Wednesday, May 15, 2013

Is This A Short-Term Top? - Part II

I usually do not like to complain about the market. Traders need to play the market they have and not the one they want. I realize that I am a microbe on the whale's back, and could be swept away by the next big wave, so I tend to agree with the market more than disagree. But when for the second day in a row we hear that the last 30 points of the rally on S&P 500 were the result of successful hedge fund manager's bullish view on market, I have to take a pause and say that we knew all about this before he spoke, and this is not news to us at all. So how is it that the entire street celebrates the words of a guru (and I deeply respect the gentleman, as his track record is impeccable) for two days just because he tells us that he is still bullish? Of course he is bullish - the guy has $18B of reasons to be. He is mostly long manager with enormous positions in the market, one of which is AAPL, by the way. So he goes on CNBC, which is being watched by anyone who can sit tight for more than five minutes, and wakes up a sleeping giant, causing a jubilation and probably a sigh of relief. Longs did not want him to say that the rally is done here, and he surely delivered the message they needed (like there was even a remote possibility of the opposite happening). "Shorts are now going to have to shovel themselves out of the grave", so says the highest paid hedge fund manager on the street. Why did he mention the shorts? Is he being purposely bullish on national television? Why mention the traders on the other side? Anyway, so he goes on to enjoy himself (you could see his giddy-up attitude spilling over, as he chuckled at how easy it is to make money with Fed on his side), and he pulls out the chart. An intelligent man, he goes on to tell us what the squiggly line is. "We are in 1982 moment", he says, "as the equity risk premium (shown on the chart) is at the high level like it was back then". Apparently, he says we are at the beginning stages of a bull market.
Sure we are (pardon my sarcasm) - 50 months into it, at 149% off the bottom on SPX, at all-time highs on all major stock indexes (except NASDAQ), at highest NYSE margin debt on record, with the largest Fed balance sheet ever and swelling as I type, and still staring deflation right in the eye, resulting in almost non-existent corporate revenue growth in Q1 of 2013. I guess these are the strong pillars which this nascent bull market is supposed to rest on...

This has been the monthly market rant, brought to you by a vigilant trader. Buyers beware!


  1. no.
    wait for 1673-1687 area.
    just my 2 cents opinion.

  2. Replies
    1. end of the interm. 3'rd elliot wave up movement from Nov.12 until now.
      the period of reaching that level is within the next 8-10 trading days.


  3. Could you share that EW chart please?

    1. I will describe the values that define my EW chart (i'm sorry for my non-technical language, I'm still learning EW, still an apprentice):
      since 2009 we experienced until now 2 grand waves:
      W1 = 666.79 - 1370.58
      W2 = 1370.58 - 1074.77
      W3 (now)= 1074.77 - now
      with sub-waves:
      w1=1074.77 - 1422.38
      w2=1422.38 - 1266.74
      w3 (now, currently almost ended) = 1266.74 - present.

      this w3 of W3 i've subdivided in the following waves:
      sub w1 = 1266.74 - 1470.96
      sub w2 = 1470.96 - 1343.35
      sub w3 = since Nov'12 = 1343.35 - now.
      -this sub w3 was subdivided in 5 waves:
      minor w 1 = 1343.35 - 1448
      minor w2 = 1448- 1398.11
      minor w3 = 1398.11 - 1597.35
      minor w4 = 1597.35 - 1536.83
      (NOW) minor w 5 = 1536.83 - now (not finished at 1666.47).

      Minor w5 of 3 of 3 can end at 1.618 projection of minor w1 of 3 of 3 (1673-1687 area, more certainly : 1679 +/- 7-8 points around the resistance pivot). But this is not a certainty!!! Because the fibonnaci projection can be higher because this is the very heart of this bull wave (w3 of w3 of w3) and can extend further to 2.0 , 2.381, 2.5, 2.618, and so on...
      Current target for this sub w3 of 3 (the one started in Nov'12) is 1673-1687, but can experience superior fibo extensions.

      after that a big w4 is expected (that can have internally 3 waves or 5 waves/ if it's correctional or impulsive). targets for w4 = 1422.38 - 1480.50.
      the targets are defined like that: first target is the peak of w1 (4th EW waves cannot tresspass the previous w1 peak) - the second target is defined by the projected MA200 on the daily chart considering the present rate of change of price for the last 200 days. Those targets are projected if the nature of w4 is impulsive (5 waves).
      If it's corrective (3 waves) it cannot go lower than 1510-1478.

      The final big w5 is projected based on a fibo relation to big w1 in the area 1780-2100 = i cannot offer a more precise target now because it has further to go this market to get a more clear view. As time, end of bull maret is projected in q1 or q2 of 2014. Again, I'm not that good to give a more exact target as time.
      - - -

      My opinion is not shorting until a clear downtrend (big w4) is developed. Because it can have an impulsive nature or it may be a flat, or it can triangulate (a-b-c). Imagine how would it be that after the "a" down-movement, the "b" up wave to mark a new all time high ? :D? It can happen, you know?

      On the short term, I expect (if this beast does not extends!!!!) 1673-1687 the next 1-2 weeks. If 1687 is tresspassed, than bye-bye! ... next targets: 1740-1746.

      Shorting the very heart of one bull market is an extreme sport.
      Also, if w4 is not impulsive, but corrective, it's target depends in a certain manner on the peak of big w3 (so, not determined yet!).
      That's why I have to tell you to not short until a downtrend is confirmed - my confirmation for downtrend is MA10 on daily chart - if the market closes one or more days below MA10 on daily chart, we have a downtrend. Also MA10 can be used for determining the end of downtrend and begining of uptrends.

