp-500-in-week/?mod=BOLBlog

    Enjoy the melt-up; I am gonna play with my kids in the park!

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  41. I'm still not a believer in this 'rally'.  Still has ALL the hallmarks to me of hovering around the 200 dma to sell off overpriced stocks before the next rundown.  As we have seen SO many times in the last few months now.  

    It's not so much that I think there is a major crash coming in the next week, just that I think we have a range bound market.  And this is the upper part of that range.

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  42. Not bad at all. Your work is greatly appreciated!

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  43. financials lagging (Goldman has been key tell recently - that chart shows there are an enormous amount of financial players worried about something - been performing worse than MS over last 2 weeks or so), gold down and silver down more, oil is up, but pressing near recent highs/resistance. Vix finally broke out of bullish wedge... a lot of bearish divergences against a topping???? SPX

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  44. somehow my previous post was never posted... so I'll retype it quickly. Here's some realit- check news (to see if this rally is fueled on real positive news or -again- on hopes, printed money (ECB's $500B) etc):

    SEARS to close 120 stores: http://www.marketwatch.com/story/sears-holdings-to-shut-up-to-120-stores-2011-12-27 (THE american consumer is not consuming so much as we may think... since that's 2/3rd of our economy you do the math...)

    Can I buy a pre-owned please? http://www.marketwatch.com/story/car-sales-may-soon-peak-confidence-data-suggests-2011-12-27 (because we  can't afford a new car, since we are all unemployed, like the other 9%...)

    Who want's to buy my over-valued hows that is dropping like a stone in value... http://www.marketwatch.com/story/us-home-prices-drop-in-october-case-shiller-2011-12-27

    Are you sure the target for SPX is 1300+ ??? http://www.businessweek.com/news/2011-12-27/bartels-says-s-p-500-may-slide-to-2011-low-technical-analysis.html

    Big boys are shorting the SPX; maybe we should too? http://blogs.barrons.com/focusonfunds/2011/12/27/merrill-hedgies-sell-gold-silver-bet-short-on-sp-500-in-week/?mod=BOLBlog

    That said, the top is near, maybe we already saw it today and it's time to change course. Mean time I am gonna play with my kids in the park!

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  45. I don't believe it either Brian, this is a propped up BS market and cannot continue running on fumes. Crash not ruled out but a correction is on the horizon, such that more QE will be required - what level that is whether it's the Euro at below 1.25 or the SP below 1100 don't know, but this pump and dump stuff is set to end within the next few weeks. As your crazy friend A20 says, I too believe PM's will lead the way - and right now they are weak. This "mechanical" bull is slowing down and Ben will need to print more tokens in the near future to keep this delusional ride going.

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  46. Just closed out after what was a tight and frustrating day. Looking forward to when these very narrow range days that never move more than two points per wave is behind us.  

    Even though the day looks like tit will print green (just barely and we are still ten minutes from the close as I am typing this), this was a clear win for bears today.  They defended critical junctures well; held below the HOD established in the morning session; kept away from 1,270 which is a distinct psychological hurdle given how little time we have spent above here lately; and slowed all advances after 11 am to no more than two points, other than the move from 1,266 to 1,269. 

    Tomorrow may hold something different, but bears definitely did not roll over today the way they did last week.  

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  47. Damn, wish I would have held my position into the close.  Sellers finishing very strongly.  Hate holding into closes though.  Never know what the box of chocolates is going to give you.

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  48. Brian, 5-minute RSI and stochastics on SPX shows oversold condition. Expect a bounce up tomorrow morning.

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  49. Hmmmm, my belief is that trading the five minute chart from the close of a session and into the next  (meaning BETWEEN SESSIONS) is a guaranteed way to lose money. 

    There will be so much that happens between now and tomorrow's open that it truly won't matter.  

    I suspect that what tomorrow's session holds will be almost entirely predicated on the Italy bond auction.  This is so highly anticipated, that my worry is that the outcome is already rigged, meaning buyers are lined up in advance.  

    With all the money handed out by the ECB lately, one would think that institutions that will buy the Italian issues already have the cash in hand.

