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Wednesday, February 8, 2012

SPX Update: Pre-Eating Some Crow in The Analytical Trap

There's a trap that's easy for analysts to fall into.  Let's imagine you've been bearish for a while and anticipating a top.  Let's also imagine that the market has continued going up anyway, and yet continues to give signs of a top... but it hasn't actually topped (read: a bit of self-flagellation).  The longer this goes on, the more you are becoming increasingly trapped by your own prior analysis.  The signs are all there for a top, and are actually increasing, but the market's kept rallying anyway.  What do you do?

Do you shift your stance to bullish?  Well, you can't really just jump in and randomly start buying, because the rally is long in the tooth, the indicators are overbought, and every objective piece of evidence says the rally is due for a pause at the minimum.  Do you continue looking for a top?  That's challenging, because the market is blowing up the bear view and busting through resistance levels like they weren't there -- plus you're starting to feel like the boy who cried wolf. 

And then the real psychological trap comes: what if you shift to a bullish stance right before the market tops?  Oh, the humiliation! If only you'd held onto your views for a couple more days.  I think this is a trap that a number of analysts have fallen into, which locks them into being on the perpetual lookout for a top.  In particular, I'm referring to a popular Elliott Wave subscription service, whom I won't mention by name (hint: a large international Elliott Wave service whose initials rhyme with "See W. cry.").  They continue to be bearish because it's something of a tradition ("Bearish Since 1988 and Still Going Strong!") -- and they've been bearish for so incredibly long that if they suddenly give it up now, the market is almost certain to drop 4000 points the very next day, and they will have missed calling it.  As a result, they are effectively trapped on the wrong side of the market for as long as the market wants.

I believe this problem can present a potentially huge psychological trap for analysts.

Well, be that as it may, I'm not going to play the Perpetual Top Hunting Game for the rest of eternity, and I don't want my readers to either.  People who have only recently started following my work may mistakenly think I'm a perma-bear.  If you weren't following previously: I nailed the October bottom to the day and rode that first rally leg up to 1265 before turning bearish again south of the 1292 high.  Recently, I switched my stance to short-term bullish yet again after the 1300-1310 zone was successfully back-tested, and stayed bullish up to 1342. 

I do realize I've been top-hunting for a while and have failed to pin it down here.  I've been early at best, or completely wrong at worst -- to be determined.  But practically speaking, since the October bottom, I've only missed about 50 points of upside (3.7%) on the S&P 500 as of Tuesday's close (1265 to 1310 = 45 points; 1342 to 1347 = 5 points), while capturing nearly 200 points of the rally on the long side.

Now, all that said, here's the relevant conundrum.  On one hand, it is objectively difficult to give up the bear case here.  When top indicators are firing off daily and historic highs are being reached in overbought indicators, the odds suggest there's some kind of top nearby.  If it looks like a duck and quacks like a duck, then it's probably a top (or possibly a duck, but duck hunting is considerably easier).  On the other hand, and I've said this before: the only time I've seen indicators fail this consistently is in a bull market (or a nested third wave: more on this later).  This contradiction makes it a tough call.

So what's a trader to do?  The simple solution is to be aware of the indicators, but give precedence to the trend.  The indicators serve as a warning that when the trend finally does break, it might be a meaningful break, so caution is warranted.  When the market becomes as complacent as it is now, it's ripe for an "event."  To paraphrase the famous proverb: pride goeth before a great fall.  Bulls have been openly gloating for some time, attacking and mocking bears, and talking about how "smart" they (the bulls) are.  The market rarely respects a "smart" investor, especially one who's become complacent enough to gloat (more commonly called a "smart ass" investor).

But as I've been suggesting for a couple weeks, until the trend breaks, it must continue to be given precedence.  The key now is to avoid the temptation to chase and/or front-run.  If one wants to go long, then reasonable entries where one can mitigate risk must be found.  The same applies to shorts.

Yesterday, the Dow Jones Industrial Average knocked out its Minor Wave (2) count by exceeding the 2011 highs.  A few people have taken this as if it's some monstrous failing of Elliott Wave Theory, which is just plain silly.  If one takes the approach that a system must be 100% perfect for it to be considered valuable, then no trading or investing system on the planet is valuable.  In fact, if perfection is the standard, then pretty much nothing on the planet is valuable.  Fundamental investing fails at times, value investing fails at times, moving average trading fails at times, classical technical analysis fails at times, candlestick patterns fail at times, et cetera, ad infinitum. 

At the end of the year, nothing and nobody has a track record of 100% success.  Obviously.  We'd all be beating down the door to get in if there was.

I've said it many times, but the key to trading success is as much about an individual trader's ability to manage his money and his own psychology as it is about the system.  To draw an example I've used previously:  if one has a system that is merely 50% accurate (random) -- but one only suffers 3% loss on each losing trade and makes 10% on each winning trade, then that system will make money in the long run.

Some of the keys are discipline, careful choices of entries/exits, limiting losses, not taking overly-aggressive risks (such as overusing leverage via options, futures, etc.), and protecting profits.  Figure that stuff out first and you're on your way to making money.  There are entire books dedicated purely to the money management aspects of trading -- it's that important. 

Striding into the market arrogantly thinking one can "beat the house" is a fool's errand.  The edge one has is their money management system and personal discipline combined with their trading system.  Believe me; I learned this stuff the hard way too.

Back to the market.  Over the short term, the possibilities are myriad.  So for the moment, I'm going to limit my focus on the big picture counts.  I'll still present them, but looking beyond the next five minutes, it's going to be difficult to narrow things down until the market provides more info.  This is another challenge Elliott Wave sometimes presents for newer traders:  there is a temptation to get too focused on anticipation of the next move, which can throw one into bad trade decisions.  To turn an old saying on its head:  it can be easy to miss the trees for the forest.

What we do not want to become is the "see W. cry" type traders... i.e - looking for a top the entire way up from the 2010 bottom to the 2011 top.  Granted, bears can make money in bull markets, but they have to be quick, disciplined, and not the slightest bit greedy.  Slower swing trader bears get slaughtered during bull runs.

