June 15 Blog Update - On track

I wanted to throw up an update to my June 15 blog that first called for the top in the wave 2 retrace of the April top...

The chart was on the right track and the top that occurred in June was actually what looks like an A wave of a complex "flat" correction with the "semantic" top occurring early August as a double top. This complication happens and should be expected. Corrective waves change all the time. It's a way for the market to balance price and time. What we did know is that a 5 wave move down occurred and a retrace was happening against the primary trend. This all occurred, just a little more complicated than initially projected. That's why we don't try to play counter trend moves, because they are so complicated. The trend is your friend and that trend is and is projected to be down for awhile. That's what we will be playing for awhile.

Now the market has started its 3rd wave down which should make it well into the triple digits as I have and have been directionally labeling on this chart and others.

The updated chart shows the 3rd wave just starting in early August as we enter the historically weak months of September and October. December to January of 2007 to 2008 should be a guide to what I am expecting of this next move. Of course if you have read some of my other blogs comparing 07 to now then you know that these moves already are larger than those of 07-08.

I expect the 1010 low to be taken out very soon if this all is the case. If that gets taken out by mid September, I will be a very happy camper and very confident with this count! I may even get 100% short.

As always, good luck and keep in mind your own risk tolerances.

Short Term Hedge to drop in stocks?

One safe spot during this turbulent market has surprisingly been Gold. The chart above shows the SPX/Gold ratio which divides the S&P into the price of gold to show relative strength. Notice that the S&P since mid 2009 has been underperforming gold. This had a significant change at the April market top when stocks fell harder than gold.

The 2nd section of the chart is Gold by itself. You can see the up trend it has been in since late 2008. At the end of July Gold touched this long term trend line and has rallied since. This turnaround could be a signal that the markets are about to resume their underperformance. This also could signal a good hedge play to the shorts that I have suggested in the market. A long gold/short stocks strategy could be a positive way to utilize capital.

Watch that gold up trendline currently at 1115 to know when this trade may come unraveled.

2007 versus 2010 Update

I have updated my 2007 versus 2010 chart for the recent market activity. There is a lot going on so it's probably easiest to just go top to bottom. Not much has changed from the long term perspective, though. Wave 3 is imminent and the end of this wave 2 bounce is quickly approaching (if not finished this week).

The key takeaway is that if the bottom of wave 1 was in fact in early July instead of early June as initially thought, then that means we should expect an even larger sell off than that of 07-09. I compare the top of 2007 with the top of 2010 on the chart and there is a significant difference in the size of the first waves down. These moves in theory are of the same "degree" both kicking off a wave of similar nature and "size". Wave 3s are always the largest in their degree, so at the least we should expect this wave 3 to be larger than 2010 wave 1's 21% down. 2007's comparable wave 3 was 20% from Dec 2007 to Jan 2008. This would theoretically put the S&P below $950 from today by the time this next sell off is complete.

Another thing of note, which I have spoken of plenty before, is the low volume on all the up moves since the 2007 top. Again we are in a low volume move up. I am just waiting patiently with my TZA for the sell off!

See my bond post below as well and click on the title to see an updated chart. Bonds (price) continue to rally (yield falls) and the 10 yr is now ALMOST 2.8% from a 3.8% high just a few months ago. This is a SIGNIFICANT move in bonds in such a short period. And, by the way, the bond market is way smarter than the stock market! It knows something the stock market doesn't, perhaps that inflation is a term we won't talk about for a long long time???

Now, I am just waiting for the dollar to start to rally for all the pieces to be in place and the selloff to start and pick up steam.

I will work on a post for a good hedge against your shorts during this market sell off. I for one am surprised at what I am going to say ;-)

Good Luck!