Stock Market Trends – Weekly Update 09/24/11 © ™

WEEKLY UPDATE FOLLOWS THE BREAK

PDF FILE

WAVE COUNTS SIMPLIFIED

  • There are 3 peaks to a completed wave count. A reversal of trend takes place after a completed wave count.   Often times it’s as simple as counting 3 bumps on a chart . . . Other times, not so easy.
  • In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.
  • Each step must stay confined to a channel.  Laying a pen or pencil on the chart will help you visualize the channel.
  • As the trend progresses, all of the steps that make up the overall current trend will also be confined to a larger channel.
  • When the market breaks a channel (regardless of the perceived wave count), the current step has been terminated.
  • A single wave may sub-divide into another 3 waves.  I will also call this an extension.  When this happens (1) the trend is still intact, (2) the channel has widened and (3) instead of a total of 3 steps, there will be 5 steps.  (The charts will help you understand this concept.)
  • Sometimes I will use the terms step and wave interchangeably, but usually a wave is considered to be larger than a step.
  • Wave Counts In Charts – Numbers of the same color represent steps within the same wave.  For instance, red 1, red 2 and red 3 are steps within the same wave.  Different colored numbers represent steps in totally separate waves.  For instance, a red 1 occurs in one wave while a blue 1 occurs in a totally separate wave (refer to charts for examples).
  • Reading the glossary helps a great deal in the understanding of this blog.
  • Glossary Link

ABBREVIATIONS

  • DJI = Dow Jones Industrials
  • DJT = Dow Jones Transportations
  • SPX = SP 500
  • ES = SP 500 Futures
  • COMPQ = Nasdaq Composite Index
  • TSX = Toronto Stock Exchange (Canadian blue chips)
  • NYSE = New York Stock Exchange
  • SOX = Semiconductors

CHARTS

MY CHART LINK (updated constantly)

  • This link has my charts, which are always current and constantly updated during market trading.  They don’t lag market trading by 15 minutes which is true of many charts.
  • There are 9 pages of index charts.  Each page consists of (1) the same stock market indexes, and (2) the same time frame.  The time represented by each vertical bar is the same on each page but increases in length on each succeeding page.  The vertical bars on the 9 pages ranges from 1 minute to 1 month.
  • The final pages of these charts consists of growth stocks.  These are stocks that have constantly risen in price since 1990.  One qualification is that they must not be severely damaged in a bear market so they can’t rise to significant new highs in the following bull market.
  • The growth stocks show daily market action for the last 3 years and weekly prices since 1990.  This gives a good perspective to how they have behaved in the immediate past (daily charts) and how they behaved during good and bad times (weekly charts).

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WEEKLY UPDATE

CLICK ON CHARTS TO ENLARGE

  • Short Term
  • Breaking Friday Lows Will Confirm Head & Shoulders Projection To 9,900-
  • August 9, 2011 To Present
  • Multiple Bottoms Dating From August 9th
  • Present Threat To Break These Lows

09-23-11 SHORT TERM

SHORT TERM COMMENTS

Friday the market stopped at the August 9th lows.  This sets up two possibilities (1) the panic plunge as we cut through those lows early next week, or (2) the firm bottom that everyone “wants” to see take place.  The outcome is debatable but the count certainly supports the possibility of lower lows.

Some of the indexes are showing a non-confirmation of challenging the August 9th lows.  This is a positive but since the indexes that are ready to penetrate the lows are the big blue chips, we listen closely to the big guys.  Big blue chips are the generals that give the marching orders to everyone else.

Most disconcerting is that we have another head and shoulders formation (see chart).  One forming at this point is called a continuation pattern.  We will have a definite validation of this chart formation if we have a significant penetration of the August 9th lows.  The measurement calls for a decline to about Dow 9,900.  An overshoot of this level is likely.

Remember a head and shoulders formation is nothing but squiggles on the chart if we don’t crush the neckline.  If that doesn’t happen, it could become a basing formation.

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  • Intermediate Term
  • Downtrend
  • February 2011 To Present
  • Step 3 Down Underway 
  • The rally that began in July 2010 is finished.
  • The peak of that rally was May 2011 although some indexes peaked in February 2011.
  • We are in a 3 step decline that follows large step 2 up.