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  50. Actually they won't.  They need to shore up their balance sheets and don't need to buy garbage.  One of the frustrations with TARP was banks were handed free money and hoarded it and didn't lend.  Same thing will happen in Europe as the banks hoard the free stuff to try and survive

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  51. The banks own too much of that junk already which is a huge issue - why would they be compelled to by more crap ??

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  52. One may even consider that the purpose of the ECB distributing funds to banks is not to save the sovereigns, but to save the banks.  If this were the reason, then the expectation would be for the banks to use the new funds as capital to meet their capital requirements at a small loss/expense of 1% with 3 years to ride out the crisis.  Thus, as GGekko mentioned, the banks would have no desire to trade good money for bad.
    In addition to kicking this down the road, tax payers would be suckered into bailing out banks again without even realizing it.
    This happened with Brazil and also in the US with banks hording money.  You would think that Mario would have buyers lined up as Brian thought this third time around.  It would make sense if they want to save Italy and not just banks.  If the auction does not go well, I do not think it would be the end of the global markets.  It may be a down day, but because it will not be the end of markets, they may let it go down. 
    Then all the those that have been shorting the S&P would finally get to capture their profits and let it ride back down; since it seems that they are not in a big rush to shoot it up.

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  53. Looks like I missed an exciting day.  ;)

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  54. It's the first one on my "recommended reading" list (linked at right) -- if memory serves, we were talking about the "Wave Principle" right, mav?  It's my little Amazon referral link, so I get a small percentage on commission when you purchase through that.
     
    http://pretzelcharts.blogspot.com/p/recommended-reading.html

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  55. Hmm.  All I remember is you ragging on me everytime I suggested the bullish alternate count might have some legs.  Seems to me that you have it backwards:  your call to 1290 echoes ME.  ;)

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  56. Yes, Rock, I can.  And yes, odds favor a drift higher, as I suggested.  Key line for the bulls is the top of wave 1 of this rally.  When that goes, there should be trouble.

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  57. Yep, good read.  Looks to me like it wants to test 1260-62 at the minimum tomorrow.

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  58. If the "disaster drop" is going to happen, it needs to catch most on the wrong side, including bears.  Not saying that means it will happen -- just saying that's a prerequisite.  The majority of bears have to be in capitulation mode, and the majority of bulls have to be feeling great hope.

    In other words, the crowd should be looking UP.  Think of October 4, when the crowd was looking DOWN.

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  59. I need to update the long term chart again.  For the record, I am not expecting a crash immediately following this top.  If it follows the 2008 playbook, it will start as a strong and somewhat relentless march lower.  That will take a few weeks to a month or two.  Then it will bounce for another few weeks or month or two as some new program brings hope.  THEN we enter the crash wave.

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  60. Great links, Arnie, many thanks!  :)

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  61. The limited number of comments is also suggestive of topping action.  :)

    The more traffic the blog gets, the closer we are to a BOTTOM, and vice versa.  Noticed the same phenomenon on Lee's bear board I used to frequent.  When we'd hit record numbers of posts, bottoms were getting close.  When an hour or two would pass between posts, it was near a top.  ;)

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  62. Nah - low volume, tight range.  I closed my shorts at the open and when the market appeared it didn't want to go up, put some back on later in the day

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  63. This is true.  When people start talking about going long, how high will it go, bullish count etc, its usually a good short

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  64. Trying to get caught up on some sleep and reconnect with my family.  Figured today wouldn't be too exciting anyway.  :)

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  65. Not a lot to post about today.  Trading today required a fair amount of patience waiting for two point moves to materialize.  And which took their time, whether going long or short.  

    Other than the open, we essentially traded a four point range today.   As tight and narrow as it gets.  

    What I took it to mean is that once longs had established by mid-mornign that they would hold above Friday's close, their only commitment after that was holding up at this level to continue to sell off as much as possible.  

    Hence the two and three point moves up followed by two points down, where bears make sure to hold down any advance.  And each move was EXTENDED in time duration.  Lots of pauses and holding at a level and taking twice as long as is 'typical'.

    Barring a runaway positive Italian bond auction or some other screwy headline that pumps hopeful sentiment, I think sellers were simply playing keepaway from any more major upside movement today and were content beyond that to save their bullets for when their time comes.  Which I suspect will be very, very soon.