Once the trend begins to shift, and I see where that happens and how that happens, that information will allow me to narrow down some of the big-picture potentials.  Until then, for the big picture we're going to spend some time focused on good old fashioned support and resistance, overbought/oversold indicators, and pattern recognition.  When conditions allow, I will also present Elliott Wave price projections (I have done so today).  Ideally, this picture will clarify soon. 

I'm going to present my new preferred count, but I continue to believe that at this stage it remains more important to watch the trend.

Even though the S&P 500 (SPX) did not invalidate its Minor (2) count yet, I'm going to make the assumption that it will.  No guarantees of course, but generally, this assumption has served me well over the years, as the Dow generally leads the SPX. 

Below is my preferred count, which (still) depicts the SPX in the process of forming the y wave of a double zigzag.  This count is interesting because it revises the big picture count but keeps the double zigzag in the intermediate-term counts.  However, without the Minor (2) hard cap, this count could see the market tack on another 100 plus points from here, and puts the target for (c) of y from 1376 to as high as 1500. 

I'll break down the short term view in more detail after this chart.


What I like about this count is the fact that it explains the five-wave nature of the 2011 decline.  I have worked that decline eight ways from Sunday, and I continue to come up with a five-wave structure.  This decline is what convinced me, and many Elliotticians, that the bear market was just getting warmed up.  There are very few positions in which we find a five-wave decline that doesn't match up with at least one more five-wave decline, but one such position is in a 3-3-5 flat (so named because the a and b waves break down into 3-wave structures, and the c-wave breaks down into a 5-wave move -- as they all do on the chart above).  In this case, it is an expanded flat with an unusually large c-wave.

This count also reconciles the 2010-2011 (c) wave rally into a much cleaner 5-wave structure, which many technicians have boggled over.

Many Elliotticians are looking at that decline as wave a and this rally as wave b, with the next five-wave structure to come in wave c.  I have considered that count, and I don't like it as much because I have a harder time seeing how it fits into the larger structure without really stretching the imagination and using all sorts of x's and y's and failed waves.  In either case, over the intermediate term, it's something of a moot point, since both that count and my count should behave somewhat similarly for a while. 

The challenge now is going to be nailing down where (c) of y ends and trying to find good entries for shorts or longs.  Assuming the rally breaks through 1350 +/-, then the next target is 1376-1378, where wave (iii) equals a 1.618 extension of wave (i) and wave (c) equals wave (a).  This makes 1376-1378 a double Fibonacci target, which gives it an above-average probability of both being hit, and of marking some type of reversal.


In the chart above, you can see that my preferred view has shifted to the idea that this current rally is part of the third wave of a third wave (wave iii of wave c).  Third waves are known for blowing up indicators, so this fits well with the recent action.  The most likely count appears to be that the 1378 area will merely prove to be the zone from which a correction starts -- possibly a decent-sized correction, which could retrace down to the low 1300's or even the high 1200's.  The critical point here is that if this view is correct, the ensuing bottom to this (assumed) correction could then launch the market up into the 1400's.

If the alternate count is correct, then it will amount to much more of a decline.  As I said earlier, my focus is more on the near term right now, so we'll have to see what form the next decline takes (assuming we ever get one), and how well the market holds its trend channel, before I'm able to have more confidence in whether it will mark or not mark the end of the rally. 

One thought regarding liquidity and perhaps another reason to favor the new preferred count, which currently expects that the next decline will only be a correction, is that the ECB launches their next big financing operation on February 29.  It seems that operation could easily fuel another leg up in this rally.

In conclusion, the Dow invalidating its Minor (2) count has forced me to objectively favor the view that the SPX will do so as well.  The projections above are what results from accepting that presupposition -- however, all of this is completely predicated on the idea that the 1350 zone will be broken.  I continue to believe this zone represents formidable resistance, and so far it has at least caused the rally a two-day pause.  If this zone isn't broken, then all my hard work tonight will have been for naught, and we can go back to cheering on the Minor Wave (2) count, since the SPX hasn't technically invalidated it yet.  Wouldn't that be a hoot!  Welcome to The Analytical Trap.  Trade safe.

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

276 comments:

  1. Okay, that was completely exhausting. 

    Morning, all.

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  2. Closed my earlier ES short for -1 btw. 

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  3. Morning, thanks for the great analysis PL.  This fits with my view that the market will have a push up on really good volume before any correction can start.

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  4. PL Great analysis as usual.  I appreciate your flexibility to see both sides of the coin and not to be locked down as a perm bear.  We are all here to learn and to make money, not take on a causes (bear markets).  Your value to the subscribers of your blog is your practical approach to EW analysis and the flexibility to see many possibilities.  You have been providing your readers an alternate count which shows no systems is 100% and you recognize there are many directions the market could take everyday within EW analysis.   Forecasting the future is more art than science and you have been doing a remarkable job.   Keep up the great work.

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  5. Corrections!!!  Just editorial which is important.

    7th paragraph second sentence should be On one hand.

    5th paragraph before the first chart focused was misspelled.

    Hopefully I made it on time for your Minyanville post.

    Great write up. 

    Joe

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  6. LOL - PL giving up looking for a Top and turning bullish !!  Anon20 and the end of mankind have vanished.  Perma-Bears Marc Faber and Roubini now saying the rally ha legs and be a buyer.  You know what - sounds like we are approaching a TOP - not a bear of any persuasion left !

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  7. lol, maybe so.  I do think that 1376-78 will at least mark a trade-able top, if the rally gets through 1350 here.  But I'm inclined now to believe it won't mark "the" top.  Probably a good place to take a crack at it, though, as it should be trade-able at the least.  We'll see if we get there.   :) 

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  8. ty Joe, actually just fixed 'em after loading it into Word.  One one hand.  :)

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  9. Also, I feel surprisingly liberated.  Deep down, I have been doubting the Minor (2) count since 1300-1310 held support.  No doubt a 4000 point decline is in store for the remainder of the week.  :D

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  10. Just teasing (sort of).  Of course I've been a bearish trend trader and have suffered 5 figures for it.  We are sort of at a bearish capitulation right now, without much fear.  I think the real crusher will be when mom and pop on the sidelines start viewing this as a coast is clear situation and taking money out of their savings accounts and start chasing (this is, of course, what the FED wants).  Once you have this unified mentality like back in the internet stock craze, we'll likely get the final collapse and end of the secular BEAR - back where your old target was - and everyone can be poor - that is the shared suffering democrats love ;)

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  11. lol -- I think the ECB op coming up will virtually guarantee the market stays levitating for the immediate future.  Too much cash coming down the pipeline. 

