Monthly Review October 2007

October ended up being an uptrending price bar on the cash S&P500 monthly chart with a closing price at new all-time highs. The price pulse is up from the fractal low and Change-In-Trend (CIT) at August’s low of 1370.6.

At the end of June 2007 (1503.35) the monthly chart gave a technical “sell” signal when the composite index failed to confirm the new May high in the RSI and both indicators turned down. Then, at the end of August (1473.99), the RSI registered a positive reversal with a minimum target of 1579.07. These two events mark waves 3 and 4 respectively (see chart). Since the positve reversal signal the market has reached 1576.09.

From an Elliott perspective there are only two possibilities from the October 2002 price low. We are either in a large wave “5” or a large wave “B”. If we are in a “5” then the sub-waves will be “1-2-3-4-5”; if in a “B” they will be “a-b-c”. I don’t have a firm opinion on which it is at this point but I do believe that we are near the end of the third sub-wave be it a “3” or “c”. Most likely the rally from the late 2002 low will be confirmed complete if we break the trendline joining the August 2004 and August 2007 lows. That trendline (slope of 8.608 per month) stands at 1396.4 this month. Another important trendline (slope of 2.48 per week) in my work joins the June 16, 2006 low and the August 17, 2007 low. It stands at 1397.91 right now.

From a technical viewpoint the market is starting to look wobbly due to very long term divergences. However; we won’t have an outright “sell” until either, 1) The positive reversal is negated; or 2) the RSI turns down. In other words we better close November above 1549 or we may be in deep trouble.

Bottom Line: Although danger may be building in this time frame, the market must be considered bullish on the monthly chart until it gives a clear signal otherwise

Did Someone get the Number of that Truck?

Well that wasn’t pretty. We had a large downtrending bar in the cash S&P500 yesterday. The price pulse that began on Wednesday morning ended at the high Wednesday afternoon. The latest price pulse is down and has caused the 1552.76 high to become a Change-In-Trend (CIT) point. I was stopped out of the long SPY trade in my blog related Investopedia account. With that loss the annual return is now down to a positive 2.9%.

After reading the blog yesterday my wife asked “So tell me again why you went long at the end of five waves up?” I won’t go into the sordid details of how that conversation went, but suffice it to say that I wasn’t positive that the count was correct and certainly thought any decline would hold the 1530 area.

So what now? From the Frost and Prechter text “Elliott Wave Principle”, “Second waves often retrace so much of wave one that most of the profits gained up to that time are eroded away by the time it ends … at this point investors are thoroughly convinced that the bear market is back to stay.” If we are now in wave ii” (see chart) I would think that the 1503 level would hold (Fibonacci retrace level and long term moving average support). 1489 must hold or I am back to the drawing board.

Then there is this quote from yesterday’s blog “The only way I can be bearish over the short-term (next few days) is to count the move from the 10/24 low as a completed five wave impulse move. That would imply a pullback over the next two to three days. Even if this were to occur I still envision a move to new highs afterwards.” Believe it or not my work still has high odds on a large upward move from the low we make here.

Bottom line: The bulls must make a stand and hold 1489. A look at the monthly and weekly charts over the weekend. Stay safe.

Post FED Life

I am now long the SPY. My buy stop was at 154.45 but did not get filled until 154.91 and now the GLOBEX has the s&p’s down over 7 this morning. Sheesh …… what a life! My stop loss is at 152.83.

Another volatile FED day as we formed an outside price bar in the cash S&P500 on Wednesday. The price pulse downwards from the 10/29 high completed at yesterday’s low where a new upward pulse began. Yesterday I said that I was looking for a very quick and short pullback with a new move upwards into at least Friday if not early next week. So far so good.

After an upwards start to the day yesterday we sold off on the FED announcement but found support at the short (red) moving average and then rallied again. Here is one less worry for those of a bullish persuasion: the Derivative Oscillator has moved back cleanly across the zero line. There is no longer the risk of a “failure at the zero line”.

The only way I can be bearish over the short-term (next few days) is to count the move from the 10/24 low as a completed five wave impulse move. That would imply a pullback over the next two to three days. Even if this were to occur I still envision a move to new highs afterwards.

The FED is in the house

We formed a downtrending price bar in the cash S&P500 on Tuesday. The price pulse upwards from the fractal low (blue diamond) and CIT (green circle) of 10/24 completed at 1544.67 where a new downward pulse began.

Today is circus day and like everyone else I will be watching the center ring at 2:15 Eastern Time. Regardless of that event, I was looking for a short-term low to occur at this point and yesterday’s downtrending bar fits the bill. The same timing work is pointing to this being a very quick and short pullback with a new move upwards into at least Friday if not early next week.