    The good news is now all priced in and this range bound market has once again tested the upper limits of that range.  No one makes money unless the market moves to somewhere and from here it's pretty obvious which is the far easier and more profitable direction to take things.

    My only major question at this point is: Do we have some kind of fakeout breakout day that clears out all stops above and makes for another a blow off top? And which completely scares the bejesus out of all bears?  So that the coming run back down will benefit as few bears as possible?  

    Or does the market just give up from here?  Because without a great news story it's rather obvious that the X-mas party is winding down?

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  66. I'm in complete agreement GG, but as Brianhut said there was barely any movement today, looks ripe to short this thing.

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  67. PL, re: number of posts on your blog and a market top or a bottom. I noticed the same! But, it's holiday week too, so let's give 'em the benefit of the doubt! (BUT, it's so true, it's like the CPCE...LOL)

    ANON20: check this out! exactly to your liking! http://www.marketwatch.com/story/2012-stocks-up-10-or-doomsday-scenario-2011-12-27?link=home_carousel

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  68. The little sideways/up move which lasted most of the sesssion looks corrective, so I would expect today's low to be taken out tomorrow.  Volume was even more pathetic than on Friday, and if this is all the bulls can manage with the big funds *not* doing much selling, it doesn't look too hopeful for them. 

    Target was hit, so anything's possible from here.  This was not a session that provided a whole lot of insight overall.

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  69. Also, I know I posted it earlier, but the SPY topping the WSJ Selling on Strength list AGAIN is not a good sign for bull.

    My experience is that this is highly correlated with market tops.  Especially when there are a multitude of other high quality and favored issues to go with it, which today there are.Very curious to me that Exxon and Chevron are in the second and third spots as well.  Does the smart money believe that oil is peaking again and is now ready for another leg down?Oil has been the curious outlier for me.  It still makes NO SENSE to me that it has remained as high as it is, given the slowdown in China and Europe.  But maybe oil is sniffing out more QE money and continuing dollar devaluation? If so, then why is the dollar holding up nicely?  Whatever it is, I sure as hell don't think oil's continuing strength is demand related.If anyone has any thoughts on what's going on with oil in particular, I'd like to hear them.  I suspect the answer to that question answers the question to everything else at the moment. http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html 

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  70. Agreed.  The funds and pros on the Street surely have already see that they just don't have any buyers left way up here.  This is VERY tentative territory.  

    And no fund manager worth a damn hasn't already made ample preparations for lower prices at this point.  You'd be fucking fired for having not done so.  In that sense, I think the session provided a LOT of insight.  As did Friday's.  Yes we ground higher Friday, but it was really just to a point that didn't cost a lot and the market could distribute at a higher level than the day before.I thought it said plenty that *they* did not make a run to 1,265 until the last fifteen minutes on Friday.  Meaning they didn't have to waste any more money  than necessary to hold it there and we could go into X-mas with all longs above water and feeling good for the holiday.And then today *they* expended only enough firepower to hold at this level for another day.  Enough to keep the world complacent and to print green.  Just enough to find out what more could be sold.

    Which is turns out isn't much.  This may be a light holiday week, but they aren't going to waste an entire fucking week if there aren't any buyers left up here.  

    Which makes me think that the ONLY thing that saves this market from here is a positive headline, probably related to that Italian debt auction.  If that thing is rigged with buyers already lined up (highly probable), then all bets are off for bears and higher up we'll go into the end of the week.  

    Other than that though, I don't think there's anything that can save the rally from here.

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  71. It is strange that in this extremely low volume day,  the bears couldn't manage to tank the SPX. Suggestions?

