SPX update - 2012-01-27

The market has scored a "direct hit" on the incredibly important trendline joining the Jan 2008 and May 2011 tops. It is a bit surreal how many times these trend-lines draw a reaction, but it is what it is.

Initial support is around 1296. Failure to vault over the blue trendline, coupled with the overbought condition can easily lead to significant correction develop in this area.

GDX B wave Diametric

US 30yr Bond update: 2012-01-24

SPX update: 2012-01-24

Here is an update on the bullish Elliott Wave counts posted here a couple of days ago. 

Although SPX could have put a top in yesterday, and has opened slightly lower today, I don't see enough divergence on technical indicators to confirm a top. I think the market has the potential for one more rally, but technicals are overbought and the market is ripe for a correction. Tom Demark (a good market timer) predicted a top today on Bloomberg TV. 

The blue trend-line in the chart below connects the Jan 2008 and April 2011 tops and it should offer important resistance to contain 2 out of 3 counts that are in focus (on a closing basis). In the chart below these two higher probability counts are marked in RED and GREEN. 

The RED count completes wave (3) of III. Wave (4) should not overlap with wave (1) so this count would be invalid below 1266.73

The GREEN count completes wave 1 of (3). This count allow a correction all the way to 1202, though in practice in should find support around 1260

If the market vaults over the1330-1340 area contained by the blue trendline, we will shift focus on the count in YELLOW which  would put us in an incredibly bullish wave (iii) of 3 of (3) of III. Such waves do occur from overbought conditions and markets stay overbought for a while as third waves accelerate. 

There is a potential for a VIX reversal here. It is at support line since April 2011. RSI shows a positive divergence. A complete Elliott Wave pattern (Ending Diagonal) is seen. Closing above 24 will be positive for VIX and bearish for the SPX.

SENSEX overbought at resistance

Overbought conditions exist in most markets after a great start in January. In the previous Sensex update I pointed out the positive divergence in RSI and the possibility of a long term bottom. Now the market is overbought and at channel resistance. A different wave structure allows the possibility of a 'c' wave lower to complete a Double zig-zag correction. This move could fill the election gap from 2009.

Note that I have used an India ETF (INP), not the Sensex itself in the chart below.

SPX update: 2012-01-20

John Hussman points out that PMI and employment figures are NOT leading economic indicators. They are usually part of a stream of bullish anecdotes before the market turns down. They usually look positive before recessions start. The leading indicators he uses do look bearish.The piece is here: http://www.hussman.net/wmc/wmc120109.htm

Meanwhile, my Base Scenario for a bull market since the October 2011 low will continue to play out until negated by price action. The trend remains up and there is no point fighting the trend, whatever your fundamental views may be. 

We are now in the time and price zone that favours the bears to make their move. All bear counts form the previous update remain on the table. Price action has put some very bullish counts on the table. My main bullish counts are shown below along with levels at which they will be invalidated.

In Yellow is I-II-(1)-(2)-1-2-(i)-(ii)-i, an unlikely, rabidly bullish count that puts us in a third wave. Invalid below 1277.57

In Light Blue is I-II-(1)-(2)-(3). Currently wave (1) = wave (3) in price, but it can extend further. As wave (4) cannot overlap with wave (1) this count is invalid below 1266.73. 

In Green is I-II-(1)-(2)-1 which would allow for a fair sized reversal and is invalid below 1202.37, but probably unlikely if SPX gets under 1250

I will let the market pick the count it likes. Below 1250, the focus will equally be given to bear counts from the previous email. Below 1202 we should see price challenge 1150 and then 1050.

Microsoft forecast

Main Count (RED)

• The very long term count shows MSFT in an impulsive wave I that ended at the 2000 high. 
• A long drawn out wave II ended in March 2009. 
• This was followed by a lower degree impulsive wave 1 that terminated in Jan 2010. 
• The price action has been corrective since then.
• The stock has rallied nicely in a 'b' wave to the top of the channel as shown by the corrective count in RED. 
• If this is correct, we should now see a 'c' wave correction to the low 20s before a resumption of the impulsive rally.

Alternate Count (BLUE)

• A close above $31.6 would signal a breakout targeting $40 or $50 and change focus for the larger degree count to the one shown in light blue. 
• That would result in a rally to 40 or $50, but that would be followed by a severe correction creating a new low below 14.62 a few years in the future.

(click for higher resolution)

EUR/USD looks like a BUY

The Euro may have made a significant turn here. According to the NEoWave count below EUR/USD just completed an Expanding Triangle.

