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BEAR Trap of Century


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#1 Stickan

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Posted 19 July 2009 - 06:48 PM

That's what I wrote here in September 2006

I now realize I was wrong -what we saw last week (2) was the Beartrap of the Century. The other one in 2006 (1) was just a Beartrap.

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To understand that, I think it's important to look at PRICE not indicators, also to first take a long term view.
AND to look at the charts TECHNICALLY and forget about the internals of bull and bearmarkets - how they behave. That will only confuse the issue, since you then will try to impliment how - in this case - Bearmarkets tend to develop, and apply that knowledge to the situation we now are in.
When we are looking at the charts I treat them the same wether they are daily, weekly. monthly or yearly. The interpretation is the same.
Sooooo - looking at this quarterly chart of Dow Jones from 1928 I get the idea to call the decline from the 2007 high a correction - not a bearmarket and in this perspective it is a correction in a long bullmarket, since the trendline has not yet been broken.

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Now, let's look at 6 US indexes on weekly charts and study the 2002 low compared to the 2009 low (under the assumption that we are in a correction to the manin trend) we find that we - technically - have several bullish divergencies.
1 Transpotation is not confirming Industrials
2 Neither is Nasdaq and Russel 2000 confirming the breakdown in the other thre indexes
3 Althoug 5 of the indexes are making a new low in March (compared to nov 2008 low) - Nasdaq is not (red 1-2).

This last fact is important - Nasdaq is the leader - in Bull and Bear markets. If it is not confirming SPX and DOW, this is not a bearmarket - but just a coorection

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Interstingly the european indexes - long term - are not confirming the new low either - and the world index (lower left), shows the classical minor break failure which is so typical at importan bottoms.


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I have earlier showed that charting the US indexes in Euro instead of Dollars, gives a very precise picture - technically - of the situation.
In this chart (SPX in Euro - weekly close), we can see how precise the neckline in the big Head and Shoulder pattern fits (and a barchart fits even better with fib retracements...). Looking down to the right we see a perfec Inverted Head& Shoulder pattern (bottom formation) developing.
Realising that Dow and SPX have been laggards it's not surprising the it has not yet been broken

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But NDX weekly (in Euro) has - after a small break down trap through the red supportline.

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In the Dansih C20 index - which I earlier have suggested seems to be leading US indexes in uptrends shows an impressive breakdown failure. The index broke down and recovered above the trendline - tested it and is now again above it. Note, againg that the index never came close to breaking the 2003 low. Setting up a bull divergence to DOW, SPX etc.

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That was the background - so where is the trap?

I can show you many examples of what happens when we have a Head and Shoulder failure, but trust me when I say that what mostly happens is that we get a very sudden and steep upmove that usually takes price above the "Head".
We have not come so far yet - but the other two ingredienses are here - a move, sudden and steep like in this SPX chart. and the fact taht we not only are above the neckline, but also above the right shoulder are strong - perhaps THE strongest indicator that the breakdow was a failure. And failures ARE punished.


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We have a similar situation in NDX - small failure at the bottom and then an "Island Reversal" - bottom pattern.
Sometimes we see tops - in time - where two trendlines cross. so we might have a small top her (to close gaps?), but I made these charts for my Danish subscribers Friday morning so Friday data is not present in the charts (so actually - we have past the wedge apex which makes the chance for pullback smaller)

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Let us put some astro and cycles into the pot. We are looking at two things
1) The red line is the sum of the most important cycels in the NDX index presently, and
2) The bluish lines are when Sun is trine (120degrees) to Uranus - which, again happend yesterday - this aspect seems to happen around trendchanges i NDX - so I looked at some stistics for the aspect.
3) On average, since 1985 price has been rising after the aspect as seen in the little chart to the right. We see what usually happens between 30 days before the aspect and 30 days after.

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To be more precise - this aspect has happend 46 times in the period 1985-2009 and if we enter a trade one day before the aspect and exit 28 days after the aspect 70% of the trades have been winners and 30% loosers - so the odds are indicating rising prise forward.

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Let's go back to a NDX chart.
There are different ways of drawing necklines in H&S patterns, but if we identify this pattern as a Complex Inverted H&S pattern - this is how it should be drawn.
Now look at the first break of the pattern - with a break away gap. And the same thing when we broke above the line aging last week. Abreak that resulted in a new high
A new high after the 200EMA line was tested .
Another thing to note - The pullback in a new trend is usually down to the 38,2% retracement level - in a STRONG market.
This pullback is only down to the fib 23,6% retracement level. Wouldn't that make this trend even stronger - also considering that the test of the 200EMA stopped at the 61,8% retracement of the rise fro "S" to the top.
How anyone can call this a Bull trap is beyond my understanding - the break down below the neckline and UPgaps is the perfect BearTrap.

