Stock Market Trends – Weekly Update 11/06/11 © ™

WEEKLY UPDATE FOLLOWS THE BREAK


INDEX

  • MY CHART LINK
  • WAVE COUNTS SIMPLIFIED
  • ABBREVIATIONS
  • WEEKLY UPDATE
  • EDSON GOULD (PDFs)
  • OTHER WORDS OF WISDOM (PDFs)
  • TRANSACTION SIGNALS
  • REAL ESTATE
  • MISCELANEOUS

PDF FILE

CHARTS

  • I’m now getting in excess of 15,000 hits per month on the above chart link.
  • This link is my personal chart list and has become my only chart reference.
  • 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 only find the 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, COMPQ and FTSE.  The other charts on the page are usually for confirmation of the trend and wave structure.
  • Page 1 – Indexes With 1 Minute Bars
  • Page 2 – Indexes With 5 Minute Bars
  • Page 3 – Indexes With 15  Minute Bars
  • Page 4 – Indexes With 30 Minute Bars
  • Page 5 – Indexes With 60 Minute Bars
  • Page 6 – Indexes With 60 Minute Bars Plus Indicators
  • Page 7 – Indexes With Daily Bars (candlesticks – last 13 months)
  • Page 8 – Indexes With Daily Bars (since November 2008)
  • Page 9 – Indexes With Weekly Bars
  • Page 10 – Indexes With Monthly Bars
  • Pages 11 through 14 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 11 is a look everyday page.  The other indicator pages are less frequently visited.
  • Page 15 through 27 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 28 through 40 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 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.  (Make sure your channel was correct 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 will be larger than the preceding two corrections.
  • 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.
  • 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
  • FTSE = London Stock Exchange (blue chips)

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WEEKLY UPDATE

CLICK ON CHARTS TO ENLARGE

  • Short Term – UP
  • Oct 4, 2011 To Present
  • Step 3 of First Step Up Is Possibly Ahead (channel break has not taken place)

SHORT TERM COMMENTS

SHORT TERM

The above chart (with trend lines and wave counts) can be found at page 4 on my chart link.  Most of the pages before page 6 are updated frequently with lines and wave counts.  Page 6 to page 9 are longer term and change slowly.

The short term correction began a day early, October 31.  Last week I had thought that institutional window dressing would keep the market afloat until November 1st.  That didn’t turn out to be the case.

Like last week the wave count is still fuzzy.  I can make a case for several different counts.  Best case scenario is that we could rally into the third step up (short term) of a larger step one up (intermediate term).  Worst case scenario is the correction following intermediate term step 1 up is underway.

The depth of the next correction could determine whether we will establish new highs this year, deep correction – no new highs this year, shallow correction – possible new highs this year.   Tim Hayes of Ned Davis Research thought we were going to have new highs this year, that would fit in nicely with a Santa Claus rally.

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  • Intermediate Term – UP
  • 3 Steps Down Are Complete (February 2011 To October 4, 2011)
  • October 4, 2011 to Present
  • Step 1 Up Is Possibly Still Underway

INTERMEDIATE TERM

INTERMEDIATE TERM 2

It’s my belief that a significant low was made on October 4th and the rally since that low is not complete.  After an intermediate term 3 step decline has taken place, the expectation is that the rally must break the “look” of the downtrend.  Presently, this rally still looks like it could be part of the prior bear market.  Hence it still has the “look” of the prior bear market.  That will change before this rally is finished (notwithstanding interruptions).

Any change in my outlook would mean a significant and unexpected change has taken place to our economic outlook (Europe is a wildcard).  If this were to take place, we would experience steps 4 and 5 down, dating from February 2011.

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  • Long Term – UP
  • Uptrend
  • Mar 2009 To Present
  • Step 2 Up (of 3) Completed
  • Has Step 3 Up Begun ???
  • From the bottom in  March 2009
  • Large step one up ended in May 2010
  • Large step two up ended in May 2011.
  • Significant break above the May 2011 highs should signal that Step 3 up is official

LONG TERM

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  • Very Long Term – DOWN
  • Downtrend
  • Jan 2000 To Present
  •  Step 2 Down (of 3) Completed
  • Currently In Rally Phase From Step 2 Down

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 long term bull market in March 2009.  Each subsequent min-bear market will result in higher lows than the prior major low.
  • I favor the megaphone formation as the most likely scenario.

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 regarding the possible fundamentals to create this scenario.  If this did happen, everything that could go wrong would have to go wrong.  The reasons range from the absurd to the absurdly 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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EDSON GOULD

  • Edson Gould, Premier Stock Market Strategist – Edson Gould had a profound influence on the development of my techniques and proprietary indicators.  Prior to my 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 and never told the world it’s importance.  Prior to my finding this Edson Gould 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.  On occasion I may post one these charts.
  • This man was truly a legend in his own time.  It’s too bad that today most people have forgotten or never heard of his discoveries.  Because of this I have posted some of his advice from the 1970s.  It’s my small contribution to memorializing a giant of technical analysis.

OTHER WORDS OF WISDOM

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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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REAL ESTATE

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

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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.

All Rights Reserved  © ™

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