S&P 500 - November 17, 2010

Not much to say about the market. Last night’s post is good enough for tonight.

Let’s do something else in lieu

This was in the news today


So another stress test required from these highly esteemed institutions. But why? Isn’t all just rosy-rosy in the bank land? Aren’t these highly responsible, extremely prudent financial institutions past the problems they had with bad loans and stuff that harmed them in 2008?

In addition to that, we have the negative response of the market – so far – to QE2.

Is there a banking problem somewhere the Fed is trying to help via QE2? Are they being proactive, pumping the liquidity ahead of public knowledge of something they know and don’t like?

Wish I knew the answer.

I have been carrying a bullish count as my preferred. Against a backdrop of extreme negative sentiments (Hindenburg for example). We called the 1040-1050 a low that could have been traded. Against a backdrop POMO-POMO bullishness, I started getting uneasy about persistent breadth weakness.

What I was observing in terms of breadth and momentum near the lows of the summer and the recent highs was consistent with the wave count that I was carrying

Here’s what’s been the preferred count so far


Under the above scenario, we are looking for an end to Intermediate wave 4 and after that should be on the lookout for an end to Intermediate wave 5 = Major wave 1.

There is no way of saying how far a 5th wave can go. In extremely hostile situations, it may fail to even match the high of its corresponding wave 3. In very favorable situations, it may extend and extend. I think what I am labeling as Intermediate wave 3 is already extended. If I am right, it will be unlikely for Intermediate 5 to extend as well.

If there are problems that Fed knows and big money of the market knows (or senses), even if the above count is correct, it may not exceed the recent highs by much.

Depending on how deep Intermediate wave 4 cuts, and how long it drags, sentiment may cool off enough to give us a good run for Intermediate wave 5.

Let’s look at a bearish alternate with the context of the larger bullish count


Under this scenario we are done going up and a major C wave is in its early stages. This will definitely cause an OEW trend change in coming days or weeks, and it is not something that I would be willing to sit through with prayers on my lips and hopes in my heart.

There, of course, can be many other wave counts. I can think of more bearish and more bullish scenarios, but I am sticking with these two for now. It all depends on how price behaves in here and how it bounces when it bounces.

I make jokes about all sorts of market fads and fetishes: Hindenburg, POMO-POMO, mass-media harp on seasonality, whatever. I find them ridiculously funny, and amusing

Yet, I am dead serious when I observe market reactions to events of significance, especially when everyone expects one thing and market does not cooperate.

Recent FED purchases of the bonds have not prevented money from moving out of the market. I am willing to give it the benefit of the doubt (not the benefit of my money) and count it as a correction. But, as I said last night, it should not result in a mid-term OEW trend change before I get something that I can call an intermediate wave 5 up.

It is very important to listen to the message of the market and to monitor price behavior around important levels, let’s just try to do that.

All levels and analysis of last night are valid for tonight (nothing happened in the market to change anything)

Have a Nice Evening!