Stock Market Trends & Observations 08/27/11

Stock Market Trends & Observations
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Stock Market Trends Weekly Update 08/27/11
Posted August 27, 2011 by Bob Categories: WEEKLY UPDATE
WAVE COUNTS SIMPLIFIED There are 3 peaks (or valleys) to a completed wave count. A signicant reversal takes place after a completed wave count of 3 peaks (or valleys). Often times its as simple as counting 3 bumps on a chart . . . Other times, not so easy. Each step must stay conned to a channel. Laying a pen or pencil on the chart will help you visualize the channel. The 3 steps that make up a completed wave count will also be conned to a relatively larger channel. When the market breaks a channel (regardless of size), that step (or wave) has been terminated and the market has begun a counter-trend move. If you believe that wave counting is voodoo, please read along for awhile and reserve judgment until later. Reading the glossary helps a great deal in the understanding of this blog. Glossary Link If charts (or links) dont work, please copy & paste the address below into your browser. http://stockmarketobservations.wordpress.com/ ************************************************************************************ CLICK ON CHARTS TO ENLARGE Very Long Term Downtrend Jan 2000 To Present Step 2 Down (of 3) Completed See description in Very Long Term following the Comments
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08-27-11 VERY LONG TERM Long Term Uptrend Mar 2009 To Present Step 2 Up (of 3) Completed From the bottom in March 2009 Large step one up ended in May 2010 Large step two up ended in May 2011. (notice a pattern?) Large step three up will begin when the decline beginning in May is nished. Large step three may exceed the October 2007 peak. This seems like a possibility when looking at the Very Long Term scenario. There is a remote possibility that we have completed 3 steps up since March 2009 instead of 2. See last chart in this section for an alternate wave count.
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08-27-11 LONG TERM Intermediate Term Downtrend Trend Change Possible February 2011 To Present Step 3 Down (of 3) Underway The rally that began in July 2010 is nished. The peak of that rally was May 2011 although some indexes peaked in February 2011. We are likely in step 3 down of the decline that began in February 2011. On the ip side we could have an extended wave count decline, which means 5 steps down instead of 3.
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08-27-11 INTERMEDIATE TERM-1
08-27-11 INTERMEDIATE TERM-2 Short Term
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Downtrend Trend Change Soon August 17, 2011 To Present Last Action Status Sold On 8/25/11 Another Buy Signal Soon See Comments below
08-27-11 SHORT TERM COMMENTS IF ITS OBVIOUS, ITS OBVIOUSLY WRONG! Its easy to forget the sage words above and I did exactly that regarding Friday morning. Everyone (including me) expected the market to swoon when Bernanke didnt directly appease Wall Street and swoon it did, down 220 Dow points. My expectation was for the market to decline most or all of Friday. Since it was OBVIOUS that this was going to happen, a funny thing happened. After the
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market completed a small 3 step down, it took off like a rocket, up 38 SP 500 points in about 69 minutes (1 SP500 point is equivalent to about 10 Dow points). At this point it is unclear what the market wants to accomplish. It is possible that we have completed step 3 down and a very good rally will ensue. If true, I would count the present move upward as step 2 beginning with the low of August 9th. It is also possible that we are still in step 3 down and the market will continue lower. If this is true, I would label the next decline as beginning step 2 down . . . of step 3 down, which began on August 17th. See short term chart above for details. Im not bearish on the market just very cautious. The rally that began on Monday didnt quite live up to my expectations. In addition to other things there were multiple tops overnight prior to trading on Friday. This caused me to become very cautious and begin raising my stops, which were executed early Friday. Multiple tops can be a sign that the market is ready to correct and since we had nished 3 days of rally, it seemed very likely that a correction was going to take place. Three days of rally is the norm. It follows after 3 up days that we will correct for a short time and then resume the uptrend. The Bernanke factor made me ill at ease and I protected my prot with close stops near the high. Presently I am now waiting to re-establish a buy point in the market at possibly lower prices (or higher prices?). I will be watching the market on Monday for another surge with high volume. If this is a valid move, I would expect a signicant breakout above the prior highs of August 17th. Since August 9th, the market appears to be in bottoming action and could form a double bottom in the AREA of the August 9th low. An alternative to this would be a 5 step decline that takes us as low as the September 2010 lows or to the July 2010 bottom. The rst chart shows a possible trend line since August 16th. We will see if it holds up next week.
08-26-11 SP500 FUTURES 20 MINUTE BARS VERY LONG TERM We have 3 possibilities for the future. We have entered a very wide swinging market (megaphone formation) similar to that of 1966 to 1974. During that era we had three bear markets with two intervening bull market rallies. Each bear market had a lower low than the previous bear. The intervening bull market rallies saw new all time highs before the next bear market began. We have formed a huge head and shoulders formation since 1998. If this formation is valid, the downside measurement calls for a bottom around Dow Jones Industrials 1,000. Life on earth will
