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Sunday, March 15, 2009

03/13/2009 Market Recap: Pullback or Down Leg?

I tend to use "Down Leg" to describe the next phase. But the most bullish scenario is that the down leg starts on Wednesday.

Four points to say: (I think this a typical Ch-English, would anybody mind telling me what I should say? Four things to say, perhaps?)

  1. From all the aspects such as, technical indicators, Elliott Wave, Astrology, Time cycle and the traditional Chinese "Zhou Yi" (yes, the report you read everyday are the summarize and compromise of all these analysis), the primary theme in the next week is pullback.  The only thing I am not sure is whether this coming pullback is only a pullback or another down leg to finish so called "wave 5".  In term of probability, down leg is more likely. This scenario is the emphasis of the report, and many evidences will be presented.
  2. The recent story has been a firework, but you'd better recall the other half of the firework is to fall onto ground eventually. (Hey, have you ever seen any firework which doesn't fall?) 7.3.2 Firework Trading Setup, you may see that all fireworks in the past have ended up with big sell off with no exceptions so far.  Now NYADV is extremely overbought, which is an early warning.  On the other hand, in the most bullish case NYADV on 7.0.1 Extreme NYADV and NYMO Readings Watch can stay as overbought for four days.  I don't think it could this time, but possibly it can stay until Tuesday which I'll explain in "point 3".
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  3. Based on 7.0.4 Extreme CPC Readings Watch, when CPC is lower than 0.8, the probability of close in green on Monday, is about 69%.  However I tend to believe that when both SPX and VIX close green, the next day tends to be a big down day according to 7.0.7 SPX and VIX Divergence Watch, so the market may close in red on Monday.  Afterward, the probability of a turnaround Tuesday is about 66%, which is a statistically very bullish Tuesday (courtesy of www.sentimentrader.com).  In term of operation, should the market go down slightly on Monday, bears better be careful about the bulls' final strike on Tuesday, don't be knocked down prematurely.
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  4. The rally on Thursday and Friday was a little bit suspicious since the defensive sectors way outperformed which means that the fund is flowing into these sectors for safety.  Should this trend continue, a big down is coming.
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Well, this seems quite a lot of information.  Not over yet, let's go back to present all the evidences needed to support "point 1", which is the main focus of this report.

From the perspective of Elliott Wave, the final wave 5 is incomplete assuming that this round is still conventional 5-wave downtrend.  Here is an excerpt of the Friday's report from John Murphy:

MARKET MAY NEED ONE MORE DIP... The weight of technical evidence suggests that the market is close to a rally (which could test the January high). As I suggested on Tuesday, however, I remain concerned that the decline from the January top looks incomplete. I'd prefer to see a five-wave decline instead of the current three waves shown in Chart 5. The current bounce could be just a wave 4. At the risk of putting too fine a point on things, I'd prefer to see one more pullback that either touches a new low or retests the March low to complete a fifth downwave and set up an intermediate recovery. The key is the 800 level. Any move over that level (and its 50-day moving average) would signal that the bottom is in. Either way, it's not too soon to start turning a bit more positive.

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You may still remember Phi Mate Turn Date from Rober McHugh, March 13 is such a turn date which seems a top while the next turn date is March 26.  If my analysis is correct, the most likely bottom is around 26th in the context of 5-wave downtrend, therefore bulls should be aware of this possibility.  The good news is that after this round of sell off, a decent intermediate term rally will be and the initial target is January high based on analysis using different methods (Elliott Wave, Astrology, Time cycle, Statistics etc etc).

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Now let's take a look at why technical indicators support 5-wave downtrend also instead of a technical pullback.

Note the relationship between the brown curve and the blue curve which denotes the market on T2101 from Telechart, every time the turnaround of the brown curve is also the turning point of the blue curve, which means a trend reversal of the market.  Last time this chart has successfully predicted the trend reversal (03/09/2009 Market Recap: Speculation Play).  Now it turns again, which could possibly mean a bearish reversal of the market.

