2011 v 2008: Day 121

 It’s probably safe to say the 2011 v 2007/8 analog is back in sync.  While there were numerous reasons to expect a lower low than the 1074 we got, in the end we got something truncated — whatever count you want to put on it.

I’m disappointed (and poorer), but am happy if things are back to a higher degree of predictability.  Here’s where the counts are as of today.

Assuming we get through the day without a sudden plunge, it appears as though one is coming as early as Monday (conveniently, right after OPEX.)   If I’m right, it’ll take us down to the 1140-1150 area and establish the lower ray of a rising wedge that peaks in December.

Here’s a closeup of the equivalent 2008 action, just for grins.  I’m working on the 2011 upside target.   My current thinking is around 1260, but I have more work to do before committing to that. 

In the meantime, a very tradeable 60 point dip and likely 100 point rally into December.  Plenty here to help me get over the lost 40 points.

If I’m wrong, and we get the lower low I’ve been expecting, then it’s coming either really early or really late.  No question that this rally has been faster and stronger than most expected.  I heard that EWI is suggesting that the corrective wave is actually over – recommending leveraged short positions for the imminent wave 3 of 3.

Let’s discuss moving averages for a moment.  People are divided over whether to use simple versus exponential.  The EMA gives more weighting to recent price moves than older ones, so it reflects recent volatility more effectively.  On the other hand, that volatility sometimes generates false signals that wouldn’t have been made under the smoother SMA methodology. 

Which should you use?  It’s kind of like the exponential vs arithmetic charting argument.  You should use both, if for no other reason than to be aware of what others might be watching (and acting upon.)  I bring it up today because SPX passed beyond the EMA 200 today (thick red line.)

The thick purple line is the SMA 200, and is still a good 36 points away.   While both are some distance from their 50-day moving averages (and, thus, still in death cross mode) the EMA makes a really good case for a reversal right here.

BTW, 200 sessions ago was around Jan 7, 2011 — at which time the SPX closed at 1271 on its way to 1344 about 30 sessions later.  So, the MA should retain a slight negative slope as long as we’re replacing 1280-1344 days with anything less than that.  In other words, it’s coming to where we are as much as we’re heading towards it.

Last, a note on currencies and moving averages.  DX just saw the SMA 50 cross above the 200, confirming a bullish market for the dollar.  Likewise, AUD and EUR both just saw a bearish cross on the 50/200 and their prices smack up against the 200.

While it’s possible we could see a continued stock rally in face of a rising dollar, that’s not how it’s been playing out lately.  It lends credence to the idea of a sharp pullback in stocks and rise in the dollar, followed by a period of chop that will carry DX back across the channel, possibly expanding it if completing wave 2 takes much longer.


A word about comments on this blog.  All I ask is that you provide an underlying rationale for your thoughts.  A statement such as “now we’re heading back to 1350” does very little to enlighten anyone.  Provide some context, so that others can decide for themselves whether your reasoning is sound.

I don’t even mind if your comment isn’t about technical analysis.  We can all learn from each other.   Although, if you get bullish every time the hummingbirds outside your window have sex, I suggest you start your own blog (and seek professional help.)

Also, for the first time ever, I deleted a troll’s discourteous comment today.  I have no issue with those who disagree with me.  Obviously, I won’t always be right.  But, we’ve had a great run, going back to my first post on May 2 (wondering if we were near the top — who would’ve thunk?)

I’ve given back some profits over the past couple of weeks, but am still up very substantially ytd.  Anyone who shorted heavily on July 26 [see: All Aboard] after seeing this chart has probably done all right, too. 

I’m often early, and have a definite bearish bias.  But, I try to always have a sound reason for my forecasts.  I always tell the truth as I see it, and don’t charge a dime for my thoughts.  Having said that, this is not investment advice.  Anyone who shadows my trading does so at their own considerable risk.