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have ended as we know it. Neither of the above are valid and the future of America is bright. This is a version of Never sell America short. I rmly believe that we will work our way through our problems but that doesnt mean there isnt going to be some rough to very rough patches. Since 2000 we have had two bear markets, 2000 to 2003 and 2007 to 2009. Like 1966 to 1974, the recovery from the rst bear market saw a new all time high (2007 peak). Its possible that we may experience another all time high during the present recovery period. This would support the megaphone formation. A failure to make new highs would support the head and shoulders argument. In both formations the conclusion of the present recovery would call for the third and nal bear market. An estimated time for the conclusion of the nal bear market is approximately 2018. The lesser downside of both formations is the megaphone formation as it likely calls for a bottom 1,000 to 2,000 points below the 2009 low, which would be around Dow 5,000. In the head and shoulders formation the measurement calls for a bottom around Dow Jones Industrials 1,000. This is almost an unimaginable event and I have a hard time grasping it as I try to visualize the fundamentals involved. If this did happen, everything that could go wrong would have to go wrong. Reasons range from the absurd to the absurd. This scenario is so dark that it doesnt seem possible but nevertheless, the head and shoulders formation is there and will be waiting until we pierce the all-time highs of October 2007. Remember these are simply possible scenarios and are not embedded in fact. Whatever the outcome, it never hurts to be a little cautious with some of your money. But in the worst case scenario, everything that we take for granted as being safe . . . . would not be safe. This is something to never forget in the event things go very badly. Hopefully we will never have to think about worst case scenarios other than to have a good laugh at them presently. ************************************************************************************ ALL ACTIONABLE SIGNALS (buy or sell) ARE ONLY FOR SHORT TERM TIME FRAMES. These signals are not designed for intermediate or long term time frames BUT . . . . . After a short term buy signal, long term tax status can be achieved by a continuation of the upward trend, which causes short term actions to morph into long term holdings. See more details in the glossary under Taxes, Futures Contracts and Money Management. Glossary Link Please see the glossary for explanations Of terms & methodology. It is MUST reading for those unfamiliar with any of the terms used in this blog (advanced traders can skip it). Edson Gould, Best Stock Market Strategist EVER I have already posted some of his ideas and writing on this blog. He had a profound inuence on the development of my techniques and proprietary indicators. I will post more of his writing at a later date. After 40 years I still have many of the publications from his advisory service, Findings & Forecasts. Edson Gould Link
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************************************************************************************ TRANSACTION RECORD In this blog a warning is often issued well in advance of the formal buy or sell date. This allows thoughtful consideration prior to a formal action signal. To get a sense of how this works, you should read a few days prior to a formal buy/sell signal. The more adventuresome of us will be acting on these warnings, which means I often buy/sell in my personal account based on the early warnings. I am usually quite skittish around market bottoms and remain so until the new direction is well underway. I want verication that the turn is valid and will frequently protect short term prots near market turns. After the turn is made and a solid uptrend is in place, things will relax. At a later date and enough requests, I will start an email notication service of the exact timing of my trades. BUY JUNE 23, 2011 SELL AUGUST 1, 2011 BUY AUGUST 23, 2011 SELL AUGUST 25, 2011 ************************************************************************************ SEE MY CHARTS (updated constantly) This link has charts (StockCharts.com) that are updated constantly during market trading. They dont lag market trading and are up to the minute. I think you will nd these charts very useful as they cover time frames from minutes to decades. The nal section of these charts consists of growth stocks. The growth stocks show daily market action for the last 3 years and weekly prices since 1990. This gives a good perspective to how they have behaved in the immediate past (daily charts) and how they behaved during good and bad times (weekly charts). INDEX Page 1 Indicators (shorter time frames) Page 2 Indexes With 1 Minute Bars Page 3 Indexes With 5 Minute Bars Page 4 Indexes With 15 Minute Bars Page 5 Indexes With 30 Minute Bars Page 6 Indexes With 60 Minute Bars Page 7 Indexes With Daily Bars (shorter) Page 8 Indexes With Daily Bars (longer)
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Page 9 Indexes With Weekly Bars Page 10 Indexes With Monthly Bars Page 11 to Page 12 Indicators (longer time frames) Page 13 to End Growth Stocks (daily and weekly time frames)
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Daily Stock Market Update Part Three 08/25/11