Check ou the oscillator , it's the historic volatillity ratio.
And remeber that low vol ratios are are followed by high ratios. I think peace and quiet is over.
And I don't think we will see high volatillity together with a crash

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The presumption of a Bear failure fits well with this Mirror image. A tool that Michael S. Jenkins teaches in his books.
(The down move to the bottom mirrors the upmove FROM the bottom) - The BearTrap should be followed by a fast upmove - just in line with this chart.

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Longer term - check out theSOX index.
After having been contained within the Andrews Pitchfork perfectly - last week it did three things
1) broke back above the lower parallel median line (blue)
2) broke back above the long term falling resitance line
3) with a gap

Also note how perfectly it has moved to the tune of the 30day cycle - the last one pushing the index UP

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I know most people want the neckline drawn between the Jan top and the june top.
In this chart I have shown three other alternatives - nobody knows of course which one is right. But of theese three two (red and green) shows breakdown failure and the blue on indicates a normal break with a normal (two) tests of the neckline + a new minor high.
IF we look at SPX ONLY and decides that we should use the Jan-June neckline, THEN we might av a non-confirmation for rising prices - but not yet a failure.

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I would say that this DOW chart rather clearly descibes the situation we have been in.
the were TWO choices

1) A head and shoulder top (Red)
or
2) An inverted H&S bottom.

We had a breakdown through the top H&S -which failed - hence the Inverted H&S pattern is in contol.

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The QID is even more revealing
1) After a neckline breakdown with a powerful GAP, we had a minor failure break of the 2008 low.
2)That resulted in a perfect test of the neckline and the another powerful downside GAP!
Friday (not shown) even broke the thin blue trendline - parallell to the thick red line
In my eyes - very convincing bearish - for QID!
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Institutional index -same thing - new closing high after break down failure.

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What we have seen has happend all over the world.
This is the DAX index - anyone who has followed my chartpresentations knows that where several lines cross we have two choices - either it is support or the precise cross is like "worm whole" that sucks price through with enorm power.
In this chart it held and the level was later tested at the same time the main (blue) resistance (now support line) was tested 2 times as wel as what might be considered an inverted H&S patern with an incredibly small right shoulder (blue).
After this important test Thursday showed a new high (as well as Friday(not shown)
But check out the longtermand medium term DT Oscillator - both are leaving oversold territory, with plenty of space befor reaching oversold territory. AND the medium term - upper- shows a gigantic bullish Hidden Divergens


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And finally my favorite chart India!
It's really a fantastic chart showing how precise TA can be. Where time and price comes together

Check out where the collective energy is assembled - right in the cross of 2 trendline 1 pitchfork, support from several fib ratios and the end of two dynamic time cycles.
Now - the intersting thing is that GAPS are supposed to be closed - and I guess that was the intention on the move down (we here have a gigantic gap of almost 2000 points).
AND that corrections are supposed to be swift scary affaired.
AND that breaks through crossed can be even more violent.
IT DOESN'T HAPPEN (although a small try is made)
AND the bottom seems to be a perfect W4 bottom

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Bull Trap - I don't think so.

#2 milbank

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Posted 19 July 2009 - 07:11 PM

Wow Stickan, you don't post very often but, when you do... :o Fantastic presentation.

Edited by milbank, 19 July 2009 - 07:11 PM.

"The power of accurate observation is commonly called cynicism by those who have not got it."
--George Bernard Shaw


"None are so hopelessly enslaved as those who falsely believe they are free."
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#3 MoneyFriend

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Posted 19 July 2009 - 07:56 PM

Stickan, very concise and well put! SOX looks great, reminds me I should check up on it more often. Looking forward to more of your posts. I appreciate that you focus on a lot of things instead of getting hung up one one.

#4 milbank

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Posted 19 July 2009 - 09:31 PM

Well, out of respect for the work Sticken did, I felt compelled to acknowledge it. The analysis is quite thorough. Whether or not the genetic engineering that created it can sustain it until natural market forces can pick up the baton, remains to be seen. Remember that movie "Little Shop of Horrors"? This market reminds me of Audrey II. The more it grows the more it will need to be fed. Still, an excellent presentation.

Edited by milbank, 19 July 2009 - 09:34 PM.

