The chart posted in March is still very valid. The difference seems to be that the B wave I expected was just a sideways triangle with very little retracement not allowing for a good exit point. However, it is possible that the top is in now with the big volume shooting star down day Friday. Looking for a break of the uptrend line currently at $1125 for confirmation of a trend change. More confidence that the Wave 2 top is in when $1050 gets taken out.
Notice too that Friday hit the 38.2% retracement-a potential reversal point. It also is the resistance area from the July 2008 wave 1 of 3 low. I am holding onto my TZA position which is now under water pretty heavily. It will easily make it all back when Wave 3 down comes.
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The January high, which I thought was a high probability for the Wave 2 top, was obviously an early call. The market has recently made new highs above that $1150 top. However I still believe that the market is in a topping process and not in a new bull market. I have taken a big hit for trying to pick the top, which is a bad trading move. Picking tops is a losing game. I had my rules in place and didn't sell as soon as the new high was made, as I laid out in my last blog. The way to play this next move is to wait for the top to show itself, then add to your position as you are proven right and as the market is falling, not rising. This will occur first when $1150 is penetrated, and even higher probability of being right when the $1050 low is again taken out. This should occur in 5 wave structures down at which point a 3 wave correction should occur. This 3 wave correction is when short positions should be added as there are many solid rules that can be used for stops, etc. I will take some of my losses on my shorts in the (Black B) next move down before the final push to the high and wait for the top to be confirmed before trying to nail it.
Updated Chart below.
Below are some reasons I am still bearish...
1) The waves look to have morphed into a triple zigzag top. What this means is the pattern reflects three separate corrective waves up. The key to recognize that this is not a new bull market is the internal wave structure. A new bull would have 5 waves up and 3 waves down at all levels. Looking at the move up since March of 2009, it is virtually impossible to find a clear 5 waves up that don't overlapor break key rules. The waves, therefore are corrective in nature and thus reflect that this is a corrective wave of the impulsive wave down from October 2007 to March 2009 which means no new high should be made above the 2007 highs.
2) Volume has not been as great as occured in the down move. In fact, volume in the January sell off was higher than most of the other advances in the market. This shows that the rally is being supported by fewer and fewer buyers.
3) The angles of the ascent are not bull market angles. In a bull market the initial thrust is fairly slow as the early movers push the market up and then the middle move should be the largest as the most buyers enter the market. The final move should also be strong as blow off tops and retail investors all jump into the market as it's peaking out. This has not occured this last year. In fact, the initial move had the most momentum, the middle move had less momentum, and now we have been largely flat for the last few months squeaking out new highs the last few weeks. This is represented directionally by the Blue A boxes on the chart. You can see almost a rolling over effect when connecting the As to the other As and the Bs to the other Bs.
4) The S&P as measured in real dollars is performing nowhere near as well as the nominal markets. When the markets are adjusted for the price of gold (real inflation and dollar deflation), the retracement is laughable at best. This is shown in the 4th line chart under the main chart. Take it as you will, but this could show that the markets are being propped up by cheap & easy money and not necessarily smart money. It also shows that even though stock prices are up, they are not moving ahead of inflation.
5) Bullish Percents: Bullish percents measure how many stocks are breaking out of point and figure patterns which helps measure the breadth of the moves. This indicator is still showing divergence, meaning more stocks participated in the rally ending in October 2009 than are participating and making new highs now. This is bearish and shows only those "big name" stocks are the ones moving the markets. This supports the theory that retail investors buy at the tops as they typically buy the big name stocks like Apple, Google, Cisco, and General Electrics.
6) Fundamentals: Have they really changed? Unemployment, Housing, Deficit, Social Mood...has any of this really improved?
Bottom Line: The moves up since March 2009 have been corrective in nature which means this is not a new bull market. With a typical retrace already occuring in the markets (between 38 and 62%), the time now is to be bearish again and not bullish. DO NOT CHASE THIS RALLY! It has been weak since October of last year and with the next B wave retrace price will be back to the October 09 levels as well.
After the 1929 deflationary crash, the DOW fell down to $195 from $387, a 50% drop. It then retraced back up over 50% to $300 in only 6 months just to peak there and fall down another 85% or so to below $50 by 1932. So, even after the dreaded 1929 crash, prices rebounded over 50% in just a few months only to be beat back down ultimately falling a lot harder and farther over the next few years. Just giving some historical perspective and to show that this has all happened before. Big % retraces occur often.
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