Thursday, April 12, 2007

B.T.D. or ABC?

The debate raging around U.S. equities these days seems to fall into two camps (for technicians, at least). Whether the current strategy should be what I would refer to as B.T.D. (Buy The Dips) or ABC (as in Elliott Wave Theory). The latter would fall into the bearish camp, and the former are permabulls.

For those who follow the comments section of this blog - - and I'm addicted to it - - you can see quite a few people point to action like yesterday's as simply another buying opportunity. (Sort of like how Realtors are always saying there has never been a better time to buy a house). In other words, the market will, by and large, go up until the end of time, so buying when stocks go "on sale" is the way to go.

That has worked very well so far. Those who have bought on the dips over the past three or four years have done terrific. So it's beguiling to just keep doing the same thing in perpetuity.

But let's look at the ABC point-of-view. Here's the classic notion of Elliott Wave price action: the 1/2/3/4/5 series shows the bullish phase, whereas the A/B/C shows the bearish phase. (Please note I pride myself on being an accomplished chartist, but I only know enough about Elliott Wave to hurt myself; so I may be a little off the mark in some of this terminology).


As an example of this kind of behavior, let's take a look at the Russell 2000 index from late 2004 until mid 2006. I've drawn some lines here and noted the various phases. As you can see, things line up pretty nicely. I've also drawn a big solid circle indicating the completion of the "b" wave, which is the retracement within a bearish phase. (Newbies: click the image to see a much bigger chart).


Now here is the more recent Russell 2000, going up to the present day. I will say straightaway that the pattern is not nearly as clean and clear. But, as the big circle indicates, the possibility I have been asserting is that all this bullish action over the past six weeks has been a "b" wave retracement. What we bears are (sick and tired of...) waiting for is for "c" to kick in.


I wrote a few days ago about my bullish disposition toward energy stocks. This morning I bought - yep, bought - SLB and SWN based on this point of view. Both of these moved up handsomely. As you can see by OIH, below, there seems to be a nice breakout for these stocks based on an inverted H&S pattern.


Let's see if Friday the 13th (tomorrow) gives the bulls the kind of bad luck we've been waiting for. But today's strength was disconcerting. A push tomorrow above the highs of April 10th would be just another nail in the bearish coffin.

53 comments:

Anonymous said...

One day (Feb 27) got most of the trading world convinced that at a minimum this "correction" will come in 3 waves. EWI (Prechter) were of course calling for the end of the world. So many waited for a rally to sell, went into cash, bought puts, got short, whatever. Once that was over the DJI went up 9 of the next 10 days with the action from today's lows frustrating even the most convicted of bears. Once the market gets us all convinced that buying AM dips is bulletproof, we may indeed get a selloff worth talking about. Until then, short squeeze is the theme.

Lauriston said...

Most blogs I read are quite bearish (including my own), so I guess no one is left to sell? We'll see tomorrow if inflation numbers are either fudged or ignored... :)

Anonymous said...

Having spent considerable time through the years studying EW on & off, I came to the conclusion that EW is a very good way to explain past market action. At times it does seem to work quite well. Now if the market goes on to new contract highs the currently labeled wave"B" will then turn into a an"x" wave or something else.

Just my view on EW, nothing more.

Anonymous said...

Tim

Louise Yamatta(sp?) was on Bloomberg this AM talking about the breakout in energy stocks. Your timing is certainly good with your purchases today from a technical perspective. You are seeing the same action as Louise in the charts.

Deric O. Cadora said...

ABC waves play the role of corrective patterns, so if you believe we are witnessing one now, then you must also believe a longer-term bull market is still in play. I do not believe this. However, I do believe we will see fresh multi-year highs before bears get the "big one."

If you zoom into a 15-min chart of the NDX or SPX, you will see a well-defined ABC corrective move taking place yesterday, followed by today's impulsive move higher. This action signals higher prices from here.

This is just a guess, but I think the temporary high left behind by the sell-off ensuing on 2/27 simply formed the left shoulder of what will eventually prove to be a massive H&S pattern... which will them lead us bears into paradise.

sammy said...

Some nice elliot work Tim. May I add if the major stock indexes rally to new recovery highs (above 12,593.60 in the Dow and 1448.73 in the S&P), then the odds will rise that stocks would be in wave 5 that will carry the indexes above their February highs, target area DOW (12800 - 13000). It doesn’t matter at all which way you label the charts, it will take a break below 12,242.60, wave b low, to further support the bearish case. My gut tells me we take out the highs friday, and zig zag to new highs. Sammy

Rob said...

