Market Recap: The Bull's Hope

By: Peter Pan | Sun, Jul 18, 2010
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  TREND MOMENTUM COMMENT
Long-term 2 of 2 are SELL    
Intermediate 2 of 3 are SELL 5 of 5 are NEUTRAL SPY ST Model in BUY mode; Non-Stop in BUY mode
Short-term Model is SELL 5 of 5 are NEUTRAL Short on 07/16, hold half over the weekend.
GANN DAY MOON/SOLAR CYCLE CONCLUSION
*07/24, *07/27 07/26 / 07/23 *07/29, 07/31 Next pivot date: *07/27 - 07/31
BULLISH *0.2.1 10Y T-Bill Yield: ROC(30) < -9, bottomed?
BEARISH 6.2.3 VIX:VXV Trading Signals: A little bit low.
*0.0.2 Combined Intermediate-term Trading Signals: Trend line broken, topped?
SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE
TRADING PLATFORM: SSO/SDS, UPRO/SPXU
Non-Stop 07/15 L N/A Be sure to check 8.2.2a to 8.2.2g to understand the risks.
ST Model      
*Please make sure you understand how to use the table above. The main purpose of this report is to provide information so contradictory signals are always presented.

SEASONALITY: WEEK AFTER JULY EXPIRATION, DOW DOWN 7 OF LAST 11

  1. According to the Stock Trader's Almanac: Week after July expiration, Dow down 7 of last 11, 2007 -4.2%, 2008 -4.3%.
  2. According to Sentimentrader: The S&P has dropped 20 of the past 28 years the day after expiry (however, the last four have been positive).
  3. According to seasonality chart from Sentimentrader, the next week is the most bearish week of July.

Index Seasonality

INTERMEDIATE-TERM: THE 2ND LEG DOWN COULD HAVE STARTED

The Friday's drop was exactly what the time, price and pattern mentioned in the 07/14 Market Recap had expected. Especially the time target, exactly on 07/16, therefore, for now (pay attention to "for now" as it subjects to change at any time), it looks a lot like the 2nd leg down has started that I mentioned in the 07/02 Market Recap.

SPX Second-Leg Down

4.0.1 SPX Long-term Trading Signals, because clearly the weekly EMA(13) and EMA(34) had a bearish crossover, so today I officially downgrade the long-term trend to down from up. Does this mean a bear market? As usual, let's check the historical winning rate of this weekly EMA(13) and EMA(34) bearish crossover. See chart below, the winning rate is very low but once a bearish crossover occurred, see red vertical lines, most likely there'd be a much lower close ahead, right? So although 4.0.1 SPX Long-term Trading Signals doesn't necessarily mean a long-term bear, but at least the 2nd leg down can be expected, right?

SPX Bearish Crossover Signals
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If indeed the 2nd leg down has started (pay attention to "if indeed" because I'm not very sure yet. I'll discuss this in the short-term session later), the chart below shows the estimated time and price target. For rough idea only, you don't have to understand how I get those time and price target.

SPX Next Cycle Turn Date
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For the time target, besides the 07/27 and 07/29 mentioned in the chart above, also see the table above, 07/24 and 07/27 are Gann Day, 07/26 is Full Moon, 07/23 is Solar Term Date and see chart below, 07/31 is an important date too. So combining them all together, 07/27 to 07/31 are the most likely pullback time target. By the way, I've mentioned the 10/02 in the chart below in the 06/30 Market Recap. Even you expect the 3 of primary wave 3 bull, normally, the Fib 38.2% time retracement to the 1 of primary wave 3 bull (from 03/06/2009 to 04/26/2010) is needed. In another word, it should be very common for the correction we're having now to last to 10/02. Even uses the mini mini time retracement Fib 23.6%, the retracement date is 08/02. So far, neither of those 2 dates are met, therefore, I think it's still too early to speak about the 3 of primary wave 3 bull, agree?

SPX
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Why mentioning the 3 of primary wave 3 bull? In the 07/09 Market Recap, I said because the retailers' sentiment was way too bearish, so the rebound starting from 07/03 should be beyond normal expectation. Unfortunately, the retailers' sentiment changed too fast, as this week's AAII made one of the largest bull jumps in history, while in my forum some people even yell for the 3 of primary wave 3 bull coming.

