6 replies to this topic

[PorkLoin]

From March 8:




And now to the present:



A Fibonacci 3 days (versus the 8 days of decline) of rally wasn't enough, but a Fibo 5 did the trick as the market continued to try and struggle upward. Haven't even gotten back down to the prior low, and my gut feels bullish from that, but yesterday's decline sure looks impulsive and I'd think we ought to at least try that low, pursuant to ending the correction from this year's high or in putting another leg down, very possibly a "C" after an "A" decline into March 5.

After all the times it's happened since October 2002, I'm probably conditioned to expect a higher low, and that type of thinking is often rewarded by the market going down for "C" in earnest, bringing us to mini-capitulation time. Gonna be an interesting few days here...


Best,

Doug

[jawndissedi]

“Lots of technically oriented analysts are invoking the usual pattern of ‘retest’ of the former lows after this kind of bounce, which raises the pretzel-logic question of whether this is too widely expected to actually happen.”
-- Michael Santoli, Barron's

[PorkLoin]

“Lots of technically oriented analysts are invoking the usual pattern of ‘retest’ of the former lows after this kind of bounce, which raises the pretzel-logic question of whether this is too widely expected to actually happen.”

J, I certainly hear every bit of that.

My subjective take is that the "usual" pattern of late - the past few years - has been to not really test the lows but to make a higher low and then keep going up, leaving those expecting the test (or further new lows) behind. If anything I'd think the set-up is thus for some more scary downside action, "for once."

Just looking at the chart of the very broadly-based Wilshire 5000 and the nature of the decline into March 5, I'd expect another leg down -- a good bit more than we got yesterday, to the 13700 area. There, the second leg down would be a Fibonacci .618 of the first. Doesn't have to stop there, of course, but that could satisfy the wave count, potentially, and would be a good point to take another look at things.

Best,

Doug

[jawndissedi]

“Lots of technically oriented analysts are invoking the usual pattern of ‘retest’ of the former lows after this kind of bounce, which raises the pretzel-logic question of whether this is too widely expected to actually happen.”

J, I certainly hear every bit of that.

My subjective take is that the "usual" pattern of late - the past few years - has been to not really test the lows but to make a higher low and then keep going up, leaving those expecting the test (or further new lows) behind. If anything I'd think the set-up is thus for some more scary downside action, "for once."

Just looking at the chart of the very broadly-based Wilshire 5000 and the nature of the decline into March 5, I'd expect another leg down -- a good bit more than we got yesterday, to the 13700 area. There, the second leg down would be a Fibonacci .618 of the first. Doesn't have to stop there, of course, but that could satisfy the wave count, potentially, and would be a good point to take another look at things.

Best,

Doug

Doug,

I'm especially interested in the W5K. If you have time, could you take a look at a monthly chart and do some interpretation? Do I see a double top (00 and 07) there? How might this play out?

TIA

[PorkLoin]

Jawndissedi, that's a pretty mighty-looking double top thus far. I think the deal is whether the liquidity train keeps rolling or not. The power of the rally from March 2003 into early 2004 has slacked off, but the trend has definitely remained up.

Adjusted for inflation, I guess we've got a ways to go before we'd really get back to the same valuation as the top in 2000, but no biggie in my opinion. I see the main question being if money/debt will continue to be created as it's been and if it will keep flowing into stocks, as simple as that.

Best,

Doug

[jawndissedi]

Thanks, Doug. This report may be a straw in the wind:

"Bond investors rattled by mounting losses in subprime U.S. mortgages say trouble is brewing in collateralized debt obligations, the same securities that fueled the boom in leveraged buyouts and cut-rate finance." Bloomberg: full story

[PorkLoin]

This is a bet against junk bonds. As the spread between junk and US gov't securities widens and as the shaky stuff is seen as riskier by people, then this should go up. It might be trying to, right here, but it's got a long way to go. If bond investors are really rattled, then shouldn't that already be in the market?

For all I know we may be in for a heck of a bear market in stocks. Maybe there will be a derivatives crisis or hedge-funds will start melting down for real or something something something. I know the potential is there for things to unwind in bearish ways. But I also think there is tremendous inertia to the liquidity boom, to money going into stocks, etc. Awful premature to call a double top in the $WLSH and invest or trade with that in mind for the long term, in my opinion.

Doug