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  12. Great post PL, the conundrum of using EWT too literally, at rounded transitions, it just does not work but that fact that it does not work provides info in itself. This is the problem over at that site which we cannot mention. And has been a problem there for some time at previous called tops (i.e. Prechter says in 2010 on TV to go 200% short). Nothing is working except for the hold your nose and buy the dip. But two days ago the bulls got burned on that one.  My chart posted yesterday of the megaphone was an eye opener to me, the dispersion of the red vs. green candles, fairly equal. How can one trade without a continuous trend to follow, Ohh for a V top like the 09 V bottom. This one is gunna be difficult. 

    Best to stand aside or scalp the mrkt, capturing small wins. 

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  13. True, but these are a diminishing return.  Much of that money is probably going to get allocated for protection from the Greek default, which should be happening shortly.  Even if they sign some wimpy piece of paper, there will be no follow through and they'll default.  For anyone that can read - if you go back to when the last Greek guy stepped down, the head of the labor union party said he would agree to the austerity measures on paper to get the money - then quickly want to sit down and renegotiate the deal.  That's what is going on now.

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  14. long ES at 45, tgt 50, SL 44

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  15. Agreed.  And thanks.  When I submitted it to Minyanville, I actually got a little personal note back from Todd Harrison, who thought the article was "excellent."  He's da big Kahuna over there, so that was cool.  :) 

    You have no idea how exhausting this one was for me. 

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  16. I know, the post is good. I like how the IRS refers to stock gains as 'unearned income.' I earn (with sweat) every f-ckin penny I gain.

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  17. F'ing brilliant...I read every word of the article twice before looking at the charts (they were great too). Probably the best take away I've gotten over the past month or so was to be much more objective and disciplined. So I've become a less frosty bear, and avoided the greed factor. I now fake myself out by planning trades as if it was my child's money (nobody wants to lose their child's money...it's like stealing their ice cream). As far as top-picking goes, it is difficult to say the least because the market is getting juiced by very powerful forces, and the herd follows the leader.

    I don't care for the CB's, as they are covering the asses of their friends and allies (nothing out of the ordinary--business as usual), and throwing the commoners under the bus. Keeping this in mind, I believe that this may be TPTB last chance to do what they do best (bubble-bust-conflict-consolidate-rinse-repeat) for a very long time. So they are going to run it up as far as they can, so they can take it down. That's what they do best. It's like I would tell all of my patients, "If you ask a surgeon how you should be treated, they will likely want you to get surgery. That's what they do best, and that's all they know." Of course they will also tell you that there is a chance that you may die from the treatment, but the bill will still be due. The surgeons are cutting away, and we are rallying right now, but the prognosis is poor. Quite a few of my patients rallied just a couple of days (or hours) before going into multi-system failure. I learned always to be cautious of rallying patients who had a lot of underlying diseases. They were the most worrisome.

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  18. Oh, no...
    If I were you I would not give up the count of Minor (2) yet, PL. I may hang in there until the market goes through the current resistance zone (1350 - 1370). First of all, no one know what is going to happen to the market next. I believe firmly in the principle of uncertainty.
    Secondly, as I posted last Friday night, I still think that the current "unusual large C wave" (your term so that it's easy to understand) may stop suddenly. I've experienced with this extended C wave in low level a few times. It makes everyone frustrated then fall down suddenly with force. The erupted fall (few hundred points down overnight - i.e. big news event) might change the whole market bullishness quickly. If this happened before the market reaches 1370 then the current wave b up still count as zigzag wave 2. In short, the main points that I wanted to share is the characteristic of the extended C wave and the critical resistance level of 1370. As long as it's not broken yet I still think the current zigzag up (wave c < 162% of wave a) may be wave b or 2. imho.

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  19. Unearned income my ass. I have spent more time and energy trying to learn this game than I spent on figuring how to write my first patent, and that has done very well (and I pay way lower on those gains). But I love the IRS, they are the best people in the world :)

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  20. Sure, it could.  As I said, first step is for SPX to get through 1350s. 

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  21. No doubt...do I hear 5000 from the crowd.

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  22. Yeah, the term "unearned income" shouldn't apply to much IMO.  If I earned that money to begin with, then I earn money with that money -- even if it were savings account interest -- then it's earned income as far as I'm concerned.

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  23. intermediate EW tgt is 1347.25, in between my entry and my EW tgt of 50

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  24. That EWT service you mention isn't the only one caught in that trap. Beware of technicians who substitute belief for clarity.

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  25.  All tools ....

    Are more descriptive (of what happened), than predictive (of what will happen). To me EWT provides a wonderful framework to guide my entry and exit strategies. For some reason, it is especially suitable for day trading. Reading the waves accurately takes time, practice and experience. And I am always mindful of fundamentals.

    For example, ECB will soon be unleashing 1 trillion Euro (end of Feb). That, is a lot of Euros ("t", not "b"). :)

    With the onslaught of the ginormous Euro tsunami, there is no way I can conclude that the market will not be bullish, in the ST at least, no matter how convinced I am about my interpretation of the EW counts are. Since it is a faith based science, it can always be stretched a bit to fit the fundamentals. No? :)

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  26. The more I think about it (I gotta stop that)....The market is being treated just like a trauma patient who has bled out but has underlying left-sided heart failure. Keep pumping the fluids and blood going in at light speed until their BP goes up and protects the heart, but also trying to pull off the excess fluids so the patient doesn't suffer from fluid overload and drown in the excess fluids. I know...I gotta stop thinking so hard...BTW you would probably make an excellent ER/ICU nurse, so would any good technical trader...same skills...watch the monitors and patient, and titrate the drips (going long and short).