09-23-11 INTERMEDIATE TERM

09-23-11 INTERMEDIATE TERM-2

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  • Long Term
  • Uptrend
  • Mar 2009 To Present
  • Step 2 Up (of 3) Completed
  • From the bottom in  March 2009
  • Large step one up ended in May 2010
  • Large step two up ended in May 2011.
  • Large step three up will begin when the decline beginning in February/May is finished.
  • The correction following large step two up is always larger than the step one correction.

09-23-11 LONG TERM

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  • Very Long Term
  • Downtrend
  • Jan 2000 To Present
  •  Step 2 Down (of 3) Completed

09-23-11 VERY LONG TERM

VERY LONG TERM COMMENTS

We have 3 possibilities for the future.

  • We have entered a very wide swinging market (megaphone formation) similar to that of 1966 to 1974. During that era we had three bear markets with two intervening bull market rallies.  Each bear market had a lower low than the previous bear.  The intervening bull market rallies saw new all time highs before the next bear market began.
  • We also have formed a huge head and shoulders formation since 1998.  If this formation is valid, the downside measurement calls for a bottom around Dow Jones Industrials 1,000.
  • We began a very long term bull market that began in March 2009.  Each subsequent min-bear markets will result in higher lows than the prior major low.

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’s possible that we may experience another all time high during the present recovery period.  This would support the megaphone formation.  A failure to make new highs would support the head and shoulders argument.  In both formations the conclusion of the present recovery would call for a third and final bear market. An estimated time for the conclusion of the final bear market is approximately 2018.

The lesser downside target of both formations is the megaphone formation as it likely calls for a bottom 1,000 to 2,000 points below the 2009 low, which would be around Dow 5,000.

In the head and shoulders formation the measurement calls for a bottom around Dow Jones Industrials 1,000.  This is almost an unimaginable event as I try to visualize the fundamentals involved.  If this did happen, everything that could go wrong would have to go wrong.  The reasons range from the absurd to the absurd.  This scenario is so dark that it doesn’t seem possible but nevertheless, the head and shoulders formation is there and will be waiting until we pierce the all-time highs of October 2007.

Remember these are simply possible scenarios and are not embedded in fact.  Whatever the outcome, it never hurts to be a little cautious with some of your money.  But in the worst case scenario, everything that we take for granted as being safe . . . .  would not be safe.  This is something to never forget in the event things go very badly.

Hopefully we will never have to think about worst case scenarios other than to have a good laugh at them presently.

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REAL ESTATE

Here is a PDF report on the cyclic nature of real estate prices.  Anyone interested in cycles should find it of interest.

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EDSON GOULD

  • Edson Gould, Premier Stock Market Strategist – I have posted some of his ideas and writing on this blog.  He had a profound influence on the development of my techniques and proprietary indicators.  I will post more of his writing at a later date.  After 40 years I still have many of the publications from his advisory service, “Findings & Forecasts”.

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TRANSACTION SIGNALS

  • ALL ACTIONABLE SIGNALS (buy or sell) ARE ONLY FOR SHORT TERM TIME FRAMES.  These signals are not designed for intermediate or long term time frames BUT . . . . .
  • After a short term buy signal, long term tax status  can be achieved by a continuation of the upward trend, which causes short term actions to morph into long term holdings. 
  • See more details in the glossary under “Taxes, Futures Contracts” and “Money Management”.

TRANSACTION RECORD

  • In this blog a warning of an impending bottom (or top) is often issued well in advance of the formal buy or sell date.  This allows thoughtful consideration prior to a formal action signal.  To get a sense of how this works, you should read a few days prior to a formal buy/sell signal.  I often buy/sell in my personal account based on the early warnings.
  • The transaction record near stock market bottoms will show that I am very skittish and usually remain so until the new direction is well underway.

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INDEX OF MY CHARTS

  • Page 1 – Indicators (shorter time frames)
  • Page 2 – Indexes With 1 Minute Bars
  • Page 3 – Indexes With 5 Minute Bars
  • Page 4 – Indexes With 15  Minute Bars
  • Page 5 – Indexes With 30 Minute Bars
  • Page 6 – Indexes With 60 Minute Bars
  • Page 7 – Indexes With Daily Bars (shorter)
  • Page 8 – Indexes With Daily Bars (longer)
  • Page 9 – Indexes With Weekly Bars
  • Page 10 – Indexes With Monthly Bars
  • Page 11 to Page 12 – Indicators (longer time frames)
  • Page 13 to End – Growth Stocks (daily and weekly time frames)

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