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2.8.1 CBOE Options Total Put/Call Ratio.  The normalized CPC at the bottom of the chart is way too bullish, and this is a sign of market topping.

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SPX breadth from www.sentimentrader.com shows that 467 out of 500 stocks in SPX close above 10-day moving average on Friday, which is a sign of extremely overbought.  Look at the following chart, every time, such overbought condition has marked a market top, hasn't it?  Since the number of stocks of SPX closed above MA10 is very important information so I will collect these statistics from now on and log the extreme result on chart 1.3.7 Russell 3000 Dominant Price-Volume Relationships.  Additionally, the last time when 460 stocks close above MA10 as illustrated on chart 1.3.7, was exactly the top in January 2009.  Note the negative divergence during the last three days of the rally.  Finally, the dominant price-volume relationships on Friday is 1212 stocks price up volume down, bearish.

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At the end of report, let's review the charts of indices and important sectors.

1.0.2 S&P 500 SPDRs (SPY 60 min).  The four day rally looks like a bear flag to me.  Note that RSI and STO are still overbought.

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1.0.4 S&P 500 SPDRs (SPY 15 min), this bearish rising wedge is very obvious on the chart. STO is also overbought.

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5.3.0 Financials Select Sector SPDR (XLF daily).  Financial sector had led the rally, however it hits the resistance now.  On the chart, there was only one case  that XLF had more than 5 consecutive up days.

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5.7.0 Technology Select Sector SPDR (XLK Daily).  Technology sector which used to outperform, looks bearish now.  Should the 5-wave down leg proven to be the case, the puzzle on 1.1.7 QQQQ Outperforms SPY Good Sign? could be resolved. Well, hopefully.

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39 comments:

  1. Thank you for this analysis. Very good stuff.

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  2. Thanks. It took me 3 hours to write it.

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  3. Very good analysis sir,27th is also an Auspicious day ( New year )as per Indian calender.Also what you think will pull the market down...some kind of catastrophic event...

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  4. Thank you so much for the excellent report! Have you ever considered charging fees for your reports? It is hard to believe you are giving all this out for free. THANKS!

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  5. Cobra you got some great work. I have learned a lot from yr work.

    I posted a bunch of charts on my site that bring up the question you are discussing now, pullback or down leg?

    I think the easiest way to note this is watching volume. If volume is light, its a pullback.
    If vol increases, leg down.

    greenlander1.blogspot.com

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  6. Hi, Neil, about "catastrophic event", that's a real mystery. I really don't see if there's anything left to hammer the market on its wave 5 down.

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  7. Truly fantastic. I can't sleep unless I read your reports. Please keep up the great work.

    Do you have a recommended reading list? I would love to start looking at things the way you analyze them.

    Rik

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  8. Yes, thanks as well. The best analysis in blogoshere.

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  9. Thank you, greenlander1, I've added you into my blogroll. Will watch you closely. :-)

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  10. Rik, the way, my analyis come from all the bloggers. It's the best materials to study. You can start with all the bloggers listed on my blogroll. This is assume that you have already some basic TA knowledge.

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  11. jason in charlotteMarch 15, 2009 at 4:30 PM

    That was a barnburner! (you may have to work to get a Chinese translation on that one).

    Great post, very thought provoking.

    The "bottom is in" bandwagon filled up extremely quickly this week, as the rally was quite convincing. The market may want to deliver one more strong reason for doubt.

    It's been difficult for months and it may not be ready to change.

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  12. Hi, Many thanks for the another very best analysis. Really appreciate this.

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  13. There are four points I'd like to get across today...

    This is really not an issue, you always explain everything clearly and thoroughly. Thanks. :)

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  14. Interesting, as usual. I suppose we must distinguish between "big gap down" and "slightly down" Monday?

    Roxy

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  15. Very Thorough........Thanks for your efforts Cobra.

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  16. Not to mention the VIX/SPX relationship.