Are you nervous to talk about how great RIMM did today because you think you might jinx your other trade?

Tom2oc said...

Tim, nice EW charts, thanks. What happens to that B wave if the market goes above the recent Feb high?

I continue to give better odds for the market to shoot higher and COMP to hit 2750 in a major last hurrah leg up before we see a bear market get under way. This based on that cup-handle thesis I mentioned last month if you remember my comment and the fact that the small caps have to run strongly like they usually do before the bears take charge. But the market is at critical juncture right now with BKX about to break a triangle up or down which should trigger the next market move up or down. Could go either way so ready to join your camp in no time. Heck, almost turned a bear this morning. We'll see what happens tomorrow. Good luck to you!

Best,

the blog peruser said...

Part of the "BEAR" dilema here is that the 'market' does'nt feel to the major players like it's over-extended at 12500.In fact in 6 yrz,(mostly because of 9/11)we DID have a 40% correction (7500),and now the market is up a wopping 750pts in that 6 yr period.I assume all perma-bears made enough money between 2001 and 2003 to last a lifetime on their puts they held all the way through that. A lot of the 'foundation' stocks are up 2 or 3 times higher off of the lows of '03 on some real earnings.Based on that,it's going to at the very least be difficult to knock the market off this 12000 to 13000 perch.All the bad news that we all talk about on the blogs,on CNBC,and the Wall St Jnl are all priced in to THIS level.To the market and the bad economic news we all hear about, it's like you hearing your 2nd cousin killing themself driving drunk.It's sad for about 5 seconds and then you shrug it off and 15 minutes later you totally forgot it.So to get this market to fall off the horse and have a REAL correction it will need..(A)An economic disaster totally unseen or talked about (B) another 9/11 sucker punch that we CANNOT recover from in the forseeable future...or(C) a much higher level on the DJIA of probably at least a couple thousand points.13000 ain't gonna do it. If we hit 13000,we're going higher .So it's almost gotta be a double top in the next 2 weeks or I think perma-bears are goona have a rough couple of years.

What is Robert Prechter doing these days anyway ?

tradeitlikeitis said...

There is a real problem in the US market. Everyone knows this.

The one thing that is not moving is the Banking Index. All real Bull markets have the banking index participating.

I am hearing over and over again from people who have been in the mortgage business many years that there are big losses. I mean big losses. Including well known banks.

It is being covered up. Simple as that. They are desparate and will resort to any means to make it look like all is well. Maybe they'll even lie and cook the books in the end.

I agree with the previous posters that now is the time.

Either
(a) the bad news comes out now and we go down - take our medicine
or
(b) the mother of all short squeezes is coming to ram this market higher

Desparate men will do desparate things - so probably it is (b)

Sad but true.

TradeitLikeItIs

BT said...

I believe wave 3 should be larger than wave 1 or 5, so the first RUT chart isn't perfect but the second RUT chart is. And if wave 'b' goes above wave 'a' soon it will invalidate the count.

I think as long as the carry trade is thriving - NZD high and XJY low, the markets will continue up simply on credit inflation. Hedge funds are essentially taking the printing press of central banks and funneling that straight into equities on a global level. Until a central banker (japan, europe, certainly not Bernanke) is forced to end the party the punch bowl will keep getting refilled

Anonymous said...

I am certainly not an Elliott expert ,but the first chart is likely labeled incorrectly 3rd waves are never the shortest and a 4th wave will not overlap waves 1 and 2 if the count is done by Elliott rules.
Also on 9/11 the market had already been falling before the 9/11 event.
Elliott is certainly easier to read after the fact and it has no timing as was mentioned in earlier comment waves continue to unfold into X,Ys, and Zs, or 7 or more waves. Problem is brokers will not let you trade the past.
I am not sure of Prechter he has been bearish since 1987. At that time he said it was all over 5 of 5 of 5 had ended. Depression straight ahead. Thats been 20 years. He will be correct at some point in time, history is on his side. The problem is in whos lifetime will he be correct? Ours or his greatgrand children.

Doug said...

SWEET! AN ELLIOT WAVE POST! Always good to see. I love EW and fibonacci the most. The secret of the universe! The blog just keeps on getting better!! To complicate matters even more, there is an EW alternative which follows the head and shoulders pattern we've seen in the beginning stages of development. This is in tune with the "3 peaks domed house" model Carl Futia has been following closely. Interesting. Anyways I think something big is going to happen next week!, because the market always moves big during expiration week. The "self proclaimed mad scientist of the market" part of me, believes the market sets itself up at major support or resistance, mainly support, for a major bounce off that level expiration week, which usually starts on tuesday. I thought the selloff would continue today into Monday, for a strong bounce off support E-Week. Today has me stumped. I'm just going to play it safe and go with OIH APRIL calls next week. That breakout screams "MONEY IN THE BANK" to me! Going to be a big OE week. PEACE ALL

Anonymous said...