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  72. Pretzel, very much enjoy your  blog.  I read elliotwave.com as well.  They're getting awfully frustrated with the fact that THE BIG DROP hasn't occurred yet.  'Course Prechter has been predicting this since '95, so their ongoing frustration is understandable.  I'm rather new to this whole Elliot Wave thing, and I do find it useful.  But, can I make a suggestion?  Go back and revisit your long counts.  Just look at the patterns developing (not necessarily the counts).  Prechter continually says that THE DROP is going to occur IMMEDIATELY, as in at a sharp angle.  But looking at a 30 year chart, it looks more like a long slow curve to the drop, per '01 and '08.  I think your post below is accurate...it'll start slowly.  I got out of the market just after the recent top because the charts were getting so sloppy.  And I mean really sloppy.  This told me something was seriously wrong, so I just went to cash, without understanding the big picture (I'm a swing trader).  Since then I've been researching Elliot Waves and reading you and Prechter and I've found the long counts to be far more useful than the shorter term ones, simply because the shorter term charts are so sloppy as to be almost impossible to count.  Net, net, I think this could be a Grand Super Cycle correction, and if so, the scale and timing of the decline will be bigger and longer than anything we've ever seen.  So just as Prechter was way off in '95 as it's taking far longer to develop than he could possibly have expected, and even though we're closer now, it still could be some time before the big drop occurs.  And yes, I'll be trying to catch it with Puts (already tried once and obviously missed). 

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  73. Pretzel, check this comparison out. I just noticed an almost perfect similarity between today's intra-day activity and how the market has behaved since Sep 30 until today; with today's intra -day peak at ~3:10 pm ET being comparable to today as-a-whole-day peak. I noticed this similarity based on the similarity between the 2min bollinger bands and daily BBs, since I have been curious to see what it means for future stock prices when the lower BB goes up, while the upper remains rather steady; as we are experiencing on a daily scale now.  

    Well, if we extrapolate the 2min pattern of today after the 3:10pm ET peak on to a daily scale, we are in for a serious down turn from here...., which will be bumpy, but steady. I see no real reason why the daily BB patterns should react/behave differently from 2min patterns, as they all adhere to the same principle. Or!?

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  74. Hey there Pretzel.  Thanks again for another really great installment.  I continue to value you work very highly and would do so even if you and I hadn't come to such a friendly and fruitful arrangement.  On that note though, I'm still quite shy about what you would perceive as an 'acceptable' comment on my part.  So far I've never posted a link to a chart on your site, mainly I guess because I'm not a very good wave counter.  So any chart I might want to post would be something other than EWT (the LIBOR chart is one example of what I'm referring refering to).  I'm not sure how something like that would be accepted since it 'is not' EWT related.

    Here's another example of my reservations about posting here (completely out of the 'respect' issues that you and I have discussed over a beer, lol).  I've just finished writing an article which is a follow-up to one I wrote back in May, which itself really surprised me when it turned out to be kind of a grand-slam as measured by the number of reads it got (according to the website that published it).  The new update is going to be published on Jan. 3 (the publisher grabbed it today).  It's an article that investigates a method of trying to detect whether the world will be entering into a deflationary phase or not.  In a roundabout way, I suppose that 'is' EWT related since it appears that a 13 year long trend might be broken at some stage over the next month or two.  If it is, the implications would be 'very' deflationary.  Would it be out of line if I offered a link to such an article here  once it is released? 

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  75. Arnie, I'm rather well versed in BB behavior.  

    The BB's will always widen when there is a large price move in ANY direction.  If there is a spike up or waterfall move they will literally explode apart from both sides. 
     
    Just think:  Fast movement = widening BB's.  Non-movement = narrow BB's.  
    When the BB's narrow up significantly, it means that price movement is stagnant and you should expect a big move soon, though the BB's will NOT tell you the direction.  You have to look for other indicators for that.

    If you get a strong and sustained move in one direction and then the candlestick hugs the BB in the direction of the move (this is what most associate with BB's and fast moves), it means that the price action has strong MOMENTUM but is controlled.  So the BB on opposite side of the move will not explode so much in the opposite direction.  

    This nearly always means you have a move that will end with the candlestick peeling off the BB and then retracing by two to three points once it crosses the centerline.

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  76. Looking at your chart even further:  Notice now on today's 2 minute chart the BB's pinched up and narrowed around the 3:15-ish mark.  Then the BB's widen and the candlestick then hugs the lower BB into the close.  

    This is CLASSIC pause then strong move BB behavior. 

    The pinched up BB's prior to the move happening let you know that a move is coming.  The widening and spreading BB's let you now the move is unfolding.  The candlestick hugging the lower BB let's you know that the move's direction and that it is strong and has momentum.  It never peeling off the candlestick let's you know that it wasn't about to end even right into the close.