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  27. Builds character though ;-)

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  28. Excellent article/update today, PL.  Thank you.

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  29. Great post PL! This new count with the expanded flat allows for a much better understanding of the 2010-2011 rally as a 5 wave count. The only doubt I have regarding this new cout is related to wave (a) of y. Are you assuming it as a 5 wave rally?

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  30. Great post, jbg1911.  Good analogy.

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  31. Best article until now, or that I know of from you, Pretzel Logic. Good work.

    For your WXY count in blue, big picture, the amount of time used by the w would be over 2 years, for the y only 6 month. I think that is not the likeliest possibility. But up is also my most favorite scenario for the next time. No weakness, no bear. Today the DAX hit a a=c point, I will be happy, if it is jumping over that area fast. Otherwise a totally scaredy cat rally and everything looks, smell and feel like a W3, because W3 does not care shit about any other indicator, pardon my English. There is still potential for long moves up, as a lot of bears, perma-bears have to kill their shorts and have to get some action on the long side. 

    But also DJ trading at his 2 year high, as you said, that is open season for a news flash. We will see.

    Happy hunting everyone.

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  32.  Hey Lena,

    I agree with you that the time and retracement criteria do not fit either a (2) or a (B) wave arguing for the end at 1074.

    Price and time rules per EW:

    Wave2 (or B)

    PRICE> 50% < 78.6% W.1

    TIME> 50% W.1 minimum> 62% < 162% of W.1 most likely

    666-1370
    lasted 26 months. If wave 2 finished at 1074 it was only 5 months. Also
    1074 was 38.2% retracement of the 666 to 1370 advance. To me, this says
    we need more time and correction. We shall see.

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  33. TY...as a sidebar, always remember...

    Be nice to your nurse. We keep the doctors from killing you.

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  34. I personally feel like a Simpsons character on some days :)

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  35. stopped out at 44, in again at 44
    this mrkt knows where all stops are, goes stop hunting

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  36. Stay side line is the best...

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  37. PL, 
    What a great article, and clear thinking. Thank you. I am so glad that I found this site, am learning a lot. I couldn't go the whole hog, but I did put a little something in the donation box.
    Thanks again.

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  38. All cash...and staying that way for awhile.

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  39. I agree. A bot fired at 9:32. It pumped ES up 0.5 then got taken back down in 4 minutes.

    Watch. There are two bots firing at 9:44.

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  40.  I follow the VIX, VXN (Naz vix), and RVX (Russell vix) relative to their 10 day moving averages.
    I have read that the Russell often moves ahead of the market (risk-on/risk-off read ?).
    fwiw: the RVX has been above its declining 10 ma for the last 2 days and is again above it  this morning, while the other two indices are still below their 10 ma.

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  41. a little past 1350. thinking of going long here

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  42. I agree too, playing very small

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  43. absolutely hilarious, $VIX up .45%

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  44. VXX is suggesting that we are at a sort term (at least) top.  It is rising even as the market is grinding higher.

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  45. 1. Having a bias in either direction the first indication that sooner or later you will have your rear end handed too you trading the stock market.  There is always a bullish and bearish EW count and the sooner people understand that they should consider either just as likely the better off they will be trading.
    2. Technicals on any particular index or combination of indices are INDICATORS and should not be used to confirm in an absolute sense that a particular level has been reached based upon a bias EW count.  As I have stated previously, those who were looking for the top of Minor (2) (or whatever other EW blogs are calling it) were foolish in their calls before at least one of the major indices (RUT, SML, MID, SPX, COMPQ) closed above the upper Bollinger band.  The close below the lower Bollinger band on the VIX:TNX would be further evidence that the top of Minor (2) is POSSIBLE but not absolute.  An historical examination of these two technical conditions show that they are not absolute in indicating the local top of a market.
    3. If you have been able to remove your bias and apply technical INDICATORS properly then you are in the position to then trade trend changes using again techicals and price action for stops.  Shorting the market for multi-week/month trades just because of a close above the upper Bollinger band is not smart if you have done a proper historical analysis of this condition.  Shorting the market for multi-week/month trades is not smart just because the VIX:TNX or VIX close or traded below the lower Bolinger band if you have done a proper historical analysis of this condition.  Trend change indicators only occur when indices start closing below their previous 5-day low after the upper Bollinger band level analysis above is satisfied.  This has yet to occur since the late Novemeber low and is why I am 100% long the market since 11/29.
    4. I have to admit that I have somewhat of and advantage in that I use a commercially avaible trend system and a commercially available stock market valuation service in my model.  However, I have been working on using a far more mechanical system for CASH signals and re-entry signals that have proven to be successful over intermediate (9-18 month timeframes).

    The most dangerous phase of the market is when those who have predicated their entire analysis on the bias that they hold start to capitulate.  This can be seen by looking at as many EW blogs as possible over a long timeframe and judge the level of vitriol at the market and other individuals by those whose accounts are blowing up.  Again, this should not in any way ever be used as a trading system but it does give one insight into what trading the market is all about.  The market will go up and go down regardless of whether you think it should or not.

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  46. 47.50 ES was a interim top

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  47. Bot schedule - 10:14, maybe 10:23, 10:53

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  48. Don't over read the VXX.

    People are buying cheap insurance protections, but not letting go of their holdings. :)

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  49. How many times have you adjusted your B wave top? One day maybe you'll be right, LOL.

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  50. Thanks, akwfung.  My take is: "If they are buying cheap insurance protection, it is because they think that they will need it."

    It is just another confirming or non-confirming data point to watch.  No absolutes in this business.

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  51. The 10:23 looks like it was set to sell. Looks like today will be a mixed day. We might get a doji.

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  52.  "Cheap" is the operative word. :)

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  53. Hi Pretzel,
        I've been waiting for you

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  54. The temptation of shorting is there (the DOW is dragging thing down now)... but it's kind of dangerous since it's just a correction.

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  55. It's not a 2 or B, it's an x wave.

    ________________________________

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  56.  There must be better things to do. No? :)

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  57. sip your coffee, lol just kidding.
    maybe wait for an hour then we may get a direction. They're fighting now. We just want to see...

