Archive for November 2011

Stock Market Update – 11/27/11 © ™

November 27, 2011

DAILY UPDATE FOLLOWS THE BREAK

CHARTS

  • This link is to my personal charts and is open to the public.  It’s my playground for doodling trend lines and wave counts.
  • I draw the trend lines and wave counts on a daily basis (sometimes more often).
  • When a market move has been going in one direction for a lengthy period of time, you will find the best trend lines and wave counts on charts with longer time frames.  This gives perspective to the lines and counts.  Perspective was a favorite of Edson Gould.
  • I restrict my trend lines and wave counts to only a few charts, TSX, DJI, SOX and COMPQ.  The other charts on the page are usually for confirmation of the trend and wave structure.
  • Page 1 – Buy/Sell Signals
  • 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 (plus some indicators)
  • Page 8 – Indexes With Daily Bars (candlesticks – last 13 months)
  • Page 9 – Indexes With Daily Bars (since November 2008)
  • Page 10 – Indexes With Weekly Bars (Candlesticks and Indicators, last 4 Years)
  • Page 11 – Indexes With Weekly Bars (since 1981)
  • Page 12 – Indexes With Monthly Bars (since 1981)
  • Pages 13 through 16 are indicators.  The indicators are used to simply look for some type of leading action before a turn or confirming action of the wave count.  Page 13 is a look everyday indicator page.  The other indicator pages are less frequently visited.
  • Page 17 through 29 are sector ETFs.  They represent most of the active sector ETFs and are always a good bet when looking for something that is breaking in a new direction.
  • Page 30 through 42 are growth stocks.  These are stocks that have 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 of how they have behaved in the immediate past (daily charts) and how they behaved during good and bad times (weekly charts).

WAVE COUNTS SIMPLIFIED

  • My wave counts are not Elliott Wave!  It’s different, simple and functions without a maze of exclusions.
  • There are 3 peaks (or valleys) 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 (or dips) on a chart . . . Other times, not so easy.
  • In a downtrend the same rules apply except you are counting 3 dips instead of 3 bumps.
  • Each group of 3 steps 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 a larger 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.  (Make sure your channel was correctly drawn before calling a termination).
  • The correction following the second step is larger than the correction that followed the first step.  Obviously the correction following the third step is a reversal.
  • A single wave may sub-divide into another 3 waves.  I will call this an extension.  When this happens (1) the trend is still intact, (2) the channel will widened and (3) instead of a total of 3 steps, there will be 5 steps.
  • Sometimes I will use the terms “step” and “wave” interchangeably.
  • Reading the glossary helps in the understanding of this blog.  There are many other important facts in the glossary.
  • 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)
  • SOX = Semiconductors
  • XLY = Consumer

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DAILY UPDATE

The market has continued to be influenced by the events in Europe and has declined since October 28th.

Keep watch on the chart link above because you’ll probably see me mark a reversal on these charts before I write about it in the blog.  These charts are my playground where I do most of my research for trend lines and wave counts.  The current short term downtrend channel has become well defined at this point and a breakout will be clear.

Good News:

A rally is coming.

Looking at the chart below, I’ve labeled the current decline as 2nd step down.  There is a possibility that this count is incorrect and we may be having a single step down and the next reversal could mark the end of the decline since October 28th.  This would be in line with my thinking that we should continue the rally that began on October 4th.

It is my primary outlook that a bottom of importance took place on October 4th.  If this outlook is true we should have future rallies that will take us back to the area of the May 2nd highs or higher.

Wave Count 11-27-11 Daily

Bad News:

I’m troubled by the possibility that my wave count since February 2011 is incorrect.  If I have made a mistake, it would mean we are going to have one more step down (5th step).   In the chart below are some indicators first, followed by my accepted wave count and last is the alternate count.  The alternate indicates one more thrust to new lows.  Unfortunately the problems in Europe make this alternate count a possibility.

Historically this is one of the seasonally strongest periods of the year and we are more inclined to have a rally than another decline.  If the market disregards the seasonality strength, it would indicate further trouble.