Posted August 25, 2011 by Bob Categories: DAILY UPDATE, SELL/BUY ACTION UPDATE
If charts (or links) dont work, please click the address below (or copy & paste the address into your browser). http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term August 22, 2011 To Present Step 1 Up Finished Veried Current Action Status Sell (buy back at lower prices) I mentioned earlier that I was busy early this morning and the reason was that I had been raising my stops all morning. I saw a multiple top forming overnight coupled with a peak late yesterday. That made me pretty edgy and I began raising my stops. I was stopped out near the top for a healthy prot. The market is correcting after nishing its 3 steps up. I will likely reestablish my position at lower prices. The concern is that Bernanke will disappoint tomorrow and I now believe that will take place. Jeff Saut said he believes that Bernanke will do nothing more than repeat the FEDs comments from the last meeting. The comments were lower interest rates for the next two years. There is another speech on Saturday that is widely anticipated regarding the EU, which could be a market mover on Monday. Ill write about that later. If Bernanke disappoints Wall Street, I will be looking for a double bottom relating to the August 9th low. A signicant penetration of those lows would mean we are in an extended wave down which means 5 steps instead of 3 (2 mores steps to go). The rst chart is this weeks market action for the SP 500 futures, second chart is for today only.
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08-25-11 SP500 FUTURES 5 MINUTE BARS
08-25-11 SP500 FUTURES 1 MINUTE BARS-2

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Daily Stock Market Update Part Two 08/25/11

Posted August 25, 2011 by Bob Categories: DAILY UPDATE
If charts (or links) dont work, please click the address below (or copy & paste the address into your browser). http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term August 22, 2011 To Present Step 1 Up Finished Unveried Current Action Status Formal Buy Signal On August 23, (ramblings about a bottom from August 19th onward)
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Here is what I believe happened this morning. Dont know why I didnt see it a few minutes ago but I had been busy and didnt have the time to think about what was going on behind the scenes. The weekly jobs report came out this morning and it was terrible, but the market hardly reacted. That was a BIG surprise to me, but why didnt it react??? Im going to theorize that the professionals had heard an announcement was forthcoming about Berkshire investing in Bank of America and thought the market would react positively (it did). As the market spurted upward, the pros began selling into the teeth of the advance. When the buying was spent, the market began its negative reaction to the jobs report. And now we have our correction underway as I originally expected. By the way insider trading doesnt exist, just ask the SEC. Therefore the above reasoning must be pure ction.

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Daily Stock Market Update Part One 08/25/11

If charts (or links) dont work, please click the address below (or copy & paste the address into your browser). http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term August 22, 2011 To Present Step 1 Up Finished Unveried Current Action Status Formal Buy Signal On August 23, (ramblings about a bottom from August 19th onward) We have had 3 days up and frequently the market will take a breather after 3 days. The expectation is
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that the market will correct today and set itself up for a move in either direction for tomorrow mornings speech by Bernanke. Well see if the market sticks to that schedule after the close today. Today the market shot up on news that Berkshire was investing money in Bank of America and then it turned south (see graph). This is an example of not reacting well to good news (thats cautionary).