The only news I have on the technical front is that the market fell to the short (red) and medium (blue) moving averages I track while the Derivative Oscillator (not shown) has moved back to the zero line. One thing I don’t want to see is for the oscillator to fail here (turn back down). That would be a bearish event.

Is a tradable pull-back in place? For the purposes of this blog yes; we have had enough evidence that a new upward leg is in progress – a fractal low and CIT on 10/24. We have now had a hesitation in the trend and a move above yesterday’s high will resume the uptrend. For my blog related trading account at Investopedia (the No End competition) under the name of SaxbyFox, I will be putting in a buy stop for SPY shares at a price of 154.45. My initial stop (when filled) will be just under either today’s or yesterday’s low (whichever is lower). Using a stop of 152.86 (yesterday’s low was 152.87) I am exposing 1.58.
This theoretical account is worth $100,801. My Maximum trade share size must allow a risk for the trade, based on the stop loss, of no more than 0.5% of account equity. Therefore, for today’s trade: 100,801 account x 0.005 maximum loss = $504 maximum loss per trade. $504 / 1.58 stop = 319 share maximum.

Bottom Line: I am using yesterday’s pullback as a reference point to enter a long trade but I need the market to prove itself to me by taking out the latest swing high.

Another Uptrending Bar

Yesterday saw the cash S&P500 form another uptrending bar. The price pulse upwards from the fractal low (blue diamond) and CIT (green circle) of 10/24 continues.

Yesterday I laid out some nearby Gann/Fibonacci clusters on the daily chart. The 1536-40 area doesn’t seem to have affected the market. However, a short-term low is due now and so I am still expecting some sort of hesitation in this upward run. It may only be a one day pullback or inside day but we should stutter step here. As always with the interplay between technicals and fundamentals, it is interesting to me that this low is due before the Fed announcement tomorrow.

Bottom Line: No change in the overall picture as I am still looking for an entry point to go long the SPY.

In Search of Hesitation

Thursday’s uptrending price bar was not the strongest day in history. Friday, however, did produce a strong uptrending bar and the price pulse down into the 10/24 low is over. That low is now marked as both a fractal low (blue diamond) and a CIT (Change-In-Trend) by the green circle since the new price pulse upwards has exceeded the starting point of the previous downward pulse. CITs are very good at marking the end of price patterns, and it looks to me like the completed pattern is an “a-b-c” zigzag.

Yesterday I laid out some price targets; all of which were new all-time highs. The RSI (included on today’s chart) held the 40 level during the recent decline which is indicative of a market in a bull market – a market with the strength to reach new highs. I don’t suspect we will reach those new highs straight away. Or will we?

There are only two more Gann/Fibonacci clusters on the daily chart before new highs are reached: 1536-40 and 1565-68. We will be challenging the first level today. I actually hope we get a reaction so that I can get long. My developing trading system requires that at this point. The only issue for me is that I expect only a brief hesitation. I think the rally will resume quickly and last the rest of the week.

Bottom Line: At this point the price fractal low and Change-In-Trend (CIT) on 10/24 are just as good as a technical “buy” signal. I now need an entry point to go long the SPY.

Weekly Update October 28, 2007

The cash S&P500 formed another downtrending price bar on the weekly chart but closed higher. As shown in the chart we found support at the confluence of the short (red) and medium (blue) moving averages. This support coincided with that previously shown on the daily chart. This week’s price bar was a “Reversal Bar” and the price pulse downwards from the 1576.09 all-time high ended at 1489.56. A new upward pulse began at this weeks low. Finally, note that the all-time high is now a price fractal (marked by the small blue diamond).

We now have four distinct price pulses up from the August low and have begun the fifth. My best bet at an Elliott Wave count is that the completed pulses are associated with waves “i-ii-iii-iv” of a five wave impulse pattern that; when it ends, will be ending an even larger five wave movement. The Fibonacci and Gann (green lines) targets derived from the weekly chart are shown. Target ranges for wave “v” are 1597-1603, 1624-1627, and 1658-1665.

Timing, for me, is always harder than price. My best estimate at this point is November 28 – December 7.

In last weekend’s posting I spent a bit of time talking about the bearish divergence on the weekly chart between price and all the momentum indicators I follow. If we are now in wave v of an even larger fifth wave then these divergences will come home to roost when v of 5 ends (early December?). I will return to these divergences in each weekly post until they are resolved.

Bottom Line: Although trouble may be bubbling under the surface it appears that at least one more push to new highs is underway. For me, the tricky part will be to find a position to get long. More on that in Monday mornings post.