Saturday, November 29, 2008

GLD - Fibonacci Cycles

One characteristic of Fibonacci series cycles is that the nest allowing one to determine a finer gain structure when the divisions become too large to encompass the period under observation. I set the start for the series near the lows in February of 2005, these are the magenta lines. Starting this far back the Fibonacci number 610 falls in July of 2006 with the next number 987 falling in early January of 2009. The other lines are set to increase the fineness of the divisions and their starting points are marker '0'.

It would be a good sign if gold can manage to sustain a price increase over the next year, this would imply the anticipation of increasing inflation in the future and therefore an end to the current deflationary environment. Offhand the chart looks like GLD will test the 200 day moving average. We will see what happens then.

GLD Daily with Fibonacci Cycles
Click to expand

Monday, November 24, 2008

Short Interest

It's only a "short covering" rally, but maybe that's good enough.

Click to enlarge.

Saturday, November 22, 2008

Weekend Wrapup

It's not every week you see a 19% range in the SPX, it's a good thing too. This was one ugly week for the markets. Despite a strong rally on Friday afternoon the SPX finished down 12.7% from its high late in the day on 11/14. On a closing basis the weekly loss was a bit over 8%, any way you cut it, it was a lousy week.

SPX 65 minute chart
Click to enlarge

DJIA Daily Chart with Cycles
Click to enlarge

SPX Daily Chart with Elliot Wave Count
Click to enlarge

This is an extreme market, the psychology which is the basis for Elliot Wave Counts will be extreme. Therefore, I believe the simplest count will be the correct one. The last leg down may need one more yellow dot to complete, this could happen Monday or Tuesday as a result of option positions unwinding.


I think Friday was an important day in the markets. It is the first time we had a good look at how the Obama administration will use market timing to its own ends.

Team Obama's timing of the Friday news leak was no accident.

On Friday, the market technicals were both very oversold and exhibiting positive divergences with the October 10th low, a condition that under normal circumstances would signal a huge rebound rally.
The markets have been very skittish lately, and biased towards being very negative because of perceptions of both uncertainty and indecisiveness in the response to the current fiscal crisis.

In the cross currents of an option expiration Friday, always good for a bit of volatility, the markets were moderately positive but indecisive. They needed a bit of news as a catalyst to fuel the strong rally late in the day.

The news tidbit was the name of President Elect Obama's appointee for Secretary of the Treasury, Timothy Geithner and it was leaked to wall street on Friday afternoon.

Without getting into the pros and cons of Obama's choice, the more interesting issue is the timing of the leak.

In order to send a strong message to both Wall Street and Main Street, a message that Team Obama was on the ground and taking action to insure the continuity of the response to the current fiscal crisis.

I believe the leak was shrewdly disseminated with an acute awareness of how to engender the most positive response from the equity markets.

1. The market technicals were screaming for a reversal but needed a news spark.
2. They waited until the technical condition was extreme, this could have happened Tuesday or Wednesday, it didn't.
3. The 'leak' happened on a Friday leaving the whole weekend for the markets to consider the news, three days for the price of one.
4. Coincidentally or not, it was an option expiration Friday.
5. A strong Wall Street rally would generate positive news surrounding the appointment.

Regardless of what one may think of Obama, he is the boss for the next four years. What he does will affect the markets, and it makes sense for us to pay attention to his methods.

This was very well played. Put it in the play book.

Following up in his weekly radio address Obama Targets 2.5 Million Jobs With Stimulus Plan
By Edwin Chen and Jason Gale
Nov. 22 (Bloomberg) -- President-elect Barack Obama said he aims to save or create 2.5 million jobs in a two-year plan to simulate an economy facing a “crisis of historic proportions.”

“It’s likely to get worse before it gets better,” Obama said today in his weekly radio address. He said that this week “financial markets faced more turmoil,” potentially leading to a “deflationary spiral” that may plunge the nation further into debt and cost millions more jobs.

The economic slowdown has been exacerbated by the worst credit crisis in seven decades. More firings will weigh on the economy and consumer spending, putting pressure on Obama and Congress to agree on legislation that will stimulate growth.
Three days for the price of one.

Obamarama will be the heading for an ongoing series of observations of the Obama administration's interaction with the equity markets.

Friday, November 21, 2008

Enough Already

The market decline has been historic, losses of 52% are even worse than the first leg down in 1929, enough already.

