But What of the NASDAQ?

[Note: weekend SPX update is posted immediately below this post]

We don't spend a lot of time talking about the NASDAQ Composite here, largely because the NASDAQ has sometimes been cruel to us.  When we were children, the NASDAQ used to sit behind us in math class and give us wet-willies constantly, and we will never forgive it.

However, we are making an exception tonight, and have drawn up a long-term chart of the NASTY.  This chart is extremely bearish and largely self-explanatory.  The only thing I have to add is for those not well-versed in Elliott Theory.  Under our preferred count shown here, we are currently in wave C-down, and the worst part of the wave has only just started.  We should see a bit more downside before we get a nice relief rally, but then it's Look Out Below.  Our long-term target for a bottom is around 500.

Take that, NASDAQ!

Weekend Update with(out) Dennis Miller! SPX: 9-24-11

At the request of a reader, I have updated the charts to reflect the two possible conclusions for wave v-down of Minor (1)-down (for further clarification, see the 9-22 update) .  Once Minor (1) concludes, we should see a multi-month rally ensue.  I believe this rally will be a fantastic opportunity to accumulate heavy short positions, as the wave which follows will be Minor (3) down, which should be faster and more furious than Minor (1) by an order of magnitude.  Quite frankly, wave (3) will probably be somewhat frightening (think 2008 crash).  Once Minor (1) completes, we will begin projecting targets for Minor (2) and eventually Minor (3).

The two charts are annotated slightly differently to reflect the two possible waveforms v-down may take.  The price targets are quite different as well, with the ending diagonal having a target in the 1060 range, and the other waveform reaching all the way down toward 1000, and possibly even lower.  We are favoring the view that the current corrective wave still needs wave c-up to be complete, although the outside possibility exists that we have seen the entire rally.  A move above the recent high of 1142 would indicate that wave c is unfolding, with a target of 1155-1170 to complete the current rally.  If our preferred count is correct, the market should then turn down from that range and make a new low.

When looking at the charts, keep in mind that the ending diagonal (the wedge on the first chart) is purely speculative at this point, and mainly shown to alert our readers to the possibility, and help keep our readers on their toes.  Unless the current rally starts showing more strength, we will continue favoring the more bearish count with a target of 1000 +/- (note, we did have to revise this target lower after wave v-down actually started -- older charts show 1060, but that was from before wave iv-up had even ended). 

Trade safe!
 

Elliott Wave Update: 9-22-11

The market continues to vindicate our views, and probably owes us a cookie.  We're happy to keep on being right... until we're wrong, anyway.  ;)  Bound to happen sooner or later.

For tonight's post, we're going to put on our edumacationalistic capz, and help folks understand some of the basics of Elliott Wave Theory, as well as exactly where we believe this market is positioned in relation.

So, before I get into the charts too much: As a refresher, our preferred view has been that we are beginning wave C-down of  what will likely become the most devastating bear market of our generation.  It is our view that we are currently in Minor (1) down of what will become a larger five-wave impulse move down (for those not well-versed: please familiarize yourself with "The Big Picture" long-term count and chart, link posted to the right).  Within that Minor (1), we believe we have completed i-down, ii-up, iii-down, iv-up, and are now in the process of forming v-down.   

Wave v-down cannot be fully confirmed until the 1101 low is breached.  However, it is our belief that this will happen soon, likely after a brief snap-back rally.  Assuming our analysis of the charts has been accurate, and we are in wave v of minor (1), then the question becomes, what form is wave v likely to take? 

There are two distinct possibilities forming in the charts: 

The first is that wave v-down will take the form of a traditional "stair-step" impulse down, as follows: wave 1 (see chart below) started the move; wave 2 snapped back to correct a portion of that; wave 3 moves the market lower than wave 1 did (note, the view is this is only part of wave 3 so far), and is generally longer and faster (wave 3 is typically the strongest wave; psychologically, 3rd waves are the moment of "recognition" for the masses, when they realize things are either going better or -- in this case -- worse than has been previously recognized); wave 4 then corrects a portion of wave 3, however it never crosses up into the territory of wave 1; and then wave 5 completes the move and the fractal.  That series of five waves is called a "motive wave" and those waves together complete one wave of a still larger wave which may be either a motive (five wave) or corrective wave (three wave), and so on and so on (see diagram at right, which shows up if you click on that black rectangular void -- at least, that's what I see on my screen).  So once wave-v down is complete, that will complete Minor (1) and we'll get a larger correction that is free to move all the way up to where wave Minor (1) began.  Anyway, the traditional stair-step is one possible form for the current wave v.

