I received a good question today:
"As of 2:30pm on OCT 20th- the market is again relentless in its strength. We are nearing the OCT 18 high in the S&P500 and other markets. Do you foresee any sort of sustainable correction before we reach your NOV 12th peak date?
Terry's Aug 26 peak date turned into a massive low. Do we face a similar situation come Nov 12th?"
Let me preface my remarks by saying that on my interpretation of how to calculate T13, November 12 is an end date, not necessarily a peak date. For example, using the same methodology on T12 produced a mid-December 2007 end date. That target date was nowhere near the October 2007 price peak, but it was within a week of when the downtrend started in earnest. Likewise, I believe November 12 will be within several days either way of when the downtrend starts for good.
While this thing can play out many ways, only one of the original three scenarios I am watching is still in play:
Let's examine what's going on. Here are the highs of the last few days on the S&P:
Oct 13 = 1184.4
Oct 14 = 1178.9
Oct 15 = 1181.2
Oct 18 = 1185.5
Oct 19 = 1178.6
Oct 20 = 1182.9
It's clear that price is still struggling with Gann 180 degree resistance at 1182.4, which has a margin of error of approximately +/-0.5% (5.9 points either way).
On the bottom end, we are making lower lows since October 13. ~1167 on October 14-15, and 1160 on October 19. This is a Right Angled Broadening Formation on the 30 minute chart:
Normally, this pattern is bearish. However, if it breaks through the horizontal resistance zone at 1182-1188, then that's usually a bullish sign regarding the continuation of the up trend. If we get one last up leg, it will come on the momentum of breaking this horizontal resistance.
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Hello Mr. Parker,
ReplyDeleteThank you for your detalied analysis. Hope the Fed does not mess up your dates. My question is that you mentioned before that we will start a bear/bull market after T13 ends and that the bear market would last 18mo+ just like before. However, the 3rd year of a presidential cycle is usually an UP year (only once was a down year and that was during the Korean war). How does this fit in your analysis?
Thanks
Pete
Pete
ReplyDeleteGood points. There's no guarantees in life! Here's my thoughts:
Regarding the Fed, the market has already priced in a huge QE2 program. This could be one of the greatest "buy the rumor, sell the fact" scenarios of all time.
Couple things about 2011:
1. The last time we saw a losing year in a pre-Presidential election year was the Great Depression. And we saw 2 of them (1931, 1939). Everyone says this is the worst recession since the Great Depression . . .
2. Over the last 60 years, when the January close is less than the prior December's close, we finished flat or down for the year 83% of the time. December 2009 closed at 1115, while January 2010 closed at 1074.
In other words, we could lose a lot of ground between now and the end of the year such that even if 2011 was a choppy winner by a few percentage points, it might not come close to the 1220 high we saw last April.
Great work, keep it up. I have been with Terry for about 2 years, and subscribed to you as soon as Terry showed your work.Thanks...Nick
ReplyDeleteThanks, Nick - welcome!
ReplyDeletethank you for taking the time to reply with good answers.
ReplyDeleteVery much appreciated.
Peter
Parker, in looking at Terry's envelope the middle line appears to be rising at about 2 points per day. The upper band may move up faster if the envelope expands by another point or so on those days that it does.
ReplyDeleteTerry also mentions that closes above the envelope are unsustainable in the short term. Any thoughts on how this fits in with your Oct 27 thesis?
Thanks.
Luv
ReplyDeleteI don't want to speak for Terry. The Oct 27 thesis was derived independently of envelope theory. It is true, however, that the end of up trends often occur at or near the upper channel of the envelope.
We briefly traded above the 5.9 point limit above the Gann resistance. Is this of any significance to your work?
ReplyDeleteAchal
ReplyDeleteI was watching that level closely. As you know, we were at ~1189 for about 30 minutes. If we broke through it, the next Gann resistance level is 1239.6 (with 1200 and 1220 natural resistance in the interim).
Everything is situational. The 5.9 or 0.5% is a guideline of course, not a hard and fast rule. Further, TRIN was well over 1 all morning leading into the top at 1189. This indicates distribution. Here's why:
TRIN is the ratio of two ratios. (Advancing issues to Declining issues) to (Advancing volume to Declining volume). So, if you had 1800 advances to 1200 declines but 6M shares of advances to 8M shares of declines, then TRIN would be 1.5/0.75 or 2.0
If a rally is being bought into, you would expect the ratio to be less than 1, i.e., volume supporting the move. Here, the ratio was greater than 1 all morning and during those 30 minutes at 1189, suggesting that the rally was being sold into. Distribution rallies are often sucker rallies and often offer false breakouts.
If anything, with the move to 1189 the chart pattern has changed from a right angled broadening formation to a megaphone pattern, which is also bearish in nature.
Paul from CT
ReplyDeleteIs the TRIN tarnished because all of the Ultra and Triple ETFs?
Or is it useful as always or have the #s of significance changed?
Do you use the 5 day average?
Thanks
Paul
ReplyDeleteI look at both the 5 Day and 8 day averages, but I also have it on my intraday S&P chart.
As I understand it, the leveraged ETFs invest in derivatives and not the underlying. Note, these leveraged ETFs are not among the NYSE "issues" that make up the Advance Decline line, or Advance Decline volume (which together makes up the TRIN).
I suppose these leveraged ETFs draw volume away from the issues that comprise the NYSE Advance Decline volume, but I don't think the TRIN is compromised as a result.