With indicators like the MCO radically oversold, and positively diverging from the readings on the October low we have a technical setup for a reversal. This may be the absolute bottom for the next decade, or it may be a dip along the way, but for the moment we should see a strong rally.

As I'm writing this, the premarket futures are positive. As long as the difference between the Advancing issues and the Declining issues remains within striking distance of reversible (Adv-Dec > -1000) then the rally should continue.

Update on the MCO
The MCO is within the striking distance needed to stage a reversal. We are not there yet but this needs to hold up throughout the day, especially considering that it is a Friday. If the A-D difference goes to a negative 2000, then all bets for a rally today go out the window. It's been hard to turn the market when the breadth gets that negative.

Update @ 10:25AM
adv 1835
dec 1545
A-D diff +290 <== holding
the 10% -932.11
the 5% -697.62
the MCO -234.49 +83.81

Update @ 12:08PM
adv 1538
dec 2079
A-D diff -541 <== just barely
the 10% -1015.21
the 5% -739.17
the MCO -276.04

Update @ 12:58PM
adv 1724
dec 1911
A-D diff -187 <== Improving
the 10% -979.81
the 5% -721.47
the MCO -258.34

Update @ 2:25PM
adv 1385
dec 2303
A-D diff -918 <= iffy for rally
the 10% -1052.91
the 5% -758.02
the MCO -294.89

Update @ 3:08PM
adv 1400
dec 2298
A-D diff -898
the 10% -1050.91
the 5% -757.02
the MCO -293.89

Update @ 3:35PM
adv 1770
dec 1928
A-D diff -158 <== GOING UP
the 10% -976.91
the 5% -720.02
the MCO -256.89

Update @3:48PM
adv 1981
dec 1734
A-D diff 247 <== Positive
the 10% -936.41
the 5% -699.77
the MCO -236.64

Update @ 3:54PM
adv 2178
dec 1545
A-D diff 633<== Stout
the 10% -897.81
the 5% -680.47
the MCO -217.34

Closing Figures
adv 2380
dec 1384
A-D diff 996 <== nice
the 10% -861.51
the 5% -662.32
the MCO -199.19

MCO for 11/21/08
Click to enlarge

New Highs - New Lows for 11/21/08
Click to enlarge

Thursday, November 20, 2008

Count Dracula

Late update:
While breadth has been miserable for all of the month, the MCO and 10% Index are very very oversold. This coupled with the positive divergence in the SUM index can be interpreted bullishly.

Although I view the 10% Index as indicating the need for a retest of the lows, this does not need to occur for a few months.

It seemed like the volume today was soft until late in the day when it accelerated and this may indicate that the market may be sold out at this point. Any rally here could be potentially explosive since the initial overhead supply has been exhausted.

I've noticed that on the days when the market continued to exhibit weakness, after a moderately positive opening, that the advance-decline numbers become negative fairly rapidly (advances dropping below 800-900) So far when the AD numbers have become lopsided (700-3000) early in the day, the market seems to have a hard time reversing.

Any rally out of the hole we are in may start with fairly evenly balanced AD numbers something like 500-700 more one way or the other. In this case it doesn't seem to matter which way the bias is. A strong rally can rapidly turn the AD numbers positive (but hasn't been able to when they are +400 to -3000 like today.)

The SPX 65 minute chart for Nov 20,2008
Click to enlarge

I've marked in a generalized wave count for wave 3 or C, depending on the fates. We are getting close to something which looks like a complete pattern.

The 10% Index hit a -1065.8 today, still above the previous low near -1200. With the MCO at a -317.18 we could get a very strong bounce or one more nasty day, and another 500 points down the drain. Gotta be careful here.

The cycles are tentative, they haven't been working lately, but I've got to try something.

Market Breadth

Yes the patient is still breathing, but just barely.

The NYSE Advance-Decline Line vs. the SPX
Note the divergences back in 1998-2003 and currently.
It still looks like we have farther to go on the downside.
Click to enlarge.

Tuesday, November 18, 2008

Bounce or Die

Update after the close on Wed. 11/19.
Another miserable failure in breadth drove the 10% Index to -877 and the MCO to -235. Even though the markets are extremely oversold, the possibility of another nasty down day is still active.