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  77. Also of note on the Daily chart:  Notice how at the very end of the chart, the lower BB curls up and the upper BB stays flat.  And then the move is up and in the direction that the BB curled against the candlesticks.

    This nearly ALWAYS means that there is strong resistance (in this case from the downside) and the BB curl is pointing the direction of the next move.  Which in this case was a move higher.

    This is one of the most looked for indicators by BB followers, btw.  

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  78. I disagree AF.  Your timeline is simply too short. Topping is PROCESS not immediate reversal event.  Pretz could tell you more about this than I could.  

    The ONLY objective that bears needed to accomplish today was halting runaway to the upside and the upward wrenching grind that was running them over in slow motion.  That happened today. Decisively.The open let sellers know:  We longs are committed to another day of selling at these levels.  And then sellers let longs know at pretty much EVERY crucial juncture after that: Okay we'll allow this for today, but this fucking nonsense of grinding higher and blowing through stops needs to stop right now.  Both sides basically 'agreed'.  Which was a huge win for sellers.  Because we are at a top and not at a bottom.  If we were at a bottom and longs were able to halt the slide in similar fashion, then it would have been a win for bulls, even if the candle printed red overall.   Because bulls would have drawn a line in the sand.  Which is what bears did today at 1,269 and never letting get back there for the rest of the session.Now we wait for the outcome of the Italy auction.  If that or some other headline event comes along, then the bear line in the sand today means nothing.  But the onus is on longs now.  Sellers just have to wait.

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  79. I want to read that article myself.  UNLESS it is a mechanism to divert income towards you and away from Pretz. In which case, I don't.  And won't.

    Is there a way for you to post information without it getting into being an income diversionary / sharing mechanism and agenda?  Meaning the same way the rest of us post info here?

    I would think there must be a way for you pros to share info and help one another in such a way that ADDS to one another's overall profit, well-being, enjoyment, understanding, etc.  And which at the very least does not take away from one another.

    I own restaurants myself.  And I am good friends with a LOT of my competitors.  We all make plenty off of one another in the form of our respective staffs frequenting one another's establishments and being generally supportive on one another's efforts.  And we all frequent one another's establishments ourselves.  

    Hell, I've vacationed with a few of my closest 'competitors', but we aren't really competition if you really think about it:  we are just fucking good at what we do, so people of similar minds frequent our establishments.  And 

    But the way we do that is we do not STEAL from one another.  EVER.  There is a well-understood set of principles that governs this.  Though I'm not sure how to articulate it precisely.  

    All I know is that we do well by one another and the world is better for it in general.

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  80. Yeah!  Don't you know that old predictions don't count if Anon writes something new?  Duh!  That's how he keeps himself going.  It doesn't count if it wasn't his most recent trade.  He made a couple of percent back on Friday, helping to offset several multi-day double digit losses (after losing 25+% last month).  He is now a winner! 

    It like real trading, you just count the last trade, not the cummulative ones.  However, with good risk management, you could even take Anon trade entries and make money. 

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  81. Usually the big funds refrain from doing heavy selling into light volume days.  Light volume is considered bullish, not bearish.

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  82. I should say light volume holidays have a bullish bias.  It's mainly retail investors trading on light volume, as opposed to the market movers.  A better question might be: why weren't the bulls able to get anything going on such light volume?

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  83. BR, thanks for explaining! I don't want to be a smart ass, wise-guy, but I knew all this about BB's behaviors already. I use BB's for my intra-day trading all the time. 

    The point I wanted to make is that the 2min intra-day chart from 1pm to 3:10pm is strikingly (almost exactly) similar in price action and BB behavior as the daily price-action and BB behavior from Sept 30 till today. Since the market went down after 3:10pm today, my question is if we thus can expect similar downward price action in the near future (maybe already starting tomorrow) on a daily scale. I agree that the BB need to be interpreted with other TIs to know what direction to expect. So that's what I did. Please see the attached SPX plot, with Wm%R, SSTO and MACD. Given that are all in over-bought territory I believe -based on the 2min chart- that we are for a serious leg down. When? Dunno, doesn't have to start tomorrow exactly; we may keep on drifting sideways as we did today: nice doj/spinning top btw, which I expected... and we know what that means: top is in (if tomorrow is down day). If that's the case I'll go short 100%.