If Prechter said what I just read he said and totally missed a 500% rally in the market then he should have never opened his trap in the 1st place.And stuck with the call for 20yrs.Obviously he never REALLY knew what he was talking about.You have to be consistent and you have to be right on the timing.Other wise, it's like trying warn us about the next asteroid hitting the earth.We all KNOW evevtually it will happen .But is it next week,or 1M,10M, or a billion years.Who cares if you don't have a reliable answer.As they say ,even broken clocks ar right twice a day.Being right on calling the market once or twice in 25 years does'nt make you anything special.Now Warren Buffett.He started with 11000 dollars of paper route money in 1956 and has turned that into 50 Billion.Yeah...that qualifies as special. By the way ,does'nt Carl Futia's Domed house theory have the DJIA going to about 13500 in June or July... and then retreating only to 12800 ?

Anonymous said...

ABZ

Anonymous said...

the blog peruser said...

What is Robert Prechter doing these days anyway ?

I like that response !! I really do !! LOL

I"ll even throw in another one"Gann". Who ever made any serious money following these folks ? No one that I know of,
Do any of you ?

Oh Yes,, I suppose I could also throw in his Highness Larry Williams also.

Doug said...

what is up with the animosity towards Prechter? To me, all he is trying to do is share with others what he thinks is really important to getting an edge in the market. i am thankful that he shared Elliot with everyone. his book is pretty cheap, and you take out of it what you want.

z-stock said...

I looked at the OIH chart...I give it another 2 or 3%...up..maybe..goes up another... 4%...tops.out...158../..159.....then it tanks....

tim.knight said...

"what is up with the animosity towards Prechter?"

I don't mind seeing it. I read his market crash prediction book back in 1995 and was sold cold on his bearish disposition. We all know what happened during the next five years.

Dennis said...

Bulls days are numbered. Fundamentals are deterioating. Don't be surprised when there is a recession and inflation problems (thus higher interest rate). This market will tank any day now.

Anonymous said...

any day now dennis you can start buying calls and stocks to join the fun on the ride up for a change sucker.

beanie11111 said...

JASO shares is the cheapest in the entire market. Being a stock in the hottest sector, JASO appears even cheaper!!!!!!!!!!!!!!!!!!!!!!!!!!

beanie11111 said...

did you know that Elliot Waves actually came from the vast (scientific) field of ASTROLOGY!!!!!

Yes it came from the "esoteric".

Universal Order = Universal Intelligence = God

beanie11111 said...

JASO going $40!!!! do you believe?

beanie11111 said...

JASO guided to $280 million revenue this year!!!

really cheap stock in the hottest sector!!

beanie11111 said...

this is the first and only guy to call JASO to $40: www.beanie11111.blogspot.com


lol

beanie11111 said...

JASO is set to get to $50 by year end, if not sooner.

All your put option losses can now be made up by simply investing in JASO.

Alternative energy sector will lead the next MEGA MEGA MEGA bull market. You've been warned!!!

TradeitLikeitIs said...

Its a waste of time to focus on Prechter, Carl Futia or anyone - following these people is essentially superstition. It's just another way the market will make you lose money.

Because the market is not run by them or their theories - it is run by human beings - who control and manipulate it.

Better to focus on the now and the market itself.

Take today for instance - major indecision - someone is trying to take it higher maybe oil will drop - others just want out and are shorting - double top etc...

Focusing on what's happeneing - so for short term traders just stay out this morning otherwise you will get burned - let the tug of ware resolve itself.

good trading

beanie11111 said...

remember ASTI - the next TIE?

another solar stock

NewEquity said...

take that bears, nice rally for all you moron put buyers......

wattson7 said...

Beanie, No offence but, what about the QQQQ puts you said to buy at $42 some time ago. And the others that are in the tank. I can't add it all up but it seems to me that you must be break even to a big loss based on your rec's. Or pumping may be a better word for it.

TradeitLIkeitiS said...

QQQQ's if oil and commodities don't make any big downward moves next week they'll probably try to pin the QQQQ's between 44 and 45 again. If they can't they they'll be a large move and go with that.

So looks like the Central banks are taking a holiday supressing gold today - so is at a sucker rally - or for real?