"The power of accurate observation is commonly called cynicism by those who have not got it."
--George Bernard Shaw


"None are so hopelessly enslaved as those who falsely believe they are free."
--Johann Wolfgang von Goethe


#5 Will

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Posted 19 July 2009 - 09:48 PM

>>This last fact is important - Nasdaq is the leader - in Bull and Bear markets. If it is not confirming SPX and DOW, this is not a bearmarket - but just a coorection You got me there - don't know what you are smoking or maybe its the usage of wrong terminology on your part. I don't expect any bear market to last forever - we will eventually have a bull market and maybe we have already started one. But the 50% down move in the indices is not a fact? Its not been a bear market so far? And you have posted a chart in Euros where the market is down close to 70%. Not a bear market? Pointing to India chart is like pointing the US markets in the 90's to the Japanese. In 5 months you got enough info for bear trap of the 'century'? Give it another 5 years for the fundamentals to kick in with the aging population, deleveraging of the consumer, loss of manufacturing jobs and outsourcing of service economy to the east.

#6 Russ

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Posted 19 July 2009 - 10:01 PM

975 spx is huge resistance, we are still in a bear market.

http://4.bp.blogspot... resistance.gif
"Nulla tenaci invia est via" - Latin for "For the tenacious, no road is impossible".
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#7 da_cheif

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Posted 19 July 2009 - 10:36 PM

975 spx is huge resistance, we are still in a bear market.

http://4.bp.blogspot... resistance.gif



so russ.......how many more hundred sp handles on the upside do you need to see before you call it a bull market?....1100 1200 1300 ??? what

#8 da_cheif

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Posted 19 July 2009 - 10:38 PM

>>This last fact is important - Nasdaq is the leader - in Bull and Bear markets. If it is not confirming SPX and DOW, this is not a bearmarket - but just a coorection

You got me there - don't know what you are smoking or maybe its the usage of wrong terminology on your part. I don't expect any bear market to last forever - we will eventually have a bull market and maybe we have already started one. But the 50% down move in the indices is not a fact? Its not been a bear market so far? And you have posted a chart in Euros where the market is down close to 70%. Not a bear market?

Pointing to India chart is like pointing the US markets in the 90's to the Japanese.

In 5 months you got enough info for bear trap of the 'century'? Give it another 5 years for the fundamentals to kick in with the aging population, deleveraging of the consumer, loss of manufacturing jobs and outsourcing of service economy to the east.



you dont sound to optomistic........what were your feelings about things just after the crash of 87????

#9 Will

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Posted 19 July 2009 - 11:55 PM

>>This last fact is important - Nasdaq is the leader - in Bull and Bear markets. If it is not confirming SPX and DOW, this is not a bearmarket - but just a coorection

You got me there - don't know what you are smoking or maybe its the usage of wrong terminology on your part. I don't expect any bear market to last forever - we will eventually have a bull market and maybe we have already started one. But the 50% down move in the indices is not a fact? Its not been a bear market so far? And you have posted a chart in Euros where the market is down close to 70%. Not a bear market?

Pointing to India chart is like pointing the US markets in the 90's to the Japanese.

In 5 months you got enough info for bear trap of the 'century'? Give it another 5 years for the fundamentals to kick in with the aging population, de-leveraging of the consumer, loss of manufacturing jobs and outsourcing of service economy to the east.



you dont sound to optomistic........what were your feelings about things just after the crash of 87????


I was generally unhappy, unable to get any in high school. :P

But yes, I have seen comments from market wizards interviews of 1988, which are eerily similar [some of them identical like loss of manufacturing jobs, de-leveraging of consumer] to the bearish arguments of today. Still, I think we in a 1970's type environment rather than 1988.

#10 Not Too Swift

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Posted 20 July 2009 - 12:51 AM

975 spx is huge resistance, we are still in a bear market.

http://4.bp.blogspot... resistance.gif



so russ.......how many more hundred sp handles on the upside do you need to see before you call it a bull market?....1100 1200 1300 ??? what


I don't know about Russ, but I want to see just a bit more proof.

I want to see SPX go to 980 or so on the bull side, and maybe 900 on the bear side.

So far all we have had for several weeks is a trading range.

One more thing: I assume IYB is correct until he is proved wrong, and that the turn will be down, not up.

I do believe it will move in one direction or the other more than 20% once we get resolution. I don't have to catch it all.

Edited by Not Too Swift, 20 July 2009 - 12:54 AM.

I let the market tell me what to do. The trouble is she mumbles a lot, and I'm hard of hearing.

1576 ONO. Upside down, reverse, inside out, snort...