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Daily Stock Market Update 08/24/11

If charts (or links) dont work, please click the address below (or copy & paste the address into your browser). http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term July 2011 To Present Step 3 Down Finished Step 1 Up Is Underway Current Action Status Formal Buy Signal On August 23 The DJ Industrials closed up 137 points today, very near the high of the day. But it was a ragged advance, up in the morning, down most of the day and then rising into the close. Since the market is still moving away from the bottom things appear to be OK. I think many professional investors are waiting to see what Bernanke will say on Friday (7 AM EDT) and thats why we havent made a strong breakaway move to the upside. Scenarios that the market could follow on Friday.
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Wall St. likes Bernankes speech A strong rally (good news for us) Wall St. dislikes Bernankes speech A decline that continues constantly throughout the day will not be a good sign. Wall St. dislikes Bernankes speech A sharp drop followed by a recovery for most of the day could be indications that a valid bottom is in place (still good news for us) The two charts below are identical and show the last several days of the SP 500 futures. Since the wave count is difcult to interpret, we will look at the channels. Each chart has a different version of the upward channel in effect. One channel is much narrower than the other and narrow channels dont hold up through time. Regardless I would think on Friday the channel will be revised due to market volatility.
08-24-11 SP500 FUTURES 10 MINUTE BARS-2 Gold has been hammered hard the last two days. It was down $104 today and down about $50 yesterday. That interestingly corresponds with the market taking off to the upside. It appears that investors are selling gold and moving into stocks. Since gold is a safe haven, some investors have lost their fear of dollar devaluation. Correspondingly the dollar has moved up smartly the last two days. Bonds have been moving lower in price (higher yield) since August 18 and that often happens with a stronger dollar. August 18 was just prior to the second bottom in the stock market. During QE2 bond prices moved lower and now bonds are moving lower prior to Fridays FED speech. That may bode well for a positive announcement on Friday. Obviously we will wait until 7 AM Friday for the nal prognosis.
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08-24-11 GOLD ETF 20 MINUTE BARS

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Stock Market Trends Weekly Update 08/27/11 Daily Stock Market Update Part Three 08/25/11 Daily Stock Market Update Part Two 08/25/11 Daily Stock Market Update Part One 08/25/11 Daily Stock Market Update 08/24/11
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Wall Street Quotes

