S&P 500 - Feb 27, 2009

charts courtesy of stockcharts.com

Buyers, whoever they were, were overwhelmed by sellers all day long.

But there was no palpable panic or sense of urgency to get out, some were buying and some were selling, and selling pressure was heavier.

Maybe it’s different this time and the drop ends without a bang (aka capitulation).

Maybe the capitulation has already happened, and all we are left with is program trading among some super funds.

Many attempts were made during the day to prop the market. At some point, DOW ran from -150 or so to plus 10 against very poor breadth :-!!!!???

It of course was knocked back again by sellers. Do you honestly believe that it ran like that because suddenly there were all these genuine value seekers buying DOW components? Who knows? The curious thing is that it was all orderly.

Take a look at this 1-minute chart of DIA, which I use as a proxy for the DOW. Pay attention to the volume spikes: sporadic attempts by whoever to buy immediately followed by sellers response. There are quite a few black bars into the close, trying to perhaps get that psychologically important daily reversal, just to be dwarfed by red bars. While we are on the subject of reversals, how many so-called important reversals have we had since market rolled over?

Also notice how choppy today’s price action was, give me a chop like that, and my first thought will be to pick a spot to short for a trade.

Let’s move on

A question I keep asking when I practice Elliot Wave is: Do I have a complete set that can satisfy the minimum requirements of a wave?

Let’s look at this 15-minute chart of S&P futures

Forgetting about the orange alternate count for second, it appears that we either have enough to declare victory or are a spike away from having the minimum technical requirement.

Now, bringing the alternate count back into focus, one could argue that we are just warming up, the third wave is being extended, and the 5th wave is yet to come.

But since I have or am very close to have the minimum requirement in place, and the market is oversold, I’ll be on the lookout for a bounce, and signs of a reversal.

By now, you should know the drill: higher highs, higher lows, impulsive waves, good momentum and breadth, capturing and holding of pivots, momentous run-ups, shallow pullbacks, etc.

Referring to the 1st chart of this post, a chop-chop struggle is not the characteristic of a bullish move up.

Just to keep those of you who like multiple wave scenarios a bit busy, this is an alternate count that I personally like better because it looks nicer.

Regardless, one step at a time, price has to turn, momentum has to turn, higher highs, higher lows, impulsive structure, positive alignment of moving averages, etc, etc, leading to a positive technical profile.

The daily action was negative, Volume was heavy, and breadth was poor, it felt like a day of churning with a downward bias.

Nas100 has been outperforming the S&P since the lows of November 2008.

The animal spirit of the market – the risk takers – the lovers of high beta!

Seems like it’s peaking, the ratio may correct, but strong moves like this usually continue after correction. If we finally get a rally that is not the product of bubble vision hype and rumors of a man with a plan, techs may outrun the S&P. I say may, because there are so many oversold and badly depressed sectors and industries that may attract risk capital.

We just have to bottom first, and then see who is outperforming

I am thinking of maybe covering Nas100 more frequently, it’s just a matter of time required for regularly writing about it. I do not want to replace coverage of S&P with Nas100, as I think S&P is more important in the grander scheme of things. I’ll see what I can do. But regardless of what I may be able to do, I recommend that you keep an eye on the tech index.

I guess many, if not all of you, have, by now, heard that Bob Prechter of Elliot Wave International has advised his subscribers to cover their short positions. I hear it here and there that people say Prechter is bullish. Those who say that either do not know the man’s work and have not read his writing, or are bullish propaganda masters trying to exploit the situation. That was my polite way of saying that they are either ignorant brutes or outright crooks.

1st off, if one really needs to know what Bob Precther has said, one needs to either read his writing of February this year, or listen to him. He recently appeared on Bloomberg TV, Canadian BNN, and CNBC.

2ndly, Prechter’s market projections are longer term, mostly months, and years. He does not concern himself with the next daily low of later stages of a bear or bull. There are other analysts in his organization that cover the near term.

3rdly, he called for short positions well ahead of the peak, a bit too early for my liking, and never, to my knowledge, really called for a move to cash, his short call is sitting on a gain of 700-800 S&P points, why not go to cash, especially when everybody and their cousin seem to be ready to short the next rally? So many seem to want a piece of the action so late into the action.

4thly, he has not issued a buy recommendation, he just has said he thinks it is time to take the long term short bets off the table.

5thly, he has not said the bear is over, he thinks it will be measured in years.

6thly, he is a very unconventional thinker, try his writing, you may like him, or, at least, listen to his latest appearances.

Food for Thought: What if governments around the world started buying stocks or index futures? Would that bring a sustainable rally?

Enjoy the rest of your weekend