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DOW : The Great Dow Highs of Summer 2007

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The Great Dow Highs of Summer 2007

 

Well, this chart shows my count for the S&P 500. As you can see, on my count, we are coming to the end of a series of 5th waves. In fact, it looks like we should be completing the rise from the lows of late 2002 on this count.

 

One problem with Elliott waves, of course, is that being based on the theory of fractals they can keep sub-dividing into patterns of further 5 waves, so of course this could keep happening for a while yet. But, I think the odds are very high that at a minimum we should have a significant decline coming up and quite possibly the top of the market for a long time.

 

So, in summary I am going to make the brave huh.gif or perhaps more likely, foolish laugh.gif , call for a top in the US stock markets this week or very early next, ideally. Preferably we will see one more quick push up this week to new highs before turning. But, either way it is getting risky playing the long side IMO, though i would dearly love a pop up tomorrow to close my longs.

 

The last few days have seen some interesting divergence too as the Dow has risen (advance narrowing with just a few stocks taking the index higher), which also suggests at least a short term top should be nearing.

Summer_2007_Highs.doc

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Where does your EW analysis place the next bottom?

 

That depends whether an upcoming correction is just correcting the rises since 2005, since 2002, or since the early 1930s. Whatever it is it should be a large and tradeable correction. If the former then I would look for a floor in the 12,500-12,000 region, if the middle then maybe the 10,000-11,000 range and if the former then way down south and probably below 8,000.

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That depends whether an upcoming correction is just correcting the rises since 2005, since 2002, or since the early 1930s. Whatever it is it should be a large and tradeable correction. If the former then I would look for a floor in the 12,500-12,000 region, if the middle then maybe the 10,000-11,000 range and if the former then way down south and probably below 8,000.

 

Thanks. Does EW analysis indicate which of those it is likely to be? Or is that too difficult/subjective to work out? (I've read that this sort of analysis is as much art as science).

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Thanks. Does EW analysis indicate which of those it is likely to be? Or is that too difficult/subjective to work out? (I've read that this sort of analysis is as much art as science).

 

Not with any great confidence at this stage, no. But, it hardly matters with falls of that size expected.

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Update:

 

So far so good. The all time and closing highs were made last week as i was looking for and the S&P has since fallen nearly 6% to today's lows. I see no reason why we are anything like near a low; small corrections along the way will of course come, but much lower prices should lie ahead.

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Update:

 

So far so good. The all time and closing highs were made last week as i was looking for and the S&P has since fallen nearly 6% to today's lows. I see no reason why we are anything like near a low; small corrections along the way will of course come, but much lower prices should lie ahead.

 

Well done DD, seems you picked the top right on time, hope you made lots of money.

Thanks to you this year and Bubb calling the 2006 top I have managed to make up for some previous losses. Cheers both.

 

I have been away from internet access for the last week or so, and have missed some of the fun, but I'm sure this thread was longer before??

 

Also, I was wondering where you see things going now, ie has the pattern been forming as expected, or is this just a healthy correction?

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Well done DD, seems you picked the top right on time, hope you made lots of money.

Thanks to you this year and Bubb calling the 2006 top I have managed to make up for some previous losses. Cheers both.

 

I have been away from internet access for the last week or so, and have missed some of the fun, but I'm sure this thread was longer before??

 

Also, I was wondering where you see things going now, ie has the pattern been forming as expected, or is this just a healthy correction?

 

Cheers. Done nicely thanks, though would have done even better yesterday if I didnt use such tight stop losses as got taken out of my long just before the big push up at the end of the session. When the market is going against what i think is the overall direction of the market (like now) i tend to use tighter stops.

 

Yes this thread was longer, but short term market commentary made its way here for a bit yesterday and so was transferred to the market comments thread.

 

Yes, the pattern so far is pretty much spot on. A reasonably nice 5 wave structure down to last week's lows and now the correction of those initial falls ongoing now. The speed of the falls was also encouraging. This should be the biggest correction for at least a couple of years and likely longer so i was looking for faster and more persistent falls than in recent corrections, which we got. This bounce should be wave 2, or B, of a higher magnitude and so ought to continue for a little while longer ideally before topping and then we should get wave 3 or C down to follow. If it is wave 3 of the large correction I am looking for then I would not be surprised to see larger and more persistent falls than we saw over the last couple of weeks. Wave 3s are usually the longest and strongest.

