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  • Global Outlook 2 comments
    Feb 7, 2010 4:42 AM

    DAX of Germany, is basically finalizing an acceptable C wave down.  That is the good news.  The bad news is that it is now over-extending the v-th wave of the C wave that can potentially result into a spiral meltdown toward the 5100 area.  For now, DAX is at 5434 and is supposed to make a lower low on Monday probably into the daily 200ma support at 5402.  That will be good news if DAX can use the 200ma support since it will become a higher low and investors love buying rallies coming off higher lows.


    I forgot the ticker symbol for Shanghai.  I used the Szenshen instead:


    Szenshen is an excellent candidate for swing traders but since FXI follows the Hangseng index more than the mainland indexes; very hard to trade using FXI since the Hangseng index has more likely completed a 1-2-3-4-5 rally on the weekly chart same as EWP of Spain and are now suffering the first stages of multi-month if not a multi-year correction.  The brightest candles burn the fastest, and so they say.  Here is Spain (good for trend traders who wanted to go short scalps or daytrades): 


    Kospi of Korea is still an unknown;  it has a potential truncated 5th last March 2009;  so it is a candidate to be able to reach the last high of May 2008 without suffering a deep correction.


    Hangseng also has a potential truncated 5th down on the monthly chart.  It is still well above 18,609 which is the level by which the validity of the truncated 5th will be put into question.

    Taiwan is also a shooting star on the weekly chart.  A much better performer than Szenshen, EWP, or Hangseng.  Another bright and shining candle running out of wax?  Below 6976 and Taiwan Weighted Index should start going thru a prolonged correction.  Until then, Taiwan is still a buy with extreme caution.  Not suitable for the faint of heart.

    Japan or Nikkei 225 is the one I am stalking since December.  It was able to form an acceptable 1-2-3-4-5.  A weak rally as compared to practically the whole world, but a completed rally nevertheless.  Who knows if Nikkei was able to already complete it's multi-decade "supercycle" correction.  Nikkei has gone down deep enough it should not be required to correct for 40+ years or much more.  Either pay the fine or serve the time;  Nikkei did both from 1989 to 2009 to correct the searingly hot rally from post-war Japan to 1989.


    Sensex of India is a conumdrum;  but since the structure of Sensex at the top of the daily chart is practically identical to that of DAX, SnP500, Indu, and Compq;  it is a good candidate for swing trade using the US ETF EPI.  But I would rather trade SPY than EPI. 

    It is good to know that 5 of the largest stock market indexes in the world have identical patterns at the top of the daily charts.  Meaning, a 5th wave rally on the weekly chart is still missing or far from being over at this stage.


    Russia RSX has already completed a 1st wave up.  More likely it is forming a running correction 2nd wave.  Brazil will need a lot more time to study than what I can spare right now.  More likely a 4th wave has just completed from the March 2009 start count.  But then EWZ ETF of Brazil must rally now for the 5th or else.

    For the broad index SnP500;  this is the weekly chart repeated here:



    US, Germany, China, India, Korea, and Russia, among others, are still not in danger of potentially making a prolonged correction at this stage.  Basically, they are much more capable of running a 5th wave rally than going into an immediate multi-week meltdown.

    Also, OIL which is the leading indicator for the global economy had been doing a wide trading range on the daily chart that is far from being bearish.


    This is Australia weekly chart;  another leading indicator:


    But of course, I can be wrong.  So use stop loss provisions for a potential 5th wave rally swing trade. 

    Investing right now is not practical specially with Szenshen potentially forming a triangle on the daily chart.   A triangle is most often found in 4th waves or the iv-th wave of a 3rd-wave.  Sooner or later,  China will have to make a prolonged multi-year correction if the triangle scenario at the top of the weekly chart turned out to be true, which at the present stage is the highest probability scenario. 

    A few bad apples (Dubai, Greece, Spain, Portugal) does not mean the whole cart is already rotten.  The good ones can still be sold at higher prices since they look so shiny and yummy.  And there are less to sell by throwing the bad ones.

    With  investors fleeing the Euro$, most of the expensive commodities such as gold, silver, copper, etc,, and those countries now in trouble;  there are potentially more money now available looking for stable countries to invest - at least for a 5th wave rally, technically speaking.