The second possibility is that wave v will form what's called an "ending diagonal."  In traditional technical analysis, this is often called a wedge.  An ending diagonal does not follow the usual rules for wave creation: for example, in a diagonal, wave 4 is allowed to cross into the territory of wave 1, and often does.  I don't want to get too in-depth here on when diagonals are appropriate in the formation and so forth, there's already books for that -- but suffice to say that this is a prime set-up for one to form.  It especially fits very well with our Minor (1) target, which was arrived at based on the larger wave form.  If the current wave v takes the more traditional waveform discussed previously, we are going to need to lower our target.

I have illustrated the possibility of an ending diagonal with the gray count and lines.

So those are the two preferred possibilities.  By the way, since we're being edumacational, "preferred" means the view favored by that particular analyst.  Elliott Wave is as much an art as a science, and there are often different interpretations and possibilities available.  No analyst can be right 100% of the time, just as no head and shoulders breakdown is 100% guarantee.  One of the things that makes Elliott Theory unusual is that it's not nearly as simple as most technical analysis.  There's a great deal of information that must be parsed before a count is decided upon -- and since understanding the big picture is critical to understanding the present picture, good analysts often dig back decades, or even hundreds of years, to analyze the charts at different degrees of trend.  This process can take days or even weeks, which is one reason you see so many very bad calls being made by dilettantes claiming to be under the Elliott umbrella.  You can't just waltz in and start calling the market based on what happened yesterday, or last month, or even last year -- not until you understand where today, last month, and last year fit in with the last hundred years. 

Anyway, this concludes our edumacation presentation, and we promise to go back to being smart-asses tomorrow.  ;)

C'mon Bennie, Let's Do the Twist...

So the Fed honored our prediction from last night and gave no indication of launching QE3 in 3D: The Revenge, but today announced "Operation Twist."  Under Operation Twist, future Fed market actions will be decided over a friendly game of Twister, to be held in Ben's basement on alternate Tuesdays.  If things get really bad for the economy, they have left open the option to stretch the game out over two days, although some of the Fed governors will then play using pre-designated "stand-ins."  Under the "Loser Buys Drinks" provision, Jello shots will be provided by the taxpayers.

Or if you want to read what it's really about, you can do that here.  Quite frankly, I don't have time to read it: I'm too busy preparing Jello shots for the Boyz.  Besides, when I read stuff like that, my eyes start to itch excessively whenever I get to phrases like: "the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less."

After a few paragraphs, it starts to seem like the words (and the ideas behind them) would make about the same amount of sense no matter which order they were in:  "The Committee decided today to extend the average holding of its mature securities." or "The Committee decided today to average the extended maturity of its securities of holding." or "The Committee decided today to extend the average maturity of its members by 6 to 30 years."  After reading a whole page of that crap, I'm ready for a beer.  I get the same feeling whenever I read the fine print in product warranties.

The bottom line appears to be more of the same from the Fed... and it seems to me that "more of the same" won't be nearly enough to keep this market elevated in bubble-mode.  Which, as I said last night, is pretty much what I see in the charts.

The market sold off heavily into the close, which most traders are probably looking at as "big deal, we're still in the range."  If I'm reading the charts right, I think this is the move where we finally breakdown.  The recent rally and preceding moves count very, very well as an a-b-c (see chart).  So well, in fact, that in the context of the moves which preceded that, any other labeling is a stretch.  Is it possible something else is going on?  Sure, it always is.  But my best analysis, and my gut, says the preferred count we've stuck with for several weeks is going to emerge victorious in the end here.

So, if my analysis is correct, we may finally see a breakdown from the bear flag/head and shoulders in the very near future.  What happens tomorrow may give us our answer, because the move down still hasn't formed a complete impulse wave yet.  Futures are flat as I type this.  If it doesn't go on to form a complete impulse, we'll have an immediate clue that the preferred count may be in question... and I'll be eating crow and/or Jello shots in tomorrow's post.

Market Waits on Bailout Ben

The Fed has kept the market in a holding pattern for several weeks now, but the moment of truth is finally here.  Bulls are anxiously awaiting Word of Liquidity to be handed down from On High tomorrow when The Great Wizard speaks.  The bears are betting, of course, that Bernanke will emerge from the meeting and see his shadow, which, legend has it, predicts we'll have six more quarters of bear market.

It will be interesting to see what happens, especially in light of recent developments such as The Strongly-Worded Letter from the GOP, in which they urge Bernanke to refrain from turning the dollar into a competitive brand of toilet paper.