Alternate Wave Count 11-27-11 Daily

More Bad News:

On the first page of my chart link is a mechanical buy/sell signal that I have researched from the present back to 2007.  Although this indicator looks very good from 2011 to 2008, the results for 2007 are poor (-15.7% decline versus +3.5% rally for buy and hold).  I believe the results will be bad for 2006 also.  Further research is necessary before a final decision is made but I may abandon the project completely in the future.

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EDSON GOULD

  • Edson Gould, Premier Stock Market Strategist – Edson Gould had a profound influence on the development of my techniques and  indicators.  Prior to me subscribing to his advisory service, I was just one of the crowd.
  • After 40 years I still have many of the publications from his advisory service, “Findings & Forecasts”.  Fearing the loss of these hard copy reports I have recently created pdf files of these reports.  Now I have hard copies and computerized versions of the reports.
  • I have used a technique of his that I found in an obscure reference in one of his reports.  It was only mentioned once and never again.  I believe that he used this tool extensively and never told the world it’s importance.  Prior to my finding this tool, I had been trying unsuccessfully to find a different way to chart the market.  When I read about his technique I knew instantly that this was exactly what I had been seeking.  I have charted this method back to 1939 and found it to be very useful.  There is no mention of it in the reports that I posted below as I have deleted any reference to it.  It’s a super secret indicator and I’d have to kill you if I told you about it.
  • This man was truly a legend in his own time.  It’s too bad that today most people have forgotten or never heard of him or his discoveries.  Because of this I have created pdf files of the best of his advice from the 1970s.  Below you will find only the first page of these reports.  A teaser is what you might call it.  The rest of the reports are available upon request.  This is a man that deserves to be remembered throughout technical analysis market history.
  • The following are links to Edson Gould reports.
  • My Most Important Discovery by Edson Gould
  • It was also my most important discovery, for it explained the irrational volatility of markets that had mystified me in my early years.  During those early years I found nothing worked in predicting these irrational market swings.  But the fog lifted after reading this report and I began to understand how to begin predicting the market.
  • Edson Gould’s 1974 Forecast
  • Gould’s 1974 forecast kept me bearish and short throughout 1974 until the week before Christmas 1974, during which I began making long term purchases.  After that it was ride the bull phases that transpired from 1975 to 1982.
  • Edson Gould’s 1975 Forecast
  • Edson Gould’s 1976 Forecast
  • Edson Gould’s 1977 Forecast
  • Edson Gould’s Five Year Forecast 1977 to 1982
  • This was a remarkable forecast in 1977, where the Dow Industrials had never been higher than 1,000. NO ONE predicted a rise of this magnitude in 1977.  Most were waiting for a resumption of the bear market.
  • As part of the 1977 to 1982 forecast: On Wednesday August 4, 1982 I went long the market for the first time in months.  By Friday, August 6 I was worried that I had made a mistake as I was deep in the hole (I was long the Kansas City Stock Market Contracts).  The Kansas City Stock Market Contract was the first of the stock index contracts (February 1982).  It was based on the Value Line Arithmetic Index, margin requirement were quite low, and it had a multiplier of 100 times the Value Line Arithmetic Index, which meant the leverage was very high.  On Friday (Aug 6) I took my wife to dinner and told her my tale of woe and whether I should sell my long positions.  I explained that my key indicator had reversed and continued higher on Thursday and Friday but the market had continued lower.  Since the key indicator was usually correct, we decided to stick it out for a few days more (I was crazy in those days).  My key indicator was mentioned by Gould only once in his market letters.  If you didn’t catch its importance, too bad, because he only gave you a peek.  Prior to Gould writing about this indicator I had been looking for one that had similar characteristics without success.  Thus when Gould wrote about it, I recognized instantly that I had struck gold.  I have modified this indicator slightly and researched it back to 1939.  This was a lot of work as it was before computers and online data (remember when Barrons was available only on paper, still is for the distant past).  Meanwhile on Monday August 9, 1982 the market took off like a rocket and never looked back.  I skyrocketed out of the hole and had a big profit.   In August 1982 the only people that were bullish were Edson Gould, Robert Prechter and myself (probably a couple of others but I didn’t know them).  Everyone else was extremely bearish.  It was a perfect example of crowd behavior.

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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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MISCELANEOUS

  • There are useful items throughout this blog.  For instance, the “Wall Street Quotes” can be very instructive.  So make sure and look all through the blog.

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