Stock-Market-Observations

A snapshot of the market nearing a bottom or top can involve a short time period but a large number of points.  Bottoms can make deep thrusts in their finals stages, or when the market is sold out, end with a whimper.

LAST WEEK

• Waiting for a trend break signifying a bottom
• Trend lines are holding with no significant downside penetration
• Rally breaking the trend lines will denote the bottom
• Stock market moves inversely to the dollar & recently the dollar has rallied

CLICK ANY CHART TO ENLARGE

06-17-11, NASDAQ COMPOSITE, 20 MIN BARS, SINCE MAY 2, WAVE COUNT

The charts that follow show the interpreted wave count on different indexes and different time frames.

06-17-11, SP 500 FUTURES, 70 MIN BARS, SINCE MAY 2, WAVE COUNT

06-17-11, NYSE COMPOSITE, 20 MIN BARS, SINCE MAY 2, TREND LINES

06-17-11, BANKS (BKX), 60 MIN BARS, SINCE FEB 2011, WAVE COUNT

06-17-11, DJ INDUSTRIALS, DAILY BARS, WAVE COUNT

The chart below shows possible stopping points to the downside.  The lines are Fibonacci numbers.  Note the blue lines that are hard to see.

06-17-11, SP 500, DAILY BARS, SINCE JULY 2010, RETRACEMENT LEVELS

Below is a chart of trend lines that show possible support or resistance areas on these lines.

06-17-11, SP 500, DAILY BARS, TREND LINES

Below is a chart showing the dollar since May 2 (ETF symbol UUP).  The stock market has shown a consistent trend to move in the opposite direction of the dollar.  Dollar up is deflationary, and dollar down is inflationary.  The dollar has controlled the securities markets including commodities since 2002.

06-17-11, DOLLAR (ETF SYMBOL UUP), 20 MIN BARS, WAVE COUNT

Below is a chart of the SP 500 since 1999 with an Andrews Pitchfork.  Construction of a pitchfork requires 3 points (usually tops or bottoms).  The lines are automatically drawn from these points with computer software.   The 3 points in this chart are the top in 2000, the bottom in 2002 and the peak in 2007.  The 2009 low stopped exactly on one of these lines.  It’s remarkable how the rally since March 2009 stopped precisely on the upper trend line.  It will be even more remarkable if this is the final peak in the rally from the 2009 low.

06-17-11, SP 500, WEEKLY BARS, SINCE 1999, CHANNEL

SHORT TERM

The best case scenario is that a bottom is close.  When the last  step down concludes, we could get a rally that returns near the May 2nd peak.

The worst case scenario is that the market continues to slide because we have not finished the last step down.  The market decline could end with a capitulation by investors, meaning big volume and a big decline (not necessarily a crash) followed by a dramatic reversal.

An even worse case scenario is that the decline since May 2nd is the first step down in a larger 3 step decline.  If true, this would call for a lengthy decline lasting several months.  If the market fails to make new highs on the next sustained rally it would mark the right shoulder of a head and shoulders formation.  This is a very bearish event and if true, the upcoming bottom would only be the half-way point to an eventual bottom.

INTERMEDIATE TERM

The rally that began in early July 2010 is long in the tooth and showing its age (11 months).  The market internals have lost momentum and show that the market has been in a lengthy “topping” phase.  If the market breaks the March 16, 2011 lows, it would be the first break of intermediate lows since July 2010.  Also if the rally that follows the May 2nd decline fails to make significant new highs, the market will have signaled a declining phase marking the end of large step two up.  From March 2009, large step one up topped in May 2010 and was followed by the “flash crash”, large step two up likely peaked in May 2011.

LONG TERM

Since March 2009, most of the market indexes show that two large rallies have occurred (March 2009 to April 2010 and July 2010 to May 2, 2011).  A couple of indexes show the possibility that we are in the third large step rally since 2009.  The favored count at this time is that we are in (or finishing) large step 2 up since March 2009.

If the present correction carries significantly below the March 16, 2011 bottom, there is a possibility that large step three up could begin at the conclusion of that decline.  If large step three up were to begin relatively soon, we would see a renewed bull move with new highs followed by a frothy and speculative peak.  At the conclusion of this peak, we would definitely have an extensive correction with the possibility that the third bear market would begin.

The worst case scenario is that we have begun (or will begin soon) the correction following the second step up.  This is the favored long-term viewpoint.

An even worse scenario is that we have resumed a bear market.  This is not the favored viewpoint.

VERY LONG TERM

We have entered a wide swinging market similar to that of 1966 to 1974. During that era we had three bear markets with 2 intervening rallies.  Each bear market had a lower low than the prior bear.  The intervening rallies saw new all time highs before the next bear market began.

Since 2000 we have had two bear markets, 2000 to 2003 and 2007 to 2009. Like 1966 to 1974, the recovery from the first  bear market saw a new all time high (2007 peak). It is possible that we may experience another all time high during the present recovery period. At the conclusion of the present recovery we will have the third and final bear market. An estimated time for the conclusion of the final bear market is approximately 2018

Although this may be a disturbing projection, don’t let it stop you from making money in the present. This is a prediction that lies years in the future. So for now, Be Happy and make money

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