Most have been assuming Wave A finished in March at SP 666.
But what if this whole action since October could be an
A-B-C-D-E of a complex wave 4? Which implies a new move down in a
wave 5 flushout to 400-500 SPX. If so, it could start very soon. I
am playing it that way - it may take more than one attempt to get
short. But everyone is so convinced that the S&P goes a lot
higher and makes it easy to get out and get short - and also
everyone (who hasn't read Griffin) assumes the Gov't is trying to
prop the market up. It is worthwhile to examine one's
assumptions at any time, but especially
now,in case it's already baked into the cake.
Posted by junkmaylbox on 8th of Jun 2009 at 11:49 pm
One argument against it is seasonality. While sell in May and go
away still works, markets normally recover by August and rally in
September. While I don't see how markets could go higher from this
point -- 200MA normally cap rallies and require 6-8 months of
consolidation to go higher -- we could see at double top in late
August or early September at the same prices we have now.
Another argument is proximity to the last trough. Bottoms occur
at least 3 months apart -- confer that for November and March. One
catalyst of both troughs was Christmas spendings, which are out of
the picture now for a while.
So your apealing theory does not seem to hold water, IMO.
Posted by hamvestor on 8th of Jun 2009 at 11:09 pm
"But everyone is so convinced that the S&P goes a lot higher
and makes it easy to get out and get short..."
That's interesting, because I get exactly the opposite
impression, that most traders, commentators, etc. (and this blog
included) are fully expecting the markets to start the next big leg
down, and to test or exceed the March lows. I think the contrarian
play these days is to position for an extended rally, albeit with
some scary pullbacks along the way to keep the shorts interested.
I'm not saying it will actually unfold that way, but it
doesseem like the contrarian play now.
Alot of people are waiting or looking for a retest of the
lows, when you think about how we reached the lows it was a huge
flush out of leverage. People forced out of the market like Bear
Sterns, Lehman brothers and lots of hedge funds selling
because they were forced to or in some cases liquidated by margin
clerks selling for what ever they could get. At this point pretty
much all the sellers are gone. I'm sure there are still lots of
retail people hanging on by their fingernails, that will sell when
they get back close to even, never to return (so they say). Don't
think there are enough retail bag holders to take us back down.
So what would make us flush down to the lows again? A big
bank failure, well doesn't look like that is going to happen since
the Government has their backs now. Large US companies going
bankrupt, hmmm well GM and Chrysler are basically toast and
things are backed by the Government. Maybe a large broker swirling
down the flusher with Merrill bought up and MS, GS and JPM in
decent shape that doesn't look like its going to happen. Maybe all
the toxic assests out there well we'll just change the rules and
now they have all the time in the world for those to be worked
off.
Oh wait real estate yea all the houses foreclosures,
commercial hmmm well that seems to be stabalizing too. Maybe credit
card debt, if that becomes a problem we just change the rules
again, put back the old bankruptcy laws, presto.
So what is the next catalyst that will force all the people
that pretty much just bought the market at once in a lifetime
prices to sell?
and this
http://www.businessweek.com/magazine/content/09_24/b4135026913979.htm prove
that all we've seen is the tip of the iceberg. Alt-A and Option ARM
morgtage foreclosres are expected to be triple what the subprime
defaults have been - is that a big enough event? Also, people need
to take their money out of the markets, so that will cap it. Plus
all the new issue stock and insider selling is another cap on how
high the market can go. As for seasonality, there are plenty of
cases of June-July tops (the end of the "summer Rally").
One writer remarked that we are in the worst credit bust in
history - Bingo! That's right, and that's what is important. I see
proposals asking for money every week and the terms one can get are
almost criminal - IOW there are a lot of people desperate for cash.
The gov't can't reinflate the credit bubble now though, look at
japan since 1989. It has to run its course. You can't get expanding
earnings without an expanding economy. Even if the GDP rose by 20%
next year, S&P earnings would only be in the realm of $50 -55
>> does that make stocks cheap here? Not to me.
Re Sentiment, a lot of polls with longevity show we are not at
extremes yet, but getting there. One more manipulated econ report
could do it.
Anyway what about the technical count , for you EW gurus?
Something unexpected and currently unknown... A terrorist
act, a major oil field failure in Saudi Arabia, Irael
attacking Iran, Some catastrophic natural disaster... A foreign
govenrment deciding to pre-empt the exit out of the dollar and
pulling their chips in a rapid and disorderly manner... some black
swan...
Other than that, it seems like we are either consolidating or
going higher...
Very insightful and true in many senses. Although imho,
the masses have been allowed to have some sense of security to
avoid another episode like Nov. '08 to occur. This has been a
false sense though. Imagine the worse credit crisis EVER and
we are still not out of it. Eventhough house sales have
stabalized, prices continue to drop due to short sales and
foreclosures, which will continue to rise as unemployment
rises.
