Saturday, May 8, 2010

S&P500: Medium-Term Bearish

Almost two months of upside simply erased in a day - computer glitch or not!

Here's a daily chart of the S&P500, with a suggested count, and path projection. More importantly, both uptrendlines(grey & white) broke down, with no follow up effort to recapture. Price currently sitting just around the 200-day moving average, at oversold levels. A lot of short-term volatility is on the cards.

Elliott Wave Count

Primary count is corrective(bearish) up since Mar-09, with the alternate impulsive(bullish) count in [brackets]. If you recall, it was very hard to count the internals impulsively, during the entire uptrend. One of the reasons to consider the bullish case, is the extent of the retrace so far - 61.8%, surprising strength. Whichever the case, the medium-term view is bearish now.

Possible Head & Shoulders ?

A H&S top could be in the making, with LS at 1150, Head at 1220, and neckline at around 1060. Natural resistance around 1150 level might facilitate the RS. If it works out, we could be looking at 900 level in the medium-term. This is just one of many possible scenarios.

Asian Markets

Many asian markets are also breaking down from recent highs, will be posting an update on some of them next week. Shanghai has been in a extended sideways-to-downwards move for almost 9 months now, not quite following the SPX. Although long-term bearish, I believe SSEC is nearing the end of its correction & china bears will be disappointed (for a while). It will be the subject of the next post.

FREE Elliott Wave Theorist

EWI has just released the latest Elliott Wave Theorist (by Robert Prechter) for free. Click here or the banner above. You just need to have a club membership, which is free. I'd highly recommend reading it - a brilliant piece of research.

All the best!

Thursday, May 6, 2010

"Holy Cow!!!" or "All hail Robert Prechter!!!" ?

Expletives flying all over the world! Was almost a 1000 point drop in the Dow. I don't think we need a chart here, just go to any financial website. No trendlines can define what happened last session.

Is this just a computer glitch? I think it's highly unlikely. Maybe it's time to pay attention to Robert Prechter of Elliott Wave International. He's been calling for a sharp and scary drop to new bear market lows for a while now. His April Elliott Wave Theorist included a very detailed timing analysis, suggesting the dreaded P3 was imminent. Lo, and behold.... black Thursday?! 1987 repeat?

This event shows why having stops in place always, is so important. Those who were positioned on the short side, congratulations! We'll find out soon if today's action was just a glitch, or the harbinger of more serious declines. I think the latter is more likely. Sentiment definitely allows it, as posted earlier along with the long term chart.

(What Prechter's been saying for months)

What does this mean for Shanghai? It is possible that Shanghai will execute a zig-zag correction instead of the triangle, which means a retest of the 2600 area. But remember, Shanghai, unlike other Asian markets is a bad follower, and has a mind of its own. I'll update during the weekend.

Meanwhile, take care folks and all the best!

Tuesday, May 4, 2010

Shanghai Composite: The Broader Triangle Unveiled!

Helloooooo folks (in the voice of Karl Denninger), how's it going? Since the original triangle picture failed to materialise, some readers are fearing a deep correction here. So, what's coming next? A triangle, a complex correction, or a deep bear market? Whatever the short-term pattern, i'm bullish on the medium term for at least a test of the highs (based on EW analysis).

Before i go on to the chart, i'd like to pass a message for readers of this blog:

I'm an ordinary individual investor, just like most of you folks out there, with a passion for the markets. I do this blog primarily to help my own trading, and secondly to share with and learn from the world outside. I can be as wrong or right as your next door neighbour. At no time, should you take my posts as trading advice. We are all here to learn and hopefully make some coin. I absolutely welcome comments and criticisms - i only ask that you keep the language polite, civil and not emotionally loaded. Thank you :)

And now to the chart:

The drop has been relatively sharp, and probably got many panicked. But if one looks at the overall picture, price is still within a range since Aug'09. In earlier posts, i mentioned a possible broader triangle. Although other scenarios are possible, this is my preferred scenario for now.

The Broader Triangle

First, note the original proposed triangle bound by maroon and blue trendlines. Since the break, it cannot be defined as a triangle (as its internal structure was not complete). Second, observe that the decline (calling it wave c) from wave b high of 3350 is in 3 complex waves, and much longer than the preceding waves a & b in duration. It also fits neatly into a corrective channel (maroon & cyan). Third, note the declining volume on the sideways move.

So why am i labelling the latest 3 legs as wave c? Refer to the "bible" - Elliott Wave Principle, by Frost & Prechter - page 90, on the guidelines of a contracting triangle:

"Usually, wave C subdivides into a zigzag combination that is longer lasting and contains deeper percentage retracements than each of the other subwaves." (my emphasis)

Well, price action fits in superbly with the above description. With oversold momentum, and lower channel support, we can expect a bounce here. Tentatively sticking with the triangle scenario, and calling for a wave d up. It should be followed by a wave e down, and a thrust towards year-end.

Levels to watch

Resistance levels to the upside are at 2890 & 3100. Good support around 2700.

One of the readers asked why 2700 & 2800 levels were important? 2800 is derived by the lower channel line (cyan). And 2700 area is historical support (check out the longer term chart) and the 23.6% retrace level of the original decline. A break below that, and i will consider the alternatives.

That's my take. Feel free to contribute your views. Read my disclaimer, and take it easy ;)

All the best!

Note sure what a Contracting Triangle is? Refer to this free Elliott Wave Tutorial.

S&P500 short-term: Uptrend may resume here!

Hello folks, been out of the action for a while, with business trips picking up along with the economy! Here's why the SPX may bounce here:

The daily chart above shows price at 1174, at the medium-term uptrendline in white, connecting two significant lows. If that's not convincing enough, here's the hourly:

The entire decline since last week fits neatly into a corrective channel, and price is just reaching the bottom channel. (Note the white trendline there too - perfect fit!)

Of course, nobody knows the future and we can collapse from here. But, based on these two charts, and momentum indicators, i see a possible bounce here. If it happens, watch the upper channel line in particular. A break above it, and we may have a new high.

Move lower will have support in the 1140-1150 area.

All the best!