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  58. I have no idea what this means, but it's a little creepy.

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  59.  clipping my nails, at least doing something productive. lol

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  60. Yes, I thanked you on the other thread.  Thanks again. :)

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  61. Yes, I mentioned the ECB on Feb 29 in the article as being another reason to favor the more bullish counts.

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  62.  I am taking my time to short a boat load of TLT, sipping my favorite (read expensive) brandy. Until they made up their damn mind on 1350. :)

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  63. I'm starting to love the trolls, in the sense that they provide endless amusement.  They really have no clue, do they?   One comment, which I'm not going to approve, since clearly the person has nothing to add to the discussion, asked how many times I was going to move the B wave, lmao.  Let's see... uh, once?  This would be the first time.

    If you're going to use your parent's computer, at least get your attacks straight.  ;) 

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  64. TVIX has been shorted all the way down from 100. (its at 14.50 now)  Huge volume (way above normal) taking place recently. Short covering (short term or not) and Consolidation at base low of 14.00.  VXX in similar boat.  This will be interesting to watch..  (to me :)   lol

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  65. I also enjoy the trolls who have no idea how trading works at short time frames, and of course don't look back through the last few months comments to see my real time entries/exits, so they stop by thinking they've done so much better buying and holding. 

    It's really all just starting to amuse me at this point.  We need more trolls around here!  :D

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  66. lmao -- I'm thinking you're my wingman, and everytime you say this, "Bot, twelve o' clock!" I'm supposed to start shooting.

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  67. I hit the 'I'm a troll' checkbox just for you today :)

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  68. I'm packing orders....
    http://www.youtube.com/watch?v=Ol6fvLwL-OI&feature=related

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  69. PL, you have nothing to apologize for.  You have given us points all the way up to exit a short position.  Each of your targets has been correct.

    To the extent your charting has given you incorrect indications of a top, Ralph Nelson Elloitt never had to contend with a tax cheat and a Keynesian adherent who had access to a government printing press and a political mandate out of Chicago.

    Any objective observer can look at the current leg that started on January 1 and read it for what it is, a steady dispersal of POMO cash.  

    All of us know what's going on here, we can read the data that Wall Street Examiner posts on federal tax receipts, which are stagnant.  We read the dressed up earnings reports where company X says 4th Q was not so great but 1st Q is going to be utterly fantastic.

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  70. Thanks PL for your candor and steady objectivity and calling out your bias when there is one. 

    Its almost as if we need QEWT, a special branch of EWT and TA for special conditions when CB's juice the market and laws of nature are at risk of being violated. Perhaps a special formula can be applied that is a coefficient derived from liquidity in the system. 

    I don't think nature (which reflects itself as mass psychology, fractals, entropy, laws of equilibrium in the market) can be defeated, but perhaps just delayed. 

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  71. Hi Pretzel,
        Nice post.  I was wondering when you would turn.  Jim Kramer was ahead of you by some time, and I was as well based on non-Elliot analysis (simply watched the market tighten up and thought the danger had passed).  But, I didn't enter, and to this day I'm still 100% cash based on reading your blog.  I'll start looking for long entry points tonight.   As for "looks like a duck, quacks like a duck" top...I would counter with the same argument...looks like a bull market to me, and has for a couple of weeks.  But you and EWI, literally, scared me sick....I'd wake up nauseous thinking the world was about to end (I stopped reading EWI for that reason).  I do believe we are in a longer term decline, but it may be a really slow one per my one earlier post here...and this is likely a bull market within that.  I've experienced exactly what you're talking about re: entering...what if I'm wrong and this is the top?  But...looks like a duck, quacks like a duck...there is danger that there could be a quick decline based on a Black Swan event (Iran?), but there's always that danger.

    --Scott

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  72. gap covered. more up coming. watch for afternoon ramp up.

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  73. It's hard to find a good troll these days...dealing with trolls...
    http://www.youtube.com/watch?v=VJACFMc-Rb4

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  74. Yeah, Kramer screaming "bull!" is a bit like EWI screaming "bear!"  They're both right about 1/2 the time.  :)

    Also, I don't think I'm one to scare people sick?  Maybe you are thinking of EWI and certain posters who used to frequent the comments section.  I'm always pretty level-headed in my presentations.

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  75. guys, this is finally looking better for a more sustained IT move down imo..

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  76. I would laugh for days if the SPX closed down 50 points today...  :D   :D   :D

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  77. Kramer is a contrarian indicator.  He is in cahoots with "them", "they", etc...

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  78. Yes Please...  :)

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  79. Just don't forget this part: 

    however, all of this is completely predicated on the idea that the 1350 zone will be broken. I continue to believe this zone represents formidable resistance, and so far it has at least caused the rally a two-day pause. If this zone isn't broken, then all my hard work tonight will have been for naught, and we can go back to cheering on the Minor Wave (2) count, since the SPX hasn't technically invalidated it yet.

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  80. reiteration, looks MUCH better for sustained down move, careful on long side, this slipped in an instance, very quick

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  81. careful of slight bounce at 41 ES

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  82. This is the first move down in some times that has a clean impulsive look to it.

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  83. We just broke below Friday's high in the S&P.  Now it needs to hold it there and head lower...

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  84. Alright, I'm going to bed.  Seriously, I'm wiped out.

    Trolls shouldn't be too much trouble while I'm gone, since I think most of them are in school at this hour.  GL. 

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  85. agree, it was nice and think it will continue

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  86. PL, I think that you've done your best...

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  87. Wingman to PL, bot at 11:22.

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  88. megaphone TL at 38 ES, needs to smack through that

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  89. Looking very good.  Bulls may begin to feel "trapped" at the top.

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  90. Eur just broke support at 1.3230, ST trend is now down.  I am staying on sidelines for the time being, my head is spinning from market analysis, plus I have a 'real' job with 'earned' income that I need to actually 'earn' :)

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  91.  Good point Pretzel. X waves are quick and can retrace any Fibonacci Ratio of the preceding ABC. My bad I did not pay attention to your labeling. Still though the 2nd alternative would be either (2) or (B) still in progress. Thanks.