      That's what I think, maybe I'm not right, I'm still an apprentice (below 1 year TA experience on EW). Also , sorry for my english, I've wrote this message fast and didn't corrected it :).


    2. according to my previous message, it's clear like day-light that we don't have "THE BIG TOP" here .... some time will have to pass for "THE BIG TOP"

      one more thing to add for the present: about the big w3 still developing (since nov'12) : my target is an uber-relative one!!! Because being at the end, it can put a couple of 4-5 wave that can drive nuts everybody! So since Nov'12 the trend might develop in something like w1-w2-w3-w4-w5-w4-w5-w4-w5 (something like a multiple zig-zag at the end).
      This "multiple zig-zag" is long enough (as time) might even be big w4, so be very very careful if using shorts!

  4. Vali, thank you for sharing your view! It is obvious that EW study is very complicated and has multiple outcomes based on endless possibilities. I try to stay away from it as it usually results in me sitting and studying instead of trading. I like to look at it though and appreciate your advice and detailed breakdown. A lot of my projected charts resemble EW charts. As you probably read in my previous posts, I projected a target of 1680 on SPX for the end of the year back in December of 2012 and again in March of this year
    SPX is less than 1% away from it now. Nobody knows if this is The Big Top or A Short-Term Top (as I asked in this post). This said, I wrote a post recently on DJIA's projected path which would take it to 18,600 and that would equate SPX 2,018 and would mean that bull market continues after this short-term top
    I am beginning to establish shorts here, as I envision a pullback of 7 - 9% from here, based on my own outlook. I have no choice but to follow what I believe in. I always put my money where my mouth is.

    1. ''I am beginning to establish shorts here, as I envision a pullback of 7 - 9% from here, based on my own outlook. I have no choice but to follow what I believe in. I always put my money where my mouth is.''

      I have an idea , or an advice - if you allow me ... the up-movement from the last 4 weeks was clearly (AND STILL IS) parabolic. We all know how parabolas finalize, but we don't know when they approach their finality.
      1680 is not a level, but more a pivotal area (1673-1687) as multiple fibo projections from lower levels (i.e. 1.618 fibo projection of w1).
      You should use very tight stops -unless you accept to be underwater for a while with those shorts, which is very dangerous considering the present market conditions) cause if 1687 is lost next levels are : 1699, 1719, 1746 (maybe higher if this uptrend turns maniacal)- levels that could be reached by a very fast up movement (an exhaustion type like, maybe) due to market conditions (liquidity pumped by central banks, a lower shorts volume than 1-3 months ago, euphoria rising).

      I would not do what you intend to do (loading shorts to front-run the market). I would expect calmly to finish the up-thrust (if not long) and than , after the first 10-20-25 points lost on spx 500 i would load shorts !
      I prefer to loose 10-20% of potential shorting gains than risk my capital.
      I've learned from Paul Tudor Jones -one trader- one thing: always, ALWAYS, take care of your capital, don't play with it, it's the most important thing!

      But every person has his own inclinations of risk-reward assessement...

      Good luck,
      I would wait a little more with those shorts , this move is a parabolic one , not a healthy normal bullish one, and this can be awful for shorts if caught!
      Think balanced, take good decisions, be flexible, front running the market is not a good idea always!

      Take care!

  5. Vali, have you seen "Trader"? If not, I highly recommend you do. In that movie PTJ does exactly what I now do. He was one of the biggest market timers and based his trading on comparison with previous chart patterns. Of course, it would be totally opposite to protecting the capital, as he was predicting the turns of the market. After making that movie, he went on the life-time hunt for every outstanding copy, to make sure nobody knew what he really does. I trade today because I saw that movie in 1998. I still consider myself a student of his, 15 years later. What a startling coincidence that you mentioned his name!

    1. didn't see it, I'll search for it.
      anyway, this wave from Nov.'12 is already old, it's in it's final fifth internal wave ... can run maximum 25-50/maybe 60 points more...after that,when it will fall, treat 1536-1545 as strong support...below that if 1536-1545 is blown, 1480-1485 is the next final suport but the chances to reach the second layer of support are very, very thin.
      after this 4th wave next target: 1780-1840.
      I've heard of Paul Tudor Jones reading a book: 'Market Wizards' of Jack D. Schwager - I know he's a great trader.
      Here in my country (Romania, E.U.) the trading activity (futures, options, commodities, stuff like that) is relatively new (since 1998-2002, something like that) so a lot of already legendary persons in your country are somewhat "new experience" here.
      But Romania is a strong emerging country (along with Czech Republic and Poland) and the financial markets have A LOT of space to grow.
      I've also done what you want to do with those shorts but it was a bad experience and I've developed another market approach, more conservative, with lower , but more continuous earnings, being a swinger trader in SPDR derivate and leveraged products at the present. I use some local financial products e-mini s&p based but leveraged 1:10 to 1:20 (i.e. a variation of 1% in cash market produces 10% to 20% variation on those products) ... there are somewhat conservative products, but I can't find on the local market more leveraged products (1:100 to 1:10000) although I would trade those nasty products :)

      anyway, I'll search for that movie, just one more thought at the end of this message: I don't think that next week will see a great down move (on Monday after the next week it's a free day for markets and markets tend to be bullish on Thursday/Friday prior to such a free day / on Wednesday I guess we have FOMC minutes and Bernanke speech ... )... I don't know...
      It's your decision.
      I would wait for the 1680-1700/maybe 1710 area to load some shorts, not here in the 1660's ... too soon!

      Take care,