Anonymous said...

beanie is holding those puts that are going to expire haha. lmfao at this guy who buys puts at bottoms and buys calls at tops.

Anonymous said...

another BTD day, closing in on Feb 26th level.

beanie11111 said...

QQQQ puts are just for hedging in case the highly vaselined Doug Kass wins.

JASO is flyin!! $26 on monday

Anonymous said...

Looks like the Bulls win again this week.

TradeitLIkeiIs said...

You see the market was waiting for something and then Bang! - there it is CISCO.

Take a look at the heavy block sells against it all morning -and it was still up. Others like AAPL did not even blink and stayed down.

Everyone who works the street knew this was coming - they know through the grapevine which PR's are coming out - that's why we were up on a Friday.

If you believe there will be volatility next week - then short afer the Monday morning Takeover hype.

good trading

Anonymous said...

Tim,

We need your enough is enough statement like last year May.

I remembered after you capitulated around May last year then market crashed.

Please post prediction post such as Dow will Fall 1000 point by next week or something.

Thank you

Angry dead Bear.

Anonymous said...

everyone including the parents were waiting for this rally. believe me short tim it is far from over pall.

Anonymous said...

Has anyone noticed, Cisco said fuck you CNBC and went to Bloomberg. No surprise, last time when Cisco announced results in feb, those bastards at CNBC were recommending people to buy everything else on Cisco's boom, and ironically never ever mentioned Cisco. On the contrary, they said Cisco already had run up. I can bet that the fucking GE hedge fund is short CSCO till the last penny, and will now have to pay. Just look at the projected earnings of Cisco and you will know. Fucking oil companies are trading at higher multiples than most tech companies.

Anonymous said...

maybe BTD should be Bullish Till Dead. that's how the market looks like up, up and up 10 up out of 11. this is unheard of inspite of inflation and lower confidence #'s
next week will be "Bulls To Die"

JakeGint said...

RE: QQQQ's... my fib picture from the Feb tops to the March bottoms show us real close to the 78.6% retrace line, and consequently, that full retrace will close the gap from that initial downplunge...

Could be interesting Monday.

__________________

The secret word is "pmaomzq" which Borat will tell you is "pumper" in Kazahkistanese.

JakeGint said...

TradeitLikeitis and AnonymousGuywithQuestionableLanguage:

Did you see that short cover on Cisco at about 2:45... almost twenty million shares traded in fifteen minutes.... and then another 8.5 mm in the the next fifteen....

The liquidity of these markets is staggering... another reason for tough bear sledding...

Anonymous said...

according to http://shortsqueeze.com/index.php?symbol=csco&submit=Enter

There is almost 55 million shares short as of march, which most likely has significantly increased since then.

Anonymous said...

There was some Prechter talk lately. I am a subscriber, just got the latest update. Like all bears they are slowly being beaten into submission. Fri Mar 30 we were supposed to be just entering some kind of violent wave 3 down. Then the market rallied for 5 straight days and took out the March highs, so we were still in 2 up. Now with new recovery highs this week in all indices they are waffling again and saying 50/50 we a)test/eclipse the Feb highs or b)give the bears their fantasy and roll over in violent wave 3 down. Can you imagine trying to profitably trade those views? Just goes to show that analysts try to predict the market, real traders react.

TradeitLikeitIs said...

JakeGint

Your right about the liquidity...
But it works both ways.
All that liquidity did not help in that quick Feb 28 decline.

IMO I don't think we are going to have any typical bear markets for a while. (A typical bear market being one that goes down slowly over time - month after month)

Instead we are going to have violent drops - coming out of nowhere.

Buying Puts to try to profit from any decline will be useless because of the time decay - it would be like throwing a dart at a calendar date in the future trying to guess when the sharp drop will come.

And since the drops will be so
sharp - the bears won't have a chance to react - it will all be over in the blink of an eye.

Sharp drops draw in buyers - because everyone sees it is going up next. This is what was orchestrated on Mar 13 - unfortunately more short sellers fell for the trap - so the markets are going higher.


The real program is not the US market - as I mentioned it is in fact 25% undervalued fundamentally.

The problem is record speculation and mania for commodities.

Now we have just out a $1Billion dollar Molybdenum fund (thats bizzare) and NMX just announced that Uranium futures are coming.

Whats next an ETF for Einsteinium or Californium or maybe one for Isotope-20 Berylium.

Yah - I'm going long 10 contracts of radioactive materials and short the SPY - that makes a lot of sense. Investors are screwed up.

I'll wait patiently - if anything goes into a bear later this year - it will be commodity related.