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  92. Isnt it following the channel?, Looks like the stop is at 1338. Considered as subminor wave in wave (iii) bcs ii wave overlapping  (i know it was miss by 0.01)

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  93. possible bounce off of megaphone TL at 38, not 41, if we break thru 38 we go to 30, then maybe 23, remember, it will test it first, then bounce, then retest up to two more times if it wants to break

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  94. possible bounce to 44-5, would like to see it close up shop earlier tho, sign of bearishness in mrkt

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  95.  Now that cracked me up.

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  96. truerangeballisticFebruary 8, 2012 at 6:35 AM

    So true. Very thorough work as usual. This move does have the feel of the first impulse down since ??? can't remember. lol. Thanks again for your tireless efforts. It is really appreciated.

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  97. $RUT cleanly  broke it's lower TL on the 5's and is sinking fast

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  98. I think the lack of period indicates an incomplete sentence or thought. My best guess would be the bullish interpretation as "I've been waiting for you to say something about SPX hitting 1350." The bearish interpretation would be "I've been waiting for you to throw in the towel on EWT after what the market has done." We'll see how the wave unfolds.

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  99. Everyone who tried longer then two month to understand EW knows, what you are capable of. When the others would only read what you write and not read what they want to read, they would pale with awe on your track record and clearness of advice. 

    But right now, I am not sure, if you think I am a troll too.... am a little insecure... so I will troll to my systems and feed my trades.

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  100. There are trolls bashing everyone brave enough to post something about the market, no matter how well-reasoned. I think you have enough supporters here to throw the trolls over the bridge.

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  101. look at the down bar on the 120 ES, this should retrace 50%. The 120 closes in 10 minutes, waiting to see. . .  retrace to about 41-2

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  102. No, i don't think you are a troll at all. Not sure why you would think that. Appreciate your posts and your humor. :)
    ________________________________

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  103.  i seriously hate your name. so confusing lol

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  104. What wave was that impulse down? I'm totally disoriented now.

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  105. is this iv soon going into v?

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  106. You had a few posts saying you were warning your friends and family about an imminent massive decline in the stock market (as was I).  That, combined with reading EWI had me looking at the world in a very very negative light, one in which I thought I would be wealthy having caught a massive decline with puts (if the banking system survived), but one in which all of my friends and family would be poor.  And we go to war, etc.  As you said yourself, it's not something I want to live through.  I'd love to see your 100+ year count analysis...before my subscription to EWI ends (I won't resubscribe), I'd like to take a look at what you think of Grand or Super Cycle.  Net, net, yes, your relative level headed-ness will keep me reading your posts as one of a number of analysis sources that I use/trust.  EWI...gone. 

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  107. Results from the "Big Table" discussions are in - no surprise here, continue to pound the USD into oblivion for another 20 years:

    http://www.forbes.com/sites/charleskadlec/2012/02/06/the-federal-reserves-explicit-goal-devalue-the-dollar-33/ 

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  108. im so lost on the wave count...

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  109. truerangeballisticFebruary 8, 2012 at 8:00 AM

    Your thoughts on the 5 min chart?

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  110. To Short, or not to Short: that is the question:
    Whether 'tis nobler in the mind to suffer
    The slings and arrows of outrageous fortune,
    Or to take arms against a sea of Bulls,
    And by opposing end them? To die: to sleep.

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  111. The trend is still up.

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  112. ooooo...nicely done Hamlet

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  113. Blackrock CEO says go all in to stocks, 100%.
    Gotta be a top here soon.

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  114.  Free blogs are a lot like free concerts.  If you charged a 5-cent admission fee, 95% of the derelicts would not show up.

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  115. I no.
    But. Very ST, did we make 3 waves down and are now on the 4th up, and in for another test of the Megaphone bottom TL. If so it should happen about...now.
    Hmmm, a coss toin I guess so maybe Ill just go and watch paint dry instead.

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  116. I think it will be the repeat you noted, followed by a gap-filler tomorrow then up again, or what the helll, they'll just pump it some more. They're going to drag this one out for a few more weeks until the LTRO.

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  117. Sooooooooooooooooooooooooooooooooooooon

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  118. they may have stemmed this sell off
    44-5 ES is my level ST bull above, bear below
    add +2.25 fro $SPX

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  119. It's gonna be a mess on so many levels. The Chinese are NOT gonna like us very much anymore...They'll kill us with our own currency...and I have a funny feeling we will be fighting on the side of Germany next time...sorry France, you're still out. History will repeat itself...only it'll be all of the stuff they didn't talk about in college.

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  120. Great post, AR.

    "The deflation genie keeps flicking his lighter but the ECB keeps pissing on the fuse..." - awesome.

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  121. Thanks.  Yeah that image would make a pretty good political cartoon wouldn't it?  Too bad I have no artistic talents when it comes to drawing.

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  122. Daily VIX Option trade activity... 

    http://www.youtube.com/watch?v=9r6VAYcL4RA&list=UU83RU3yDhHwzG9d9LD1x5yQ&index=1&feature=plcp

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  123. CSCO earnings and outlook after the bell will most likely determine whether this rally continues or reverses.

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  124. Amazing post, Pretzel.  Great job providing objective and pragmatic outcome options.

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  125. BANG ON! Bounced off 1338. Amazing. Two observations:

    (1) If one had drawn a support trend line from 2/1/12 to 2/7/12, today we bounced off that trend line. Weeks back, you kept telling people on the blog to "DRAW YOUR TRENDLINES." Anyone who followed your advice would have been able to profit from that.

    (2) The down move today hit the .618 Fibonacci Retrace Level, drawn from the 2/7 10:00 Low to the 2/8 15:00 High (drawn on the 60 minute chart). It pays to KNOW YOUR ELLIOTT WAVES. <<< I gotta talk to PL about this >>

    Katzo, kudos for your advice to people here to Draw their TLs!!

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  126. full load short ES (4 cars)

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  127. this should come down fast. . . 

