Thursday, April 30, 2015

Trouble in Paradise- Stocks Poised for Collapse

Stocks closed just at or just below, a critical support trendline; the diagonal line defining the upward sloping wedge of the last 6 months.

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As discussed in the April 4 post The Equities Problem
"the current 5th leg up can fail at any point. The diagonal wedge forming at the end of an extended move up...along with repeated negative divergence of the RSI over the last 2 years, presents a set up for a violent thrust down into a vacuum with few shorts left to cover in."
The wedge can also be seen as a upward sloping head and shoulders.
NASDAQ 100 Nearby
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 It doesn't take a genius to draw a trendline ...or to see when it is penetrated. 
Upward sloping wedges or diagonal 5th waves in this position, at the exhaustion stage of a 
relentless and prolonged rally, are rare and extremely bearish.

Unfortunately with every central bank and then some, at maximum easing, it's hard to imagine any effective intervention available from the monetary side once things get ugly.

Monday, April 27, 2015

Natural Gas Lows And Upside Targets

Well, it's been a long time coming . The Natural Gas has a 61.8 % move down from the $6.50 high at  2.48.
As it happens there is also suggestion of basing at this point.
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Note the positive divergence on the RSI. 

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Note the positive divergence on the weekly RSI and upside crossover on the MACD.
The 2015 downwards chart action can be described as a diagonal 5th wave. 
Short and Medium term risk are decidedly to the upside for NGM with  potential to the downside limited to previous lows 2.47, 2.44 and at 1.90 and that would be a very slow grind from the looks of things. 
Note the volatility of previous rallies, late Oct 2014 and mid Jan 2015.

So medium term targets on an upside reversal can be easily measured to 3.35ish, a .38 retrace of the last leg and the gap. The 50% retrace comes in at 3.55.
Longer term targets require an opinion on the structure of the move down from 6.50...if it is a 5 wave count than it must be an "a" ( that would imply the more conservative upside target) .
The .618 retrace of 6.50 to 2.47 is $4.96. Most likely any "b" wave up or "2" wave will become difficult to trade but a 100%  move might be worth it.

Tuesday, April 21, 2015

USD Update

News from China over the weekend of PBOC easing reserve requirements for banks will not weaken the USD.  Paradoxically any ensuing $$ strength will further deflate the US economy, depressing  consumer activity. Too bad China . Of course there are other markets aren't there? Like Europe.

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Monday, April 13, 2015

USD Heading for New Highs?

The overnight news from China re the March trade surplus crash ; had me take another look at the all important USD, since the Yuan is of course linked, and the IMF/ World Bank meets in Washington this week.
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I think the above is the correct count for this breakout, it may be an internal count is off by a degree but the triangle is clearly a 4, and a 5 will follow producing higher highs. Looks like a triangle breakout to the upside is underway.
Note the Daily RSI has settled into neutral territory and NOT displaying any significant divergence,
while the MACD is crossing back to the upside.

The Elliott measuring rule for 5th waves is 5= .618 of 1through 3 or 109.46
or 5 =1 or 105.5
Either way decidedly taking out the 100 resistance.

Weaker crude, exports, US earnings etc.



Thursday, April 2, 2015

The Equities Problem

The many arguments re equities overvalued state based on long term fundamental and technical metrics, the central banks capacity to continue support and at what eventual cost have been well recounted by now. As noted previously we are now officially in (or just completing) the greatest bull move in history, 1454 pt.s from the 666 low.
So how is this thrust up explained from an Elliott perspective and what is the count?

The great collapse into the 2009 low was clearly a five leg down, and so must be considered a C wave of IV, since it is not an A of an ABC. That seems kind of obvious to state now, but the move up from 2009 has never produced classic Elliott impulse waves that would be expected in a primary wave structure. Most technical analysts including myself viewed the move as corrective even as it exceeded the old highs. However, once the current move up exceeded 1.382 of the preceding move down, it could no longer qualify as an irregular B wave according to Elliott's principals. The result is a relabeling of the 2007 high at 1578 an irregular B wave and the 2009 low the termination of IV.

While it is possible that the move up from 1982 to 2000 was merely a 1st wave of the eventual V of greater degree, that would make this move up a 3, and imply much greater highs to come. The strength, breadth, percent increases, time of the move, macro economic increases in real economy, all support the preceding leg ending in 2000 being of a 3rd wave rather than the current leg up from 2009.

The most likely wave count then, is that the markets are now completing a 5th wave; a wave that began in 1974 rather than 1982 as is commonly held.  Alternatively, this wave could be of even greater degree than the 1982 to 2000 5th wave, and is related to some obscure 1 dating from the turn of the century. In either case, any fresh highs obviously beg to be sold, as the risk is becoming decidedly weighted to the downside.

 The leg ending in 2000 from 1982, was 1442 points. The current leg up from the 2009 low of 666 was 1454 points at the recent 2120 high; slightly exceeding but very near an equivalent leg. I will suggest that the current 5th leg up can fail at an point. The diagonal wedge forming at the end of an extended move up...along with repeated negative divergence of the RSI over the last 2 years, presents a set up for a violent thrust down into a vacuum with few shorts left to cover in.

Even if there is another medium term leg to go to the upside after a moderate retrace, a moderate retrace of the last leg up amounts to a great deal of medium term risk;

Of course once the 5th of a 5th is complete, whether 2120 or 2300 , the ensuing collapse will be dramatic and sustained. A retreat to the previous 2009 lows would represent a much more significant pull back than seen before both in terms of percent and real dollars, and pullbacks to the 4th wave of lesser degree are quite common.

Good luck and Happy Easter.