The essence of investment management is the management of risks, not the management of returns. Well-managed portfolios start with this precept. Benjamin Graham The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell. John Templeton Buy on the cannons, sell on the trumpets. Old French Proverb Rule #1: Never lose money. Rule #2: Never forget rule #1 Warren Buffett The four most dangerous words in investing are "This time it's different". John Templeton "This time it's different" was prevalent during the bubble of 2000. In 1929 it was called "New Economics". Bob History always repeats, only the details change. Edson Gould If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks. John (Jack) Bogle Stock are bought on expectations, not facts. Gerald Loeb Emotions are your worst enemy in the stock market.
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Don Hays P/E ratio - The percentage of investors wetting their pants as the market keeps crashing. Anonymous Herd Mentality Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one. Extraordinary Popular Delusions and the Madness of Crowds Herd Mentality Cases such as Tulipomania in 1624--when Tulip bulbs traded at a higher price than gold--suggest the existence of what I would dub "Mackay's Law of Mass Action:" when it comes to the effect of social behavior on the intelligence of individuals, 1+1 is often less than 2, and sometimes considerably less than 0. Extraordinary Popular Delusions and the Madness of Crowds I made money by selling too soon. Bernard Baruch If all you have is a hammer, everything looks like a nail. Bernard Baruch The main purpose of the stock market is to make fools of as many people as possible. Bernard Baruch The hardest part of a bull market is staying on. A bubble is a bull market in which you don't have a position. A buy and hold strategy is a short term trade that went wrong. October, this is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, June, December, August and February. Mark Twain Economists have predicted 14 of the last 3 recessions. Market Correction - The day after you buy stocks. In 2008 stocks were a good buy . . . . . Goodbye Mercedes, goodbye yacht, goodbye vacation home, goodbye . . . Markets can remain irrational longer than you can remain solvent. John Maynard Keynes Money talks, but all mine ever says is "goodbye" Don't gamble. Take all of your savings and buy some good stock and hold it until it goes up, then sell it. If it don't go up, don't buy it.
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Will Rogers Return of principal is more important than the return on principal. Hope is your worst enemy in the market. Don't catch a falling knife. Spend at least as much time researching a stock as you would choosing a refrigerator. Peter Lynch When you realize that you are riding a dead horse the best strategy is to dismount. Sioux Indian Proverb Dont ever make the mistake of telling the market it is wrong. James Dines Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes. Jesse Livermore Let Wall Street have a nightmare and the whole country has to help get them back in bed again Will Rogers Bulls makes money, bears makes money, pigs get slaughtered. My Grandfather Never buy a stock that won't go up in a bull market. Never sell a stock that won't go down in a bear market. Wall Street is a street with a river at one end and a graveyard at the other. Never check stock prices on a Friday, it could spoil your weekend. Nobody is more bearish than a sold-out bull. The public is right during the trends but wrong at both ends. Humphrey Neill Those who can, do. Those who cant, teach. Those who cant teach, work for the government. Never sell a dull market short. I sell euphoria and buy panic. The way he determines that is to wait until prices start gapping in the charts. Gapping on the upside is euphoria, while gapping on the downside is panic. Jimmy Rogers courtesy of Jeff Saut "Cut your losses and let your prots run."
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Don't marry a stock. Every stock must be sold.
About This Blog

Observations of Stock Market Trends uses several proprietary technical indicators discovered by the author. The object of this blog is to notify you (preferably in advance) of the important tops and bottoms in the stock market. We know that's impossible, but nevertheless, it's attempted in this blog. The weekly overview of "Observations of Stock Market Trends" is published each weekend. A daily update is likely when I have something to say or we are near a stock market inection point. If you nd the blog interesting, please become a follower by entering your email address in the section "Email Subscription" (top of this column). You must also conrm your email subscription by clicking on a link in the conrmation email, otherwise you ain't subscribed.
Disclosure
The content on this blog is meant to be entertaining information and should not be construed as investment advice. No statement by the blog's author should be interpreted as a recommendation to buy or sell any security, nancial instrument, or to participate in a trading or investment strategy. Any investment decision by anyone that results in losses or gains based on information from this blog is not the responsibility of the blog's author. The blog's author will make statements about certain investment vehicles and strategies, but It's simply the author expressing his opinion, or action, regarding his own investments. These opinions are never to be construed as investment advice.
About Me
With 55 years of studying and investing in the stock market, I am sharing these experiences and knowledge by writing a stock market blog. This blog relies on several unique and proprietary indicators. I have been correct at some of the biggest market turns in the last 40 years. I was short for most of 1973-1974, reversed course and became a buyer during the week before Christmas 1974. I was also short for most of the rst half of 1982 but became a buyer on August 4, 1982. This was ve days before the August 9, 1982 blast off on the historic bull market run of the 1980s and 1990s. In 1999 I began tolling the bell on the stock market knowing that the end was near (no one listened). In March 2003, prior to the beginning of the Iraq war I turned into a bull because I couldn't see one reason why I should buy stocks. Shortly after the October 2007 peak I became a seller and bear. Days prior to the March 2009 bottom, I bought stocks in anticipation of a very good rally that turned into a big bull run. In the later stages of the February-May 2011 topping process, I began warning of an important market correction. One man was responsible for my education, Edson Gould, the greatest technician that ever lived.
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After reading many of the books on stock market technical analysis, I found that all of these methods had high failure rates. I searched for a formula that worked consistently and in 1973 I subscribed to Edson Gould's "Findings & Forecasts". Here I struck gold with the master technician of the 20th century. Extending his methods I discovered several proprietary indicators that I use today. If you nd my observations of interest please add your email address to the section, "Email Subscription".
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