    But given that the BB on a daily scale are tightening due to the lower band going up and the upper band staying flat; I am inclined to think the next leg is down (just like the leg after 3:10pm today). BUT, IF the upper BB is also going up due to continued upward price action, then the rally ain't over.

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  84. The latest book from Ed Easterling talks about how this secular bear will end:  either an inflationary or deflationary episode will drive PE's to extreme lows.  As the inflationary or deflationary situation improves (we return to price stability), the conditions for a new secular bull will be set.  This corresponds to how the last secular bull started in the early 1980's (after an inflation spike that time).  So, I am very interested in any new thoughts about how to forsee deflation.

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  85. tomorrow is the day that we will see some action on this week.Anyone actually working this week will be in tomorrow to square some positions and put fund/portfolio in order for early january expectations. My best guess is that Italy auction tomorrow gives bulls a "reason" to push it higher - the auction is for short term money - less than 3 years - so should be short enough to get some yield hogs interested. The real test will be Thursday when Italy auctions longer term debt - greater than 3 year tenors... this will be the litmus test - and a "failed auction" - less than planned would be the reason to top of wave 5. IF ECB pushes hard enough and both Wed/Thurs auctions are good enough - then wave 5 rides through to Friday and everyone happy to take hope SPX near 1290 and up 2-3% for the year.

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  86. Albertarocks is on Pretzel's blog list on the right side of his sight.  Good information to consume.

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  87. AH HA! you're slipping pretzel! your secret indicator is revealed!

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  88. Hi Brian.  I think I can allay most of your concerns.  My question to
    Pretzel was posed simply out of respect for the man.   There is no money
    involved whatsoever and I am no "pro", unless you wanted to count the
    fact that I've been studying the stock markets and began to do amateur
    technical analysis at age 11, half a century ago.  I'm just a working
    stiff like most other people.  I work a menial evening job which
    includes having worked the past 78 weekends in a row.  Every weekend
    since April, 2010 except for Christmas Day, which was on a Sunday this
    year.  Yay... I finally got a weekend day off.



    I am not a paid writer.  I'm paid nothing for the article in question
    and I don't earn any money from my blogsite.  In face, as I mentioned in my question, the link I had
    intended to post was to an article on a third party website where the
    original article had been published.  And that site is Global Economic
    Intersection.   It's no different than any link you might post to an
    article on Zero Hedge for example, except for the fact that I just
    happen to be the unpaid writer of the article in question.  It's all
    pretty innocent really.  My question was really asking "would your
    readers care for a heads-up, or should we just let them stumble upon the
    article somewhere out there on the internet?"  Nothing more sinister than that.



    Pretzel and I do not have a "competitor but still friends"
    relationship.  We only have the "friends" portion.  I hope that disclosure helps to
    clarify the relationship in no uncertain terms and remove any notion of
    some sort of convoluted money sharing scheme.  I only asked the
    question because I  are a classy guy and wouldn't want to offend Pretzel in any way :-)

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  89. TY for the detailed info on auctions.

    Are these auctions well underway or over by the time New York markets open?

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  90. For me, EW is just part of the pictures. Any economic or political insights are helpful. I would like to see the LIBOR chart, and I would like to have the reference to the Jan 3 article. I mean, since when are we not interested in questions about inflation versus deflation?

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  91. Thanks for the book reference! How do you think the two ending episodes will affect gold?

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  92. Hi dust_devil.  The LIBOR chart (and short commentary) are posted on my blog site.  You can just click my name and you'll see it.

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  93. Let me reply to you and Brian in the same post here:  Alberta, no worries and I do appreciate your showing of respect.  Brian is simply trying to look out for me, which I very much appreciate as well. 

    In fact, I'm rather honored by both of you. 

    Thanks, you two.  :) 

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  94. Yeah, I perceived that Brian was looking out for you and I appreciated that as well, lol.
    He deserved an honest clarification.

