Its the weekend and I find myself with time sitting here waiting for my car to be serviced...so lets take a look at what happened this week and where we might be going. Thursday we had that surprise turn around towards the end of the day with the announcement that Geithner would be giving details of his housing plan some time in the next couple of days/week. If this super secret plan is as good as his overall economic plan that he announced...well the markets are pretty much toast.
I have laid out the two scenerios that I believe we will face. The Blue Scenerio is that we are in a wave 3 down and are finishing wave 2 of 3 of 5. Basically we might get some choppiness but we will continue down STRONG after that. In the Red Scenerio we have not finished the larger wave 2 and can expect a bounce up to 86-87 range before a plunge down.
SRS has show good relative strength....and I expect CRE to continue to have problems as the quarter progresses. SRS has the potential to be in the $150+ range after next quarters earnings report.
While we concentrate on our own economy, the world at large is in serious trouble. Lloyds lost a huge amount in the UK and will potentially need more Government money. Germany's Hyper Real Estate is about to go under and is VERY close to German Nationalization. Japan's economy shrunk 10% and China's "growth" is down to single digits.
China also wants guarantees on the debt its holding as the American government has been doing some "reckless" spending. Its clear that China and other countries are going to trim back their Treasury bill purchases to minimize risk. So what now? The fed will have to continue to "buy" the T-Bills and at some point, they will have to increase the interest to get anyone else buy. This will lead to higher interest rates and put a severe dampening effect on the economy. Basically we are debting up future generations. While America maybe the greatest country in the world today, we are likely to become a second rate debtor nation in the future.
12% of the stimulus will be spent by the end of 2009...how stimulating is that? 57% will be spent from 2011 onward.
Target for the next two days is 72-73 area followed by a bounce back up to the 78-79 area...then a final plunge down to 63-64 area.
That is the primary Elliot Wave Count I am going by. Note that the candlesticks in the green circle form an In Neck bearish continuation pattern, of course this pattern needs to be confirmed Monday. Basically I am looking for the collapse of the market sooner rather than later. Hints at bank nationalization and failing European sub-prime countries could trigger this in the near future.
Also, I have access to Stockcharts now. So I am presenting some charts I have previously been unable to present. Above is a hybrid chart combining the New 52 week low and CBOE Put/call ratio that I always talk about. If you look at the MACD on that chart, you will see that the it spikes to confirm an intermediate bottom. Also whenever the 25ma crosses the 50ma moving up, thats when the market will probably drop.
The above chart is from Unersaettlich and Schweizer from stocktock.com. It is the ratio of the SP500 bullish percent index vs the CBOE put call ratio. Basically when the 30ma crosses the 50ma going down, there will be a sharp drop in the new future. You can see that we just crossed it not long ago. There maybe some small bounces next week. But it really looks like we are in a STRONG downtrend for a few weeks. But of course you never know these days what Obama and Gethner have up their sleeves...but they sure are running out of new cards to play.
We could still retrace all the way up to 82 potentially...But I am leaning more the the green line as we retraced to the first fib and then made a new low for the day.
We traded in a flat narrow range delimited by the blue lines. Towards the end of the day we formed an ascending triangle...ok not a really good one :-P We should get some direction tomorrow. The top line of the larger triangle can now be seen at the top, which means we are going to soon break one way or another out of this triangle.
Hey look, a rising wedge!...bad news is that volume is not supporting this one...so it might not break down tomorrow...Stochs should turn down...Geithner postponing the plan a day really leaves the market hanging. My guess is we go down tomorrow...but not hard...stay kinda choppy waiting on news.
If the white candle was a little longer...this looks like a dark cloud cover formation. BAC is a mess and it broke 5 today. SRS was showing unusual relative strength this morning, the SP500 was up a good amount and SRS was also up. The impending CRE collapse is getting nearer.
Same chart from yesterday...I like how the chart is following my randomly drawn purple line for the retrace :) Anyway you can draw any number of ascending triangles today (though not supported by volume divergence), I have one in orange. I think a pop tomorrow with one last try at the 50% retrace (84.63)...then down from there. I bought some puts in the 84.3 area today...deeply...deeply regret closing out WFC puts yesterday, banks looked sick but the market was recovering.
Updated the chart slightly based on the actual low we made. My target was 81.5 and we actually made it all the way down to 81.31. Using the new low and redrawing the fib, I have a new adjusted target of 85.41 for the retrace. I will probably layer back in shorts around 84.5. In addition we are in a falling wedge, but I did not draw it as it is not being support by volume.
The daily candle sticks formed a bullish reversal pattern (Meeting lines formation).
The daily looks like we are going to drop out the bottom of the symmetrical triangle this week. Note the trend line on the stochs. I expect that line to hold on the next bounce on the dailies.
I expect a bounce at 81.87 up to around 85.5 then another move down from there. That is what it looks like to me at the moment. The move up may overshoot as it may line up with bail out news. In any event watch the volume. If the move up is on diminishing volume (on a daily basis), start layering in more shorts.