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  128. I think ya forgot an o :)

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  129. tgts ES  
    42 will be sticky there
    38 (of course, to bang away at that megaphone TL, second try to penetrate)30
    23-4 if bears are lucky (not today prolly tho)

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  130. out 43.25, one more triuip up me thinks.

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  131. like a balloon let loose by a child....it'll burst eventually.

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  132. Yes.  Especially the part about the ECB running out of fluid and throwing a bottle of gasoline instead.

    Lol.

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  133. When looking at Gold today, more clearly five way down, now finished AB and maybe now in C a bit up.
    So Gold (and SPX) will grind its way a bit higher untill closing hour, and then lets see... 
    A newbie trying hard to read the waves and to me Gold looked pretty clear today? 

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  134. Someone needs to send a memo to the minions buying AAPL, and tell them to take a break - give it a rest!

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  135. First, gold is tought to trade at this point. I trade only GLD so research is applicable to that. GLD is plateauing on the 15 minute, looks like a bear flag. I would set the high level at 168.70, above that and we go up or sideways. 

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  136. many people have been left out of this rally that any dips will be bought. cant even crack the 20 day. till we do odds are with bull. bear needs crack of 1335 on a close or risk to 1370 next
    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p14053558020

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  137. Preach the WORD brother - great rant!

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  138. I probably should short now. :-)

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  139. If you haven't already JB, check out Rickards book "Currency Wars" - real good stuff

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  140. I gotta be honest here... I have a ton of respect for the Germans and am solidly on their side in this whole mess.  They are certainly not a war mongering nation any more.  The people have a zest for life (although the Greeks take the cake in that category, lol), they're hard working, innovative, efficient.  They deserve their wealth because they darned well work hard and smart for it.  It's just flat out unfair to expect those people to pay for the parties that the lazy southern Europeans like so much.

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  141. That's an awesome picture man(?).  I collect those types of pictures and use 'em in articles from time to time.  If you don't mind, I'm gonna snag that one.  Thanks for the pic, and thanks for the kind word.  I'm glad you don't jump on my like the trolls do on another site... where I no longer "preach", lol.

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  142. here comes the squeeze. 
    gap up tomorrow.

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  143. Here they go again.  Another injection of seed money for the sole purpose of igniting another rocket shot.  Let's call it a "little nudge in the direction they want":
    http://stockcharts.com/h-sc/ui?s=IWM&p=1&b=2&g=0&id=p89832477343&a=245210632&r=2738&cmd=print

    For inquiring minds... without even looking I know it was JP Morgan.

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  144. Get out your pet roller to de-furrrr.
    Updated and fully loaded version of chart from the other day. 
    Notice all that energy clustered in a small span of time.

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  145. I don't doubt that it came from JP Morgan, but how could you verify it if you wanted to.  It sounds like you know where to look.

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  146. beautiful gravestone doji on the 15

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  147. I actually don't.  There was a guy on another site who knew where to look.  He supplied evidence on days when JPM was trading IWM.  One day he found that they had just traded 13 million shares and if I'm not mistaken that was in 1 block.  I'm not positive about that... it was over a year ago.  But the evidence is there that JPM just loves to goose that puppy.  That's flat out illegal in my opinion.  This is exactly why banks should never have been allowed to trade in "any" market to begin with.  That's not what banks are created for.

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  148. Thanks KB...Will do...I know I am repeating myself, but currency wars and trade wars are just precursors to physical wars.

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  149. My late ex-mother-in-law was a real-life, off the boat ex-nazi. Her father had a neck-tie party (allegedly self-inflicted) after he returned from the Baltic states. Goebbels was a frequent house guest, she worked in the recruiting office as a girl. Blah, blah, blah. Thoughts of the Wiemar Republic always remind me of her best defensive rant..."Ze Rhine vuz never France's!!! Zey made us starve." My conclusion...never try to starve the Germans...it just pisses them off, and will make bad things happen (with the assistance of American banker's of course.)

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  150. Eurozone finance ministers to meet tomorrow evening in Brussels according to reuters.com

    "Eurogroup chairman Jean-Claude Juncker invited ministers from the 17-nation single currency area to meet on Thursday evening and the International Monetary Fund said managing director Christine Lagarde would also attend."

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  151. is that good for the market or bad, looks like good back on 4/11

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  152. I guess they need to change their diapers (nothing against diapers, it's not their fault their FOS).

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  153. Lot of reversal potential - could get choppy even while toppy.
    Okay, forgive me.

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  154. Ed Carlson (Lindsay method) spoke just now on Yorba Media.  Despite his call for a top Jan 23 not working out so well, he still feels that both equities and gold are topping now.  He specifically called for gold to hit an intermediate bottom April 14-18.

    http://www.yorbamedia.com/radio

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  155. PL,  the following sentence is confusing to me in that it implies afrer the red B is attained, you expect a correction, followed by new high's into the1400's....wouldn't the red B be follwed by an equal or larger down wave red C? Perhaps a sketch of what you expect beyond red B in the long term be helpful.
    "The most likely count appears to be that the 1378 area will merely prove to be the zone from which a correction starts -- possibly a decent-sized correction, which could retrace down to the low 1300's or even the high 1200's.  The critical point here is that if this view is correct, the ensuing bottom to this (assumed) correction could then launch the market up into the 1400's."

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  156. Shorted SPX at 1349.5 with a stop at 1351 (today's high). 

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  157. http://www.minyanville.com/businessmarkets/articles/technical-analysis-market-news-market-analysis/2/8/2012/id/39280

    interesting read from tony dwyer at the great minyanville

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  158. It's the simple stuff in life...maybe those bot programmers aren't as complicated as they are given credit for.

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  159. VXX and VXZ are up for the day in the face of a rising market.  Top?

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  160. You're right about the families. It's not a conspiracy, just business as usual. Just ask the B*** family. AR...I do believe you need your own radio show.

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  161. And one final push just to make it perfectly clear:
    http://stockcharts.com/h-sc/ui?s=IWM&p=1&b=2&g=0&id=p18478088438&a=245210632&r=532&cmd=print

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  162. yes. gap up tomorrow.

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  163. $RUT closed right in the center of the megaphone...they're good.