    Not sure if ya caught the Jan 20th date, hard to tell from the candlesticks, but i believe it was the latest VIX/SPX both up day. (day prior to the MLK holiday) SPX was down 40pts the following trading day (Jan 20th)

    Weekly spx is also at RSI resistance established in mid 2007.

    http://erikmarketview.blogspot.com/

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  17. sorry typo.....

    i meant JAN 16th (vix/spx) up....Jan 20 was the RESULT (ie next trading day)

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  18. Great job Cobra.
    Can't believe you have to prepare this report both in English and Chinese and share with everyone to see. Clicking some adsense link is least I can do :)
    Do you consider to put a paypal donate link like other TA masters? Kenny, Dan etc.

    I noticed we had rarely seen CPC way under 0.8 and NYADV higher than 2000 at same time. Market might have a little bit of bull left till Monday. I guess we will know soon enough.

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  19. INSANE in the "MEMBRAIN"

    Thank you for the excellent analysis!

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  20. Thank you Yingkuan for the donation idea. Right now a single click on google ad, if everyone reading this blog, will make me happy enough. Thanks again.

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  21. http://stockstop.org/download/file.php?id=850&mode=view

    Jan 16th. I have a morning gap up, then fade, with closer lower than gap up, but still higher than previous day's close.

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  22. I double checked my VIX, Jan 16, 2009 was a red bar. But anyway, doesn't matter here. You've got the point, when both VIX and SPX are up, not only the next day, but also the next week tends to be a red week. I've got all the back test to back me up. Hope this time is the same.

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  23. http://finance.yahoo.com/q/hp?s=SPY

    Looks like your right Cobra, my "bad". It looks as if Jan 16th, was a small dogi day. Vix up on a dogi day, still signaled a key next trading day massacre. (jan 20th)

    Jan 2nd was another (vix/spx) tip-off, and i recall very well.

    Although the vix WAS down that day, the late day activity of the vix...made it obvious "something was up"

    Jan 2nd:

    http://i204.photobucket.com/albums/bb15/Erik28tx/vix_5min.jpg

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  24. great job Cobra, I agree with Greenlander volume will tell us if it pullback or leg down. In the same time, I think NDX and QQQQ are in triangle which support the analysis that says this rally is wave 4 .

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  25. I would say "make four points." The idiom is to make a point. Glad I can reciprocate for your efforts in TA

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  26. Thank you Cobra, great datas and you seem to have a kind heart, helping people all over the globe.

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  27. I agree with your assessment on 4th leg up and close to top at SPX 800. The next leg (5th) will create a new low.

    However Every single TA people out there are looking at the same thing and the Fed knows it as well.

    Expecting the bulls to come out with barrages of good news and the Fed to pump as much as they can to break SPX 805 and trying to stay above it.

    If they can't do this then watch for SPX 500 coming.

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  28. Great stuff Cobra! You da man!

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  29. I love your analysis Cobra, I'd been waiting for this since Friday. Thanks for putting in the effort and sharing with us :-)

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  30. thank you very much a lot of effort.Blacksheeptraders aka terry.

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  31. Cobra, great stuff as usual. I find your charts and Matthew Frailey's to be the strongest on stockcharts.com. Rather than 5th leg down, Frailey is calling for an ABC bear with the A being complete, the B retracing to the 89dma near SP500 900 before the final C leg down. However, your call of last week's fireworks gave me the confidence to go long big before the move.

    Thanks!

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  32. incredible work, just got your link and soooooo pleased....

    already went short on friday, so it's all good.....

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  33. incredilbe and complete report!!! I can not function without reading this blog!!

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  34. Thanks Cobra keep up the good work.

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  35. Only a pullback, then another higher low, then blast off.

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  36. Great work, Cobra!

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  37. Thanks Cobra,

    Feel free to comment whenever you like.
    As always, I appreciate your thoughts.

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  38. Check out the comments! Ok, it's 'I have four points to make'. Also, the word 'highlights' is misspelled at right top of page in link to stockcharts. Awesome site and thanks

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