Personally, I don't believe that more quantitative easing is forthcoming, at least not in the immediate future (I've been wrong before, though).  I think what we'll get instead is something more along the lines of a Strong Statement from the Fed, reaffirming their commitment to keep doing a bang-up job of ruining our children's futures as much as possible with their Keynesian policies without actually printing any more money... just yet.  This is what the charts are telling me, anyway.  Although there are other possibilities, such as the possibility that the recent crash was just the b-wave of a 3-3-5 correction off the March '09 bottom, and we have one more intermediate-term rally waiting in the wings.  But again, based on the charts, I view that as a long shot. 

No, I think the bear has started, and even if Ben does something more dramatic, I believe it will only generate a short-term rally at best.  So I'm going on the record here; and if I'm wrong, well, then frankly it's your fault for not donating enough to allow me to devote more of my time to this.  ;) 

Contrary to my view, the market is hanging its hope on the idea that Emperor Ben will announce QE3: In 3D Coming Soon to a Primary Dealer Near You, so we can get enough liquidity sloshing around to prop this pig up for another few months.  It's pretty bad when the bulls last and only hope rests on the continuation of the QE bubble: forget the real economy, or housing, or jobs, or production, or anything else with any basis in reality, such as Europe.  It never ceases to amaze me the ability people have, both individually and collectively, to lie to themselves.  What got us into this mess in the first place was loose monetary policy and the series of bubbles it created.  Only a delusional person -- or nation -- would believe that a lasting solution is imminent if only we keep applying more of the same policies.

"We can't solve problems by using the same kind of thinking we used when we created them."

- Albert Einstein 

Below is a great comic strip I came across recently, which very succinctly sums up my opinion of our monetary policy:   

    

I have a chart, but honestly I think the reason the last couple weeks have been so difficult to count is because the market hasn't quite made up its mind yet, so it's keeping its options open to several possibilities.  It seems very likely that this stalemate will finally come to an end -- and we will again gain clarity to the market's intentions -- after we get word from Bailout Ben.

 

Apple's New All Time High, and What It May Mean for Bears

There's been no material change in the counts since the weekend update, so I decided to investigate and write about something else...

Some of you may have noticed that Apple made a new ATH today.  I was curious if this development should challenge those who believe we are starting a new bear market -- so I went back and looked at some charts.  

In 2007, the SPX made its ATH in early October, however Apple still went on to make a new ATH in late December -- two and a half months after the bear market had already started in the broad indices.

The other thing I discovered is that Apple is tracing out a completely different wave count (see chart) than the SPX -- or any of the major averages for that matter.  Apple appears to be in the process of completing a 3rd wave up, which likely means that it will hold up considerably better than the SPX, etc., during any coming declines.  Apple appears to still be in the process of completing a third wave up at Primary degree.  Thus, when Apple corrects lower, it should be correcting in a Primary fourth down.

What this means, price wise, is that Apple should not fall below its Primary first wave high of 202.96.  It could theoretically still take a 50% haircut from here, although that's drastic for a fourth wave down.  It would be more likely for it to take aim at the bottom of the gray trend channel.  It should ultimately make a three-wave move down toward the 250-280 range.  This is still a healthy adjustment, but not what I anticipate for the SPX.

It also means that after any bear move is over, Apple should then go on to make even higher highs in a Primary fifth wave up... in other words, on any significant decline, going long Apple will probably be a great play.  

Anyway, here's the long-term count for Apple, followed by the analog charts (2007 on the left, 2011 on the right; SPX on top):

 

 

Weekend Update: NDX Count

The NDX is looking a bit different than the SPX.  The NDX appears to have already completed a textbook-perfect first wave down.  It is possible that the NDX has also finished, or is close to finishing, its second wave retracement... however, there is a need to reconcile the NDX count with the SPX count.  This leads me to believe that the NDX will form a more complex second wave, likely a larger A-B-C expanded flat. 

Note the current perfect back-kiss of the old rising trendline.

An interesting side note: you can see the bearish rising wedge formed on the NDX, yet this formation would not be considered a wedge or triangle from an Elliott perspective.  This is due to the fact that it does not count well as its own wave, especially relative to the preceding action; it is instead the end of wave (1) and (wave A of?) wave (2) combining to form what traditional TA would classify as a bearish wedge.

If my speculative A-B-C count is correct, wave (3) may be delayed for a time... although the chance exists that it is just around the corner.  Either scenario bodes poorly for NDX bulls; wave (3) should ultimately take us to, and likely below, the July '10 lows. We'll look to the price action to alert us to the more concrete potentials as the move develops, and I will periodically update this chart to keep you posted.