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  164.  Gang buster Q for CSCO ....

    Tech will lead market higher tomorrow.

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  165. Looks like they tried to hold down at the close... It's a cup without handle :-)

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  166. PL,
    I am totally new to EWT but i do really like it and so am looking to try and understand it a bit better. If we assume your count above is correct (and I know this is only hypothetical) would the big A down in 2008, and the B up that we have been in since early 2009 be followed by a big C down comparable to the 2008 crash (once c of y of B has ended).
    If you look at the dow jones industrial chart since 1900, would this ABC be a wave 2 down after a century long wave 1 up (minor 1:1929;   minor 2: 1932/3;   minor 3: 2000;    minor 4: 2002;    minor 5:  2007;   correction/wave 2: ABC that we have been in since 2007 high.
    Would this ABC be a wave 2 down followed by a huge wave 3 up for more than a century or a correction followed by a wave 2 down where the stock market collapses horrendously. I dont really understand whether a correction is a wave 2 or if corrections are followed by wave 2. 
    Is this count thinkable or have i got something horrendously wrong.
    Thanks for all your help

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  167. Probably not, with CSCO's top and bottom line beat after the close. 

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  168. True indeed and the pattern just repeats over and over again - each generation has to learn the same lesson as the last and by the time you get a little wisdom, you are too damn old and the young pricks won't listen to ya. One of the best piece of advice I ever got about investing and life for that matter was to hang around old people to listen and learn. 

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  169. It's tough... fully understand your feeling. However, try hard to control your emotion when you make your decision.

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  170. PL; it's been a while since I last posted, as I have waited for this last post of yours to finally come around and wanted to compliment you on adjusting your count, view, position as the market dictates, albeit a little late IMHO. But, most people are not willing to do so, as they see it as a being weak or a looser. But, it's actually a sign of being strong if one can admit being wrong, to adjust, to correct, and to learn from it! And it's never too late to change. One can only be late for a meeting, nothing else is too late. I am sure I am preaching to the choir here! :-) 

    I don't want to take any credit, but remember my post from weeks ago, when the NDX officially broke through it's previous May 2011 high, thus invalidating the minor 2 count (for that ticker), and prompting me to seriously question the whole minor 2 count, since the FED effectively on Nov 30 turned the November decline into a 3 wave correction (if that wouldn't have happened we'd now be looking at probably SPX 1000 or so (just check the weekly MACD on the SPX y'all and you can see how it went from almost going into a sell signal, to never a sell signal due to the FED's intervention on Nov 30th). Then the ECB on Dec 20th killed it completely. Again, as stated before, (EWT) rules can be bent not broken. The minor 2 count is thus now officially of (your) the table, and I think that's really good. I am very aware you had all this already in the back of your mind, waiting for it to be confirmed or not, and again I don't want to take any credit for anything here, just stating what I posted back then as the writing was on the wall already then IMHO. 

    Of course hint sight is 20/20 and "I told you so" is always an easy card, but in this case it  is a "told ya so". But that's all secondary. Now we look forward and guesstimate that darn top.For all of us: It's not about what the market should do, or shouldn't, what the consequences are of all this money printing etc etc. That's all secondary, what matters is that our portfolios should grow every day. By either going long or short or staying cash. Making money is all that matters, not what we believe in, otherwise stop trading people! Pretzel has pointed this out many times before, and again in this post, so one can only blame one self for NOT making money in a bull run. Darn it's so easy. Just go long, set your stop losses at 2-3% or so and let it run. I made $2.5 per share on a nice load of SPYs in 4 days (SPX 1325 to 1350). Easy money. I am all cash now as the market is now in that band of "next meaningful resistance" and it's a good level to sell longs. Once it breaks through this band, go long again and set your stops a little below the band as it will then serve as support! Easy! I'd rather see everybody making money here, than each and every single day since Dec 20 bleed to death. What a waste. Make money now so that your boat is even more loaded for once the market corrects and eventually tanks. 'Cause what goes up must come down. Always has, always will. Simple!!! 

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  171. CSCO stock down after forecasting guidance for next quarter.  Therefore, top MAY be in.  We'll see tomorrow.

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  172. CSCO stock down after forecasting in-line guidance for next quarter.   QQQ also down after hours (as a result of CSCO guidance). Therefore, short term top MAY be in. We'll see tomorrow.

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  173. ive owned some TVIX for a week and it really came alive today.....held lows and rallied.....and is doing nicely after hours..........anyone in here think today was the top at 1350 or is this after hours action just another paus?

    Thanks for any comments.

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  174. CSCO beats top and bottom line.  Guidance is in-line.  John Chambers cites uncertainty and conservatism for the guidance.

    CSCO and QQQ were up after results, but down after the guidance was issued. 

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  175. You know, if I wasn't quite so intimidated by microphones I'd probably consider it.  As if people didn't think I was wacky enough as it is though, conspiracy theories and all, lol.  There's no damned theory about 'em.  My biggest fear would be running out of things to say.  I don't know why I should fear that though, I've been accused of being able to talk the ears off a wooden Indian for decades now.

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  176. CSCO and QQQ headed lower after CSCO guidance.  I think expectations may have been too high. 

    This should cause a pause (minimum) or start a correction (hopefully).

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  177. BBB will n=move to the opposite BB line, then we reevaluate. WWWCI worked again on this one.

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  178. TVIX showing short term market weakness in stocks....short term like 10 min to 10 hours....lol

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  179. lol... True.  It will only last until they decide flip the "buy" switch on again.

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  180. Perfect shot today to the bottom of this megaphone set at 38 ES, then the bounce up. IMO building its conclusion.

    http://www.screencast.com/users/katzo7/folders/Jing/media/52a1be4d-671e-480d-a4b6-a1eea9f481cd

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  181. Katzo, 

    I'm also looking at this as a megaphone - IMO a topping pattern. What is the technique you are using to project K to K' and draw a trend line from it? I haven't seen anyone do that before. Thanks.

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  182. Is "ES H2" different from "ES".  I can't correlate the chart pattern with what happened in ES today...

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  183. ES is front month ES.

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