Housing stabalizing has been a farce. Fannie Mae,
Homecomings, GMAC, and many other banks had a moratorium on
foreclosures through April into May. Individuals and families
were allowed to stay in the homes they could not pay for because
these banks did not want vacant homes (no one around allowed for
theft) and assets they would be required to carry in their books
and would not be able to sell. These banks have told realtors
that what is coming in the quantity of foreclosures will amaze them
(14,000 to one realtor alone).
It does not need to be any major event but the idea that things
are truly not getting better and actually getting worse will most
likely be the catalyst. If there is any. The good thing as always
is that we are not required to foreshadow the market...just trade
what is given to us everyday and change with it if it changes.
Posted by junkmaylbox on 8th of Jun 2009 at 11:39 pm
I concur. Even though stocks are said to be driven by earnings
-- which are reported as 1/4 of what they were last year --
it is the masses that bring their money in. When folks need money
-- and they will need it to survive -- they will liquidate their
assets. Foreclosures, job losses, the drop of standard of living
will take their toll. those are involuntary actions, and they will
be taken despite the best assurences to the contrary. We haven't
seen forced bankruptcies yet, which happened in 1930s; extreme risk
aversion for investing, which normal mark market bottoms.
In short, I would ignore what Americans say and will see what
they are up to in the not so distant future. And don't forget that
foreigners who hold US dollars, don't keep them in the banks. When
they decide to call it quits -- and they will after $US drops
enough -- there will be nothing to prop up stock prices.
During the 1930s the only category of stocks that went up were
mining stocks
They went up 4 or 5 times from their 1930 prices. If you
understand everything about how depressions work, you should be
able to explain how on earth that could have happened.
Chris Laird once said that one could buy a house for 10 ounces
of gold then. I am waiting to see this happen again.
Newsletter
Subscribe to our email list for regular free market updates
as well as a chance to get coupons!
the Wave count
Posted by PA on 8th of Jun 2009 at 09:06 pm
Most have been assuming Wave A finished in March at SP 666.
But what if this whole action since October could be an A-B-C-D-E of a complex wave 4? Which implies a new move down in a wave 5 flushout to 400-500 SPX. If so, it could start very soon. I am playing it that way - it may take more than one attempt to get short. But everyone is so convinced that the S&P goes a lot higher and makes it easy to get out and get short - and also everyone (who hasn't read Griffin) assumes the Gov't is trying to prop the market up. It is worthwhile to examine one's assumptions at any time, but especially now,in case it's already baked into the cake.
One argument against it is
Posted by junkmaylbox on 8th of Jun 2009 at 11:49 pm
One argument against it is seasonality. While sell in May and go away still works, markets normally recover by August and rally in September. While I don't see how markets could go higher from this point -- 200MA normally cap rallies and require 6-8 months of consolidation to go higher -- we could see at double top in late August or early September at the same prices we have now.
Another argument is proximity to the last trough. Bottoms occur at least 3 months apart -- confer that for November and March. One catalyst of both troughs was Christmas spendings, which are out of the picture now for a while.
So your apealing theory does not seem to hold water, IMO.
"But everyone is so convinced
Posted by hamvestor on 8th of Jun 2009 at 11:09 pm
"But everyone is so convinced that the S&P goes a lot higher and makes it easy to get out and get short..."
That's interesting, because I get exactly the opposite impression, that most traders, commentators, etc. (and this blog included) are fully expecting the markets to start the next big leg down, and to test or exceed the March lows. I think the contrarian play these days is to position for an extended rally, albeit with some scary pullbacks along the way to keep the shorts interested. I'm not saying it will actually unfold that way, but it doesseem like the contrarian play now.
just some thoughts
Posted by paige386 on 8th of Jun 2009 at 10:18 pm
Alot of people are waiting or looking for a retest of the lows, when you think about how we reached the lows it was a huge flush out of leverage. People forced out of the market like Bear Sterns, Lehman brothers and lots of hedge funds selling because they were forced to or in some cases liquidated by margin clerks selling for what ever they could get. At this point pretty much all the sellers are gone. I'm sure there are still lots of retail people hanging on by their fingernails, that will sell when they get back close to even, never to return (so they say). Don't think there are enough retail bag holders to take us back down.
So what would make us flush down to the lows again? A big bank failure, well doesn't look like that is going to happen since the Government has their backs now. Large US companies going bankrupt, hmmm well GM and Chrysler are basically toast and things are backed by the Government. Maybe a large broker swirling down the flusher with Merrill bought up and MS, GS and JPM in decent shape that doesn't look like its going to happen. Maybe all the toxic assests out there well we'll just change the rules and now they have all the time in the world for those to be worked off.
