06/26/12 – Working Off The Overbought © ™


CHART LINK – at StockCharts.






BobsWaveCounts is my twitter name.  If I have a buy/sell signal and it’s late at night, I’ll tweet.



Bought on Thursday 5/11/12 at 2:36 AM EDT

Sold on Friday 5/12/12 (and shoulda shorted)


LONG TERM – Up in black 3, chart #10.8





At the recent peak, we were the most overbought since October 2011.  Presently we are approaching neutral territory.  I would expect we will move closer to oversold before the decline finishes.  Notice how the McClellan Summation index has rallied back to the zero line and stopped.  Oscillating between +500 and -500 is a frequent occurrence with the zero line as a turning point on occasion.

06-25-12 McClellan Oscillator

Counting since the June 19th peak, it appears that we are close to finishing the 4th step down.

There is always a possibility that what I have labeled as blue 1 could have been 4th step and blue 2 could have been 5th step.  Notice how blue 2 finished close to the Fibonacci line.  It’s not unusual to finish a decline on the next higher Fibonacci line.  Although I don’t think the decline is finished, it would not be surprising for the correction to finish on this Fibonacci line.


If we don’t significantly break the prior low (June 4, 2012), we should be in for a good rally back to the prior highs (or higher).  It’s not unusual for the correction after the 2nd step to be much larger than the correction following step 1 and that is certainly true in this case. I have seen 2nd step corrections where I doubted that the larger trend was still intact and it’s possible that could happen this year too.

Previously, I said that it looked like we had completed 3 steps down as of June 4, BUT if we significantly break the June 4th lows, we could be in for lots more trouble.

The trouble could be a repeat of last year’s timing scenario where the market bottomed in August and October.  I have never been a fan of this outcome but I don’t get to choose, just observe.  If we corrected all the way back to the October 2011 low (or lower), I would question whether the bull market since 2009 was still intact.  If that were to happen, I would have no choice but to count the shorter and intermediate term fluctuations until the long term picture sorted itself out.  Been there, done that.

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