• Time taken by wave (e) in the expanding triangle is equal to the time taken by { wave (a) + wave (c) }*
• Time taken by wave (d) = time taken by { wave (a) + wave (b) }
• Positive divergence in the RSI before this latest rally over the past 3 days
• Daily MACD has just given a buy signal, although there have been false positives before
• Weekly MACD has had no false positives so it should confirm the change in trend when it gives a buy signal. It has been a late confirmation though, not a buy signal.
• Price action will significantly increase the probability of the reversal above 1.30

If going long, use a stop-loss at 1.2622. Also note that large speculators have a record net short position. This could lead to a very sharp rally due to short covering.

This forecast may be slightly early. It is possible that EUR/USD makes another "panic" low, touching 1.25 before rallying.

* All similar coloured boxes are of exactly the same time duration

EUR/USD Daily RSI positive divergence before uptrend, MACD buy signal

EUR/USD Weekly MACD on the verge of a buy signal, RSI turned up from low levels

COT numbers show Large Speculators have an enormous Short position

Silver -the end (of the bear market) is nigh!!

Looks like Silver is quite oversold - almost as bad as 2008 on the weekly RSI. The MACD is ready to give a long-term buy signal as well.

Following the breakout at $20, silver sped to complete powerful wave (3) advance that terminated at its 1980(!!) high of $50. It has lost up to 50% of the price in the subsequent correction. Two wave counts for the correction are plotted on the chart below, both of which show the market bottoming in wave (4).

The main count in RED has a Diagonal Triangle as the c wave of an a-b-c correction. This would complete wave (4) shortly - likely making a marginal new low, and result in a powerful advance once that occurs.

The second count in GREEN is a Double zig-zag (abc-x-abc). This would probably bottom a little lower than the previous count but should stay above the $20 level to remain valid.

30 YR Bond Futures

Remember that long-bond prices peaked 3 months *before* the stock market bottom. In fact bonds made a lower high in March 2009 when the bull market kicked off. 

More recently, the rally that began in early 2011 from the Pink long-term support line (marked wave B) is fairly mature. However, a 5th and final wave for bond prices is still on the cards.

Such a rally can be quite sharp and bond prices could spike into the 160s, taking them close to the purple projection line.

Support is at $135 at the green trend-line. Breaking below that would be bearish.

Gold sitting below significant resistance

Gold is sitting just below some pretty significant resistance. 

Odds favour another move down unless Gold can clear $1667.3 (in Green). 

A close above $1667.5  would eliminate the impulsive count which will otherwise take the market to the low $1400s.

Resistance is seen from:

• 200 day moving average (in Blue)
• Top of the Downtrend channel (in Red)
• Previous high at $1645.5 (also in Red)
• Downtrend on the RSI indicator (below price chart)
• Pink trend-line for the 3 year uptrend that began in late 2008 (recently broken - retest & fail?)

SPX: Elliott Wave roundup

(charts borrowed from some blogs that I follow)

Base Scenario: Rally Continues

• My main scenario (60% probability) is for the rally in US markets from the March 2009 low to continue after the break in 2011
• The economic numbers are slowly recovering in the US and growth is positive
• Any easing of war tensions in the Iran should take oil prices down, providing additional spending power to consumers
• Any additional relief to distressed European Sovereigns and Financials should lift the pall of gloom over potential European exposure in US financials
• Most likely we are going to see another minor correction and then accelerate into a third wave that will launch the next leg up of this Primary bull market

Alt Scenario 1: Imminent Return of the Bear Market

• Most Elliott-Wave sites now seem to have this count as their main count
• Summer 2011 correction was an initial leg down (1 or A)
• We are in a counter-trend bounce (2 or B) that should complete around SPX 1300-1350 (See Scenarios 1a and 1b after this)
• A sharp C or 3rd wave down is imminent and should be quite severe
• Short-term: Topping
• Medium Term: Bearish

Scenario 1a: Ending Diagonal into SPX 1300+-25

• This is the most likely way Scenario 1 will play out 
• We are in a multi-month ABC wave since the October lows 
• The C wave started in December and is forming a "rising wedge" or Ending Diagonal
• Once complete, this should result in a quick reversal to 1150
• Wave 5 should be smaller than wave 3 (currently wave 3 seems to have completed at 80 points)
• Short-Term: Topping
• Medium-Term: Bearish

Scenario 1b: Triple Combination into SPX 1300-1325

• Very similar to Scenario 1a in outcome but slightly different in structure
• We are in a wave C of a multi-month  A-B-C from the October bottom (marked in RED below)
• The RED C wave began in late December and sub-divides into an ABC marked in BLUE
• We are in the BLUE minor 'C' subdivision of the larger RED C wave 
• Short-Term: Topping
• Medium-Term: Bearish

Scenario 2: Double Zig-Zag from the March 2009 lows

• This would behave very similar to the Base Scenario - a rally over the next few months
• We need to see acceleration with a clear impulsive structure for C
• 1440 is a good target for this scenario as it is the extreme of the B wave in 2008
• Once C wave completes, it would be followed by a severe bear market 
• Medium-Term: Bullish
• Long-Term: Bearish