Bull Ratio
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I have no intension to argue whether there'll be a 3 of primary wave 3 bull. At least the time, as mentioned above, for the current correction is not enough - 10/02 is still far, while 08/02 is weeks away, therefore the chances are not good that the 3 of primary wave 3 bull has started.

Besides the time, let's see some other evidences:

Weak Michigan Confidence Reports from Bespoke, see red lines, even in a bull market, the next month wouldn't be pleasant.

SPX Return After Weak Michigan Confidence Reports

The latest Mutual Fund Cash Level from sentimentrader. In another word, Mutual Fund managers don't have extra cash to make the 3 of primary wave 3 bull yet.

Mutual Fund Cash as Percent of Total Assets

The Liquidity Injections flowing into the market from M3 and Foreign sources (courtesy of stocktiming). So far the liquidity inflow is no compare with the March 2009 liquidity inflow. To me, it does not look like a new bull has kicked in.

NYSE Liquidity

So to summarize, chances for a 2nd leg down is pretty high. Because of the liquidity inflow wasn't enough, so it doesn't look like that 3 of primary wave 3 bull has started, at least the current correction time isn't enough. Instead, if we see violent sell off the next week, be careful of a possible 3 of minor wave 3 of 1 of primary wave 3 bear, although I have no intension to argue whether it's a primary wave 3 bear now or not.

Current Elliott Wave Count
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SHORT-TERM: CPCE ARGUES FOR A TOP BUT VIX DISAGREES, SO BULL STILL HAS HOPE

Although theoretically, one day doesn't make a trend, so the Friday's sell off may mean nothing. But as mentioned in the intermediate-term session above, the time, price and pattern are all fit, so for now (again, pay attention to "for now"), it does look like the 2nd leg down has started. In addition chart 0.0.2 Combined Intermediate-term Trading Signals, is arguing for a top now. The signal was quite reliable.

VIX and CPCE
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Why I said again and again "for now"? Because I'm not very sure if indeed the 2nd leg down has started as there're 2 charts giving bulls some hopes:

VIX Leads SPX. I've mentioned this chart recently several times, so far it worked pretty well. Looks like VIX didn't conform the SPX's sell off this Friday.

VIX Leads SPX
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Phantom bar is a mystery. How it appears and why it works, I have no idea. However it does work most of the time if not all, so this chart also argues for a rebound, big big rebound.

QQQQ

If indeed we see big big rebound the next week, be sure to check chart 6.2.3 VIX:VXV Trading Signals. As VIX to VXV ratio is way too low now so I don't think the rebound could go too far, eventually, there'll be a 2nd leg down. The only question to me is just WHEN.

VIX versus New VIX
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HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST

  TREND COMMENT - *New update. Click BLUE to see chart if link is not provided.
QQQQ DOWN 4.1.1 Nasdaq 100 Index (Weekly): Bearish 1-2-3 formation, target 1565.
IWM DOWN 4.1.2 Russell 2000 iShares (IWM Weekly): Ascending Broadening Wedge, target $54.79.
CHINA DOWN  
EMERGING UP *4.1.6 iShares MSCI Emerging Markets (EEM Weekly): Bear Flag?
EUROPEAN UP 4.1.7 Vanguard European VIPERs (VGK Weekly): Bearish 1-2-3 formation, target $35.45; Bear Flag?
CANADA DOWN 4.1.5 iShares CDN S&P/TSX 60 Index Fund (XIU.TO Weekly): Bearish 1-2-3 formation, target $15.30.
BOND UP  
EURO UP  
GOLD UP 4.3.0 Gold Trust Shares (GLD Weekly): Head and Shoulders Bottom, target $129.99.
GDX UP  
OIL DOWN *4.4.0 United States Oil Fund, LP (USO Weekly): Bear Flag?
ENERGY DOWN 4.4.1 Energy Select Sector SPDR (XLE Weekly): Bearish 1-2-3 formation, target $43.14.
FINANCIALS DOWN  
REITS DOWN 4.4.3 Real Estate iShares (IYR Weekly): Pay attention to XHB weakness!
MATERIALS DOWN 4.4.4 Materials Select Sector SPDR (XLB Weekly): Bearish 1-2-3 formation, target $27.35.

 


 

Author: Peter Pan

Peter (Yong) Pan
Cobra's Market View

Peter is the author of www.cobrasmarketview.com and several none-English web sites.

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