When a market is this weak on the third retest of the low, no ensuing rally should be trusted, The FED has lost control of the markets and the economy. President George Bush is hiding under his bed wishing it would all go away. It is fairly clear that at this point there is no possibility for a durable bottom at these levels and that we should expect the DJIA to fall another 1200-1500 points towards the 6800 target in my previous post.

Please be aware that unless we crash in the next two days, my lower projections most likely will be achieved after an intrim rally. Any such rally should be sold.

McClellan Oscillator for Tue 11/18/08
Note the small daily change which indicates
Tomorrow is a big move day, but which way?
Click to enlarge.

Consumer Sentiment and Unemployment

For reference: I've drawn in a few projections going forward. It seems fairly clear that interest rates will remain in the range they are in now. There's not much question that unemployment will continue to rise, I'm more negative on this than most economists. I'm using their projections and making them worse because that seems to be what happens early in the projection game. Consumer sentiment should remain weak but improve as Obama takes control of the government. It's unlikely we will get a big rise in sentiment as long as unemployment stays bad.

Consumer Sentiment, Unemployment and Interest Rates
Click to enlarge

Saturday, November 15, 2008

G20 and Beyond

Well, my bit of optimism was misplaced and after a one day wonder rally, the markets gave it all back. The g20 meeting is a non-event, what can they do?

We are oversold enough for another rally try which I believe will also fail. Some esoteric trendline calculations and a bit of fibonacci number fitting is indicating this market has a ways to go on the downside before any durable trend change is possible. Whether or not we hit my 6800 DJIA target zone this month or next year is a moot point, it's coming one way or the other. The potential for much lower prices exists. IRA investors should remain in cash.

The DJIA Monthly (not weekly as labeled)
Click to enlarge

Tuesday, November 11, 2008

MCO Update 11/11/08

No promises, but the MCO frequently will pause or bounce near the zero line. If the markets can rally here, the retest will be good with the 10% Index stopping above the -500 level. Positive divergences are occurring, giddyup

The McClellan Oscillator for 11/11/08
Click to enlarge.

Monday, November 10, 2008

SPX 65 minute cycles

I've taken a fresh look at the cycles for the 65 minute SPX chart. Frequently at major turning points, the time cycles invert, highs become lows and visa-versa. Also over time the cycle intervals may drift, as well as expand or contract a bit and I've found that major turns can provide a "reset" point. That's what I'm showing here, no guarantees, but the next few days look good for a turnaround (or a downside acceleration midpoint ;-( We'll see, what happens.

Time cycles on the SPX 65 Minute Chart
This is an updated chart, the previous one had missing data
Click to enlarge

Here is another set of charts with 15% and 30% bands on the 200 bar moving average, You have to back a ways over the last several years (2003) to find an instance where the lows are 12% below the 200 day moving average. The spike lows in 2001 were about 22% below the 200 day moving average. The worst of the bottoming low, in July 2002 was a bit less than 30% below the average. Most of the time, even when the SPX is trending strongly one way or the other, a 12% channel will contain most of the price behavior.

This is not to say we cannot make lower lows, either now or next year, but that we should expect the Index to move back above the 12% channel which, at this moment is roughly SPX 1100.

SPX 65min chart with 15% and 30% bands on the 200 Bar Average
Click to enlarge

SPX Daily chart with 15% and 30% bands on the 200 Day Average
Click to enlarge

1928-1976 SPX Weekly chart with 15% and 30% bands on the 40 Week Average
Click to enlarge - (Big Chart Warning)

Sunday, November 9, 2008

MCO update for 11/07/08

A couple of observations on the behavior of the McClellan Oscillator during extreme market conditions like the ones which we have observed over the last month or so. When the market is as severely negative as it has been, the 10% Index plunged well below the -1000 level. Since the MCO is the difference between the 10% Index and the slower moving 5% Index, when the market finally turns higher and breadth improves temporarily, the distance between the two Indexes shrinks which quickly moves the MCO to "overbought" levels.

A +300 reading on the MCO occurring on a rise from a less severe correction would be extremely bullish, indicating that market breadth had rapidly become positive. Unfortunately this is not the case we are seeing today and the positive momentum, the +300 level on the MCO, is occurring with negative breadth. Under these circumstances we should view the rally as being "corrective" and NOT the start of a bull leg higher.

I continue to remain bearish on the market but expect the rally to continue long enough to work off the oversold condition before declining again to retest the October lows.

The NYSE MCO for 11/07/08
Click chart to enlarge