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  • The shark
    , contributor
    Comments (159) | Send Message


    Aarc I have gone through all your charts with as open a mind as possible. I remember your advice some time back where you stressed the KISS principle. In almost all your charts it appears to me that the drop over the 2008/2009 ended in March 2009 - either in a 1-2-3-4-5 or and a-b-c. Wave structure and fib would enable a reasonable conclusion. It therefore appears to me the rally since March has been largely corrective forming either a-b-c (most) or 1-2-3-4-5 patterns.


    If we assume the 2008/09 was either Wave 1 or A down then the March rally was Wave 2 or B, with Waves 3,4,5 or C to follow. Admittedly the January tops are all open to interpretation. In my opinion they all exhibited extensions of an intermediate October top - therefore the c waves by and large depict double zig-zag patterns. In the cases where 5 waves are discernible the 5th wave was always the shortest.


    In terms of the current wave structures they are in a Wave 2 bounce or a Wave ii) of 3 bounce. My conclusion therefore is that we should see a bounce early next week but by Friday we should see very strong selling.


    If you then consider the state of global economic play this makes more sense to me. Is it a case of fitting the wave to prevailing economic "bad noise" - it could be - but in a very confused market I guess you need to take a view - to me "protect the nest egg" and if you miss the initial thrust you remain solvent with enough up side to be rewarding. Get it wrong,with the destructive Wave iii) of 3 down just around the corner a big wall of worry may just be building.


    I hope you are right - I would rather miss the initial part of a rally than have to endure a Wave 3 down.
    7 Feb 2010, 03:26 PM Reply Like
  • aarc
    , contributor
    Comments (3875) | Send Message
    Author’s reply » I think the markets are trying to force it's will (big investors - investment banks, hedge funds, mutual funds) of achieving usual "run of the mill" targets rather than sticking with short term patterns or program algorithms. They do have short term, medium term, and long term objectives. And they have many ways of enforcing their objectives.


    Measure the distance or # of points from Mar low to May high (subtract); then multiple the difference with 0.79; then add it to the July low. That should be the 3rd wave target which is either Sept high or Oct high.


    1150 is a very important price point. Most of my price projections since Oct and Nov had been pointing to 1150 as the highest probable target.


    1150 was achieved. The problem was that 1150 is a major confluence of resistances on the daily, weekly, and monthly charts. Savvy investors would be taking some profits off that massive resistance and traders would be shorting with gusto at that level. And so the bears won with 4 weeks meltdown.


    The next objective is the 5th wave which should be another 0.79 of the 3rd. I just used the previous computations and multiplied it with 0.79 and came out with 164 rally points needed for the 5th.


    Finding the 4th wave is the hardest part. The easier way to find where the 4th should end is to use the target of 1233 for the weekly InvHnS or the 1231 weekly 200ma resistance.


    Subtracting 164 from 1231 produce 1067 as probable target. That was basically the daily 200wma support at 1064. But the daily bar as Spx approaches 1064 was a WRB or Wide Range Bar; practically there was no way the 200wma support can stop that type of plunge last Friday.


    So I used the Oct high instead as the 3rd wave and simply used the fibo projection tool to make rought estimate on where the 4th should end with a target of 1231 and the tool pointed at 1048 as the start of the 5th.


    Fine tuning the wavecount using the ES 240min 24-hour chart enabled me to find the equal move target of 1040.75. Correspondingly, the target for SnP was 1044.45 or about 4 points below the ideal target of 1048 above.


    But of course, you will have to consider the time of day. The cavalry usually arrives at 2 pm on a day like Friday. If they did not arrive, it would be a slaughter on Friday and next week would be a bloodbath.


    They did arrive as expected. Next week is the new battleground; there were 2 days of rest and preparations on the works. Obviously, the bulls have an upper hand since next week is very light in news. No news is good news for the bulls after suffering 4 weeks of bad news.


    1-2-3-4-5 rallies do not end in an a-b-c unless it is a terminal triangle 5th wave (which requires a series of a-b-c's). the run from Nov 2 to Jan 14 is definitely an a-b-c; which means it is either a B-wave up or an X-wave connector since it is the type of higher high pattern.


    For Spx and Indu, the high of Jan 14 looks like an X-wave since they produced an a-b-c down (until proven wrong); while that of Compq; it is a B-wave up since the 4 week run down is a 1-2-3-4-5.


    For me that is good enought. So I have to look globally and see how their daily and weekly price structures can either reverse for a rally or to sustain further selloff.


    That is what the Global Outlook analysis is for.
    7 Feb 2010, 10:57 PM Reply Like
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