 

I will look to reestablish my shorts soon at higher levels than now (currently Dow 13430) in preperation for a very weak late summer/autumn.

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Update:

 

I reestablished my short position yesterday with an order in to sell the Dow at 13630...which obviously got triggered (nicely above the levels at whch i exited my shorts about a week ago). So enjoyed the whole of today's 387 point plunge, which was welcome (though not all that welcome as i was hoping to add to my short positions today, but never got the chance - not least because i went to the Oval today to see England manage the amazing feat of capturing just 4 wickets in a whole day).

 

So where now. The pattern is at a crucial juncture. We have not broken last week's lows and so the correction that started last week could still be working out with the falls of today being an 'x' wave, with another small abc to come. Or, this could be the start of the big big falls down. I was looking for explosive falls if this is wave 3 - see post of 2 days ago - and so far today's falls fall in that category. But, there is a nagging doubt in my mind which is that the Dax index did not complete a normal minimum correction of the last few week's falls; plus the corrections in terms of time for most markets are slightly short of what you might expect given the falls that preceeded it (though both of these are signs of a very weak market which this seems to be). So, i am in the unsatisfactory position of being on the fence with respect to the immediate future of the markets, hence i will bring my stop losses down to about 13550 and wait for the market to play its hand. If it breaks the recent lows then we should be on the way to much lower levels, whereas if it doesnt continue its explosive move lower then suspicions will rise that the correction is not over quite yet and i will get my chance to add to my shorts in anticipation of sustained weakness later in August.

 

Incidentally, we should get weaker days than today once the third wave starts if this is not it (or even if it is). I am looking for the Dow to lose more than 400 points in a day or maybe a few days of sustained falls of a couple hundred points a day.

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So where now. The pattern is at a crucial juncture. We have not broken last week's lows and so the correction that started last week could still be working out with the falls of today being an 'x' wave, with another small abc to come. Or, this could be the start of the big big falls down.

 

Incidentally, we should get weaker days than today once the third wave starts if this is not it (or even if it is). I am looking for the Dow to lose more than 400 points in a day or maybe a few days of sustained falls of a couple hundred points a day.

 

Good posting.

I bought puts yesterday, and sold them today- too soon, as it turns out.

Tomorrow could be jittery, and Monday a real; meltdown (but I hope not!)

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Update: What a week.

 

We certainly had the explosivity I was looking for and the massive falls, with the Dow falling a further 700 odd points from my last update (9th Aug) to the lows of Thursday (1200 points from the high of 8th August). Further, we obviously broke the lows of the first wave down of mid to end July which was the sign of the next down wave. Finally, as my post said on July 18th (the day before the current all time closing high), as a minimum I was looking for a correction that took us to 12000-12500 region in the Dow - the lows of Thursday almost exactly hit the top of this range.

 

So what does all this mean for the future. Are the falls over? Or do we still have some way to go?

 

The falls could be over as we have had a three wave structure down from the highs (an abc pattern), we basically hit the minimum retracement I was looking for, and some indicators seemed to suggest that we were very oversold this week. In which case, we could slowly meander our way to new highs. But, I think the odds are heavily stacked against this.

 

I favour the bearish case and hence the current 3 wave structure should become a 5 wave one. The rally of the last day and a half was fine from a wave count perspective and in fact I was even net long before the Fed cut inspired rise as the short term pattern suggested we should get a further rise. But, I then went bearish again later yesterday. This bounce could have a little further to go, but I preferred to be short going into the weekend because if the lows are not in, as I expect, then surprises are more likely to be on the downside than upside. Nevertheless, there is still some scope for some more upside without it undermining the bear view, though if it occurs it should be more limited than of the last day and a half. The maximum upside would be the top of wave 2 (or 'B') around 13700, though if it retraced more than 79% of the falls since then I would probably throw in the towel - this is around 13450.

 

In fact, the strong rise of the last day or so perversely suggests that we should see far more downside if the bear returns than I was originally envisaging (for wave reasons I will not go into now). If I rely purely on the charts, then the risk of being wrong about another downturn in the market is one I am fully prepared to take. This is because if I am right then we could get a breathtaking breakdown in the markets to come very soon. Crashes are very rare events indeed, but there is a much greater than normal probability that we could see something akin to one over the coming weeks IMHO. If I am wrong, I will get taken out with further rises and make some losses, but will still be way up over the last month as a whole. In summary, I think the risk/reward ratio favours the bear case right now.