Good Trading

TradeitLikeitIs

Anonymous said...

Test

Anonymous said...

The DJ Industrials & DIA crossed the 78.6% retrace line from the Feb high.
Monday looks like a down day. Bulls need a break.

AC

stock_trad3r said...

Trader time, wrong again,.. When will you admit to being wrong earlier with regards to your bearish predictions and puts? Why are you still in denial?

Stop being a n00b and admit to your errors.

Why do you keep relying on technical analysis while oblivious to fundementals, which is what really drives this market?

Anyweay best of luck cause yoru gonan need it.

Anonymous said...

What is nice about Elliottwave is it is always correct. They have what is called alternates. If the prefered read is up, an Elliottwaver will also have an alternate probablity which is usualy just the oposite. In the example the prefered count is up the alternate is down. Then regardless of direction, it was called correctly in one count or another.

Anonymous said...

Agreed !! Looks so good when looking at past data. Lost enough sleep myself trying to figure out the proper wave count.

Ken

Anonymous said...
What is nice about Elliottwave is it is always correct. They have what is called alternates. If the prefered read is up, an Elliottwaver will also have an alternate probablity which is usualy just the oposite. In the example the prefered count is up the alternate is down. Then regardless of direction, it was called correctly in one count or another.

5:56 PM

Anonymous said...

04-06 chart $rut...
W 3 can NEVER be the shortest one!!
Even Prechter knows that!

Anonymous said...

EWT-
If you go to 5 min levels for the quick buck-you wont find it!

Take a little time...read this and draw your own conclusions. Leave your position and your emotions at home.

Here we go:

32-37 = one
37-38/42(double bottom) = two
42-66 = three
66-74 = four
74-87 = five (and completion of master "3" as in 1932-1987) = 55 years

To explain 87-07 we have to jump one degree higher:

1914 (dow 53) to 1929 = one (ratio 7.284906)
1929 to 1932 = two
1932 to 1987 (see above) = three
1987/87 = the crash = four
1987 bottom to 2007 = five ( low close 87 = 1738.7 x 7.284906= 12666.26 !!! WE HAD 2 CONSECUTIVE CLOSES AT THAT EXACT LEVEL ON FEB 6 +7)

Now lets move back to the entire history of the Dow (and the "start of capitalism as we know it") in 1896 (110 years- but it will only take 11 mins to read)

1896-1929; 33 years (more precisely: 12,000 days) = Wave 1
1929-32/33 = Wave 2
1933-66; 33 years (12,000 days) = Wave 3
1966/74; = Wave 4
1974=2007 = 33 years (12,000 days) on Oct 03, 2007
Thats for timing

now the price:

1896-1929 consists of a 1up-2down-3up
first leg ratio 3.655075
interim correction : 57% of prior up
REPEAT 1978 (742) TO 1987 RATIO: 3.655075 = TGT 2712 (HI CLOSE 2722!)
third leg 1914-29 ratio 7.284906
interim correction (87/87) : 57% of prior up (742-2722) ( 1616 Dow intra day was crash low)

Additionally, subwaves since 2002, 2005,2006 indicated tgt clusters, all ending in the 12,650-12800 area....

So it appears from this analysis that there is "nothing left" to the upside (nevertheless: my safety exit >13k since I have to provide room for my error), based on the above quant. studies.

In summary, Eliott with his limited time horizon for data in , seemed to have got it right.(although his definition of the "3" advance is not that clear (1.618) certainly does not apply,
but neither does Prechters "retroactive" fifth extension...since it is of no other value than retroactive confirmation.
But I have found a constant way to figure that one out with amazing precision, typcially > 99%

At this point, I would think 7200/low 6k seems a reasonable objective next, although EWT would suggest significantly lower levels. But we can deal with that when we get there.

So this then is the "fifth" and IMHO final for a 110 year cycle...It does NOT anticipate new highs. (past 12,800) most likely we will stop @ 12571 close or, possibly 12,666 one more time.

And for those who still decry the Dow as the "Old Economy", they might want to think twice: Including dividend re-investment (yes thats the cashout that one doesnt see anymore
in the Index) the Dow is up 50x off the base of 570 in 1974. Anybody who still invests in NAZ w/o a penny of DVD might want to consider that for the naz should be approximately
at 5,000 to be at parity with the Dow... So the Old Economy seems to be alive and well, and so is the "Old Europe", whereas Mr. Rumsfeld is gone....(I judged from your
videos that you have a sense of humor)

Enjoy, and I totally invite your comments!

And for the charts to proof what I say to to www.prophet.net Javacharts