    Ok, with your blessings, once I see that the article has been published on GEI (scheduled for the first trading day of the new year, Jan. 3rd) I'll post a link here.  The article will also include a link to the original article from May in case any of your readers wanted to go back and start at the beginning.  However the new piece is written with a review of the thesis, so a revisit to the original article is not required.  I sincerely believe they will find the study quite interesting and of value,  since probably 'all' people who participate on technical websites tend to think in logical terms and the majority of them have a real good capacity to understand the implications of a major trend line break.  I'm pretty confident you'll like it :-)

    Thanks again Pretzel and I hope so sincerely that 2012 turns out to be a knockout good year for all of us.  I don't see why it can't in spite of the fact that it's almost assuredly going to leave a dark stain on the entire global economic system.

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  95. Brian ... CNBC explains geopolitical risks as the driver of higher oil prices. Not just war but sanctions on Iran could set off disruptions. http://www.cnbc.com/id/45800354

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  96. Sounds like both of you know a helluva lot more about BB's than I do.  :)

    I'm a "pattern recognition" guy, first and foremost -- probably goes along with my artistic leanings (music, photography, graphic design).   I use BB's in passing sometimes, but I have nowhere near this depth of knowledge on BB's.

    Thanks for pointing out the patterns, Arnie.

    And Brian, you should write a friggin book on BB's -- these are some of the clearest and most concise explanations I've heard.

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  97. Definitely hard to imagine 2012 being a good year for bulls at this stage.

    I'm having a hard time seeing how everyone could wiggle out of all the ongoing difficulties... but I've watched this can get kicked each time before.  Just seems like the can can't ("can can't" that's fun!) stand too much more kickin'.  I think the can is full of super-fizzy soda now, and next time it gets kicked, it explodes on Ben's boot. 

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  98. Hi Scott, welcome!

    I think Prechter has the same challenge most Elliotticians have (myself included, at times), which is a tendency to advance the wave degrees too quickly.  I try to compensate for this tendency with some success, although not 100% success.  Anyway, I believe the crash will start as most crashes do: from overSOLD conditions... not overbought conditions as we are approaching now. 

    FWIW, I have waited quite patiently for the next leg of this bear.  2008 I had pegged.  2009-2011 I anticipated fairly well too.  Timing seems right for this to unfold soon -- maybe not today, and maybe not tomorrow.  In fact, I can see one possible alternate count which would have one last delay forming as a way to stretch out the 2011 top a few more months.  It wouldn't hold much in the way of upside, but it would frustrate bulls and bears alike and grind this market sideways for a while longer.  I'm not ready to throw out the Minor (2) count at this juncture though, and this other potential I see is pure speculation at this point, and an attempt to prepare everyone if it seems to be unfolding.

    The persistent bullishness at this juncture is normal, though.  Tops are supposed to feel like the start of a new leg up.  If tops felt like "tops," then any idiot could make money trading, because the market would be so transparent that my kids could manage my account.

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  99. mav, lol.  Don't tell Goldman Sachs, they just made an offer on it!  :D

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  100. Sometimes I get so mesmerized by a market that just keeps levitating on ever increasing money 'creation' that I even start to doubt that logic exists anymore.  I sometimes think that Goldman must have purchased the rights to logic and have declared it suspended until further notice.

    But I think the world is saturated with debt.  There's just no room for any more... at 'any' interest rate.  We've come to the point where even the hint of the tiniest increase in rates is enough to topple a country.  At least three decades of credit creation have reached an end... that's what I think.  And since at least 95% of all the money in the universe was 'loaned into existence', then a necessary reversal of the expansionary period dictates that that money will have to disappear back into the imaginary void that it was created from in the first place.  I just can't see how it would be possible to defend against an unwinding of the credit bubble considering that the FED and the ECB are printing money like it's going out of style and yet it's like trying to catch all the water coming over Niagara Falls in a kid's plastic beach pail.

    And yet they just keep pulling off one goofy mindless  solution after the other and the markets buy into the scam like a bunch of brainless zombies.  Yeah one of these days that can is going to blow Ben's leg clean off.  Then we'll see how well he does in an ass kicking contest, lol.
     

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  101. Update's posted, so let's continue discussion on that thread.  :)

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