 

I was also going to write about a lesson I learnt ages ago, but periodically cast aside to my cost when it comes to trading. But, will do so on a new post later to stop this one becoming any longer.

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Good post Douche Dore , I know little about Elliott wave counts and will bow to your supereior knowledge. What I do know however, is the World has changed over the last couple of weeks and I agree fully that this is nowhere near the end of the problems the World now confronts. Like you I was lucky enough to be long the SPX and FTSE on Friday morning when the futures were looking very sloppy as I had expected a bounce. However I have nver made so much so quickly and closed out very close to te highs. My view now is this is just the start of a major downturn in stocks and I will use any rallies to exit , particularly from some of my more illiquid positions. I would expect the market to rally for another day or two ( unless we get more bad news) and then start to retreat again. Once fear sets in it is hard to stop the falling knife and at the end of the day whilst economies look robust the U.S. and particularly theU.K are on very fragile grounds with huge bubbles just starting to burst. IMOP 'you aint seen nothing yet' !

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Just to add to my previous post, if the S&P cant close soldily above 1460in the next couple of days we could be heading down to 1300-1325 &P IMOP - in very short order.

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I took nearly all my shorts off the table on Monday's falls in anticipation of the correction going a bit higher. When we are in an overall down market, as we seem to be now, I prefer to be short going into weekends as surprises are more likely to be on the downside, but during the week if the pattern dictates I will trade in and out. My comments from the weekend still stand, I am still very bearish as long as markets do not rise above their wave 2 highs as I mentioned above.

 

I am now looking to short again soon when the markets reach nearby resistance (maybe later today) or even if they attempt to reach it.

 

The S&P has a trendline, connecting the July high with the wave 2 high of 8th August. This line passes through the 1466 area today and is falling quite fast. It should prove considerable resistance if the market gets there and so seems a sensible area to have a stop loss a few points above. Likewise, the European markets have resistance levels nearby and so I will be looking to short into some hoped for further strength. Clearly, there is still quite a bit of room above these resistance levels before the bear case is damaged, but it seems like quite a good low risk opportunity coming up.

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Well, that resistance level proved as effective as a chocolate teapot and so I got taken out for a small loss. But, we have a new one just above where the Dow closed on Friday - which the Dow may or may not try to reach. The last resistance area I mentioned was the S&P trendline, connecting the July high with the wave 2 high of 8th August. The resistance now is the same trend line, but for the Dow. This area should prove stiffer resistance should the market rise as the 79% retracement of the falls since early August is also nearby, the 13450 area that i mentioned 10 days ago. So I am going to try and short the markets again. If markets do turn down from these levels then we should see the return of a string of very weak weeks.

 

But, we are running out of space for a continuation of the very bearish case if markets move beyond these levels. That would probably mean that whilst we may well get another leg lower sometime soonish, that any falls would probably be short-lived (ending in the autumn); as opposed to the falls that started last month being the start of a bigger bear market.

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how much higher?

 

maybe not much- friday close could be important : chart

 

i bought a few puts near the close, but not many since i think the rally has a few days left, at least

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I have started buying a bit at these levels I think the market is very thin and being pused down on low volume. I expect a rally to start by the end of the week ( maybe earlier). Now long a small amount of FTSE and the SPX.

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NICE RALLY off the 252d.MA, and with decent volume

 

bigep5.gif

 

Could (should?) rally back to resistance at SPX-1500 or so, if it can get past

Friday's high. At this stage, I certainly expect to be buying puts near 1500.

 

(( that move would leave a nice a-b-c of a wave 2, i suppose))

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Going to this, DD?

If i was still in London, i probably would

============

 

STA Annual Dinner

 

The Society of Technical Analysts is pleased to announce that it will be holding the 2007 annual dinner on Thursday 20th September 2007 at the National Liberal Club in central London.

 

We are delighted to welcome Roger Nightingale, an independent analyst with a portfolio of clients around the world, as the Society’s guest and after dinner speaker.

 

The Annual Dinner will provide an excellent opportunity to catch up with old friends and make new contacts. It is also a good opportunity for entertaining clients and members will be able to book tables of 10 for corporate entertaining.

 

To reserve a place please complete the form here and return to the STA office by 10th September. We look forward to seeing you on the 20th September

 

/see: http://www.greenenergyinvestors.com/index.php?showtopic=2363

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