Oh wait real estate yea all the houses foreclosures, commercial hmmm well that seems to be stabalizing too. Maybe credit card debt, if that becomes a problem we just change the rules again, put back the old bankruptcy laws, presto.
So what is the next catalyst that will force all the people that pretty much just bought the market at once in a lifetime prices to sell?
re Wave count
Posted by PA on 9th of Jun 2009 at 10:41 am
Thanks for the feedback. This was meant to be a technical question, but most of the responses were macro-based.
Re Real estate stabilizing - many articles posted here in the last week, and confirmed by this http://www.ajc.com/metro/content/printedition/2009/05/26/memskyscraper0526.html
and this http://www.businessweek.com/magazine/content/09_24/b4135026913979.htm prove that all we've seen is the tip of the iceberg. Alt-A and Option ARM morgtage foreclosres are expected to be triple what the subprime defaults have been - is that a big enough event? Also, people need to take their money out of the markets, so that will cap it. Plus all the new issue stock and insider selling is another cap on how high the market can go. As for seasonality, there are plenty of cases of June-July tops (the end of the "summer Rally").
One writer remarked that we are in the worst credit bust in history - Bingo! That's right, and that's what is important. I see proposals asking for money every week and the terms one can get are almost criminal - IOW there are a lot of people desperate for cash. The gov't can't reinflate the credit bubble now though, look at japan since 1989. It has to run its course. You can't get expanding earnings without an expanding economy. Even if the GDP rose by 20% next year, S&P earnings would only be in the realm of $50 -55 >> does that make stocks cheap here? Not to me.
Re Sentiment, a lot of polls with longevity show we are not at extremes yet, but getting there. One more manipulated econ report could do it.
Anyway what about the technical count , for you EW gurus?
What can bring the market down?
Posted by mamaduck on 9th of Jun 2009 at 12:46 am
Something unexpected and currently unknown... A terrorist act, a major oil field failure in Saudi Arabia, Irael attacking Iran, Some catastrophic natural disaster... A foreign govenrment deciding to pre-empt the exit out of the dollar and pulling their chips in a rapid and disorderly manner... some black swan...
Other than that, it seems like we are either consolidating or going higher...
don't forgret the flu.
Posted by Michael on 9th of Jun 2009 at 08:22 am
don't forgret the flu.
Very insightful and true in
Posted by asantana on 8th of Jun 2009 at 11:05 pm
Very insightful and true in many senses. Although imho, the masses have been allowed to have some sense of security to avoid another episode like Nov. '08 to occur. This has been a false sense though. Imagine the worse credit crisis EVER and we are still not out of it. Eventhough house sales have stabalized, prices continue to drop due to short sales and foreclosures, which will continue to rise as unemployment rises.
Housing stabalizing has been a farce. Fannie Mae, Homecomings, GMAC, and many other banks had a moratorium on foreclosures through April into May. Individuals and families were allowed to stay in the homes they could not pay for because these banks did not want vacant homes (no one around allowed for theft) and assets they would be required to carry in their books and would not be able to sell. These banks have told realtors that what is coming in the quantity of foreclosures will amaze them (14,000 to one realtor alone).
It does not need to be any major event but the idea that things are truly not getting better and actually getting worse will most likely be the catalyst. If there is any. The good thing as always is that we are not required to foreshadow the market...just trade what is given to us everyday and change with it if it changes.
I concur. Even though stocks
Posted by junkmaylbox on 8th of Jun 2009 at 11:39 pm
I concur. Even though stocks are said to be driven by earnings -- which are reported as 1/4 of what they were last year -- it is the masses that bring their money in. When folks need money -- and they will need it to survive -- they will liquidate their assets. Foreclosures, job losses, the drop of standard of living will take their toll. those are involuntary actions, and they will be taken despite the best assurences to the contrary. We haven't seen forced bankruptcies yet, which happened in 1930s; extreme risk aversion for investing, which normal mark market bottoms.
In short, I would ignore what Americans say and will see what they are up to in the not so distant future. And don't forget that foreigners who hold US dollars, don't keep them in the banks. When they decide to call it quits -- and they will after $US drops enough -- there will be nothing to prop up stock prices.
During the 1930s the only category of stocks that went up were mining stocks
http://www.kitcocasey.com/articles/2771/gold-stocks-in-a-depression/
They went up 4 or 5 times from their 1930 prices. If you understand everything about how depressions work, you should be able to explain how on earth that could have happened.
Chris Laird once said that one could buy a house for 10 ounces of gold then. I am waiting to see this happen again.