2011 v 2008: Day 121 — 6 Comments

  1. Hi Adventurer: If you're looking for a good explanation of how EW applies or doesn't, I am definitely NOT the guy. I have yet to see a consistently successful application of EW to short term forecasting. Although, I do find it helpful as a tool for verification and understanding of where we are in the big picture. And, those who have a better handle on it than I probably have a different take. So, I'm going to respectfully pass on the EW question.

    I did just put up a new post re the dollar and the euro, so check that out for my thoughts there. I agree that a concurrent rise in both stocks and the dollar, at least in the same time frame, is unlikely.

    I'm working on my stock forecast, and hope to have a new post out by tomorrow morning.

  2. Hi,
    I am new to this blog–Pebble, I just want to say thank you for your clear and educational writings.

    I read up on ending diagonals–this formation makes sense out of the 1074 low was the w5 of the whole move down from May. So even though labeling the count in the past may be academic, here some interesting points according to Prechter "Elliott Wave Principle":

    ED "occurs primarily in the fifth wave position when the preceding wave has gone 'too far too fast'."
    (can also be the end of the C wave corrective but Prechter says this is far less common)

    "In all cases, they are found at the termination points of larger patterns, indicating exhaustion of the larger movement."

    "Fifth wave extensions, truncated fifths and ending diagonals all imply the same thing: dramatic reversal ahead."

    To me, the last two points are most compelling. Means the most probable count is that we are currently starting wC up of this A-B-C move off 1074. We have met all criteria for the first A wave; also the B wave as a 3-3-5 flat. Monday we may complete the impulse up of w1 of C probably near the channel line forming Oct 12 through now or 1245 and then reverse in its w2. This w2 would be short-day or so and probably not go much below 1190-1200 based on the channel (I don't quite understand the harmonic patterns this site discusses-would love to, not discrediting them at all- or how they predict low of 1140-50). So there are places to look for trades (or set stops in case something else is happening). If C = A then could end as high as 1340 and sometime near end of 2011. And all that seems to make sense for a presidential election concept as the $SPX would be up over its start. C is a third wave so look for volume to start picking up as we start w3 of C (probably toward the end of next week) note the lack of convincing volume during this short B wave.

    There are definitely places of resistance and other possibilities including a top of 1258 for 61.8% retrace.

    My main concern with all of this is that the $USD has greatly influenced this market and for years now. My current $USD count has it completing a w2 correction and poised to pop in a w3. Just seems like *both* scenarios: burst of up for $SPX at the same time as a burst of up for $USD, are unlikely. Maybe some thoughts?

  3. moslof,

    I have never seen the concentric wave pattern before. Do you mind explaining a bit more what you mean when you said The .382 arc won't be there for support until 3/1/12. Is 0.382 arc the support? When you saidThe SPX summer '08 bounce at the .786 lasted 2 months, are you inferring that is kind of like what we have now, after plunging to a 1100 from 1350 in Aug, we are merely "bouncing" for 2 months, before the next big plunge, kind of like Mar 09? Do you mind posting a link where I can read up some info about the wave pattern? Thanks

  4. curious: see notes on currencies above. And, yes, we're due for a drop early in the week, followed by a rebound for wave C IF minor 2 didn't complete this week. Some believe it did, in which case we immediately turn down (seemed too fast to me.) As far as a scenario after C, we'll be in Minor 3 of Intermediate 1 of Primary 3. It should be a more vicious plunge than we saw in late July.

  5. Great question. I'm working on it. The biggest problem I have is the speed of this corrective wave. While I originally thought we'd be approaching 1200-1250 in December, we're pretty much there right now. Off the top of my head, I'd say we're looking at some kind of flat — with a nice strong B wave Monday-Wednesday of next week and a C wave that doesn't go much higher than here. But I want to play with it this weekend, start from scratch and redraw all the channels, etc. for a better sense of the timing.

  6. Do you you think we will end the year up due to seasonal bias or do you think we will peak in early december and close out the year with a new low?