Over the past two months we have looked at numerous potential turn points for this 3rd of 5 wave bull market rally. Wave 3s move in typical 1.618, 0.618, or 2.618 of measured low-high length of wave 1's.
I have not made an update since March 9th, the reason being we were not close to any top numbers either in time or price-thus I haven't had much to say.
This last strong move, which I believe is a 5 of 5 of Wave 3, awaiting completion, has been led by Financials.
Financials have been very strong despite the fact the reality is some of these large banks will fail and only exist today due to free money, printed out of thin air, from the Central Banks. (The fundamental reasons never really matter, when trying to earn money in the stock market)
FAZ today formed a Hammer candle below the calculated Support<2>, combined with < 1 RSI<2> reading. History suggest that banks will begin to under perform the market going forward, until the overbought condition is corrected.
This chart is of a long term topping pattern known as: 3 Peaks and Domed House. Some well respected technical traders are watching the markets in relation to this long term topping pattern.
The question is-WHERE ARE WE AT IN THE DOMED HOUSE?
Here is Doug Kass of SeaBreeze Partners take. He has us squarely at the top at point 23.
Based on my belief that we are in a 3 of 5, not a 5 of 5, I doubt we have reached the top of the Dome.
In fact, based on the extreme upside we have seen in stocks like PriceLine and Apple, ala 1999, and that we are in an election year, we have to consider a top of the S&P well beyond 1500 as possible.
In the short run, we are looking for a completion of Wave 3. Here is a Kagi chart showing 3 successive 2% closes, outside the BBands,with not one single red sell signal in between.
Week to week fund flow data shows every month, money coming out of the stock market and has been for a long time. So, this extreme bull move is purely on Central Bank money printing.
The primary banks can not make money any other way, which is why every week Wall St calls for QE3. Free money and an ever higher Russell 2000 is the only game they have left.
I have noted on the SPY a 180 day time cycle from the October 2011 low; first week of April. This can bring about the beginning of the 4th wave correction.
Summation index measure the health/breadth of this rally. I have the $SPX overlayed, with EW counts. I'm running an 8 period mva.
Summation index is calculated by advances minus decliners. Currently we see declining stocks are out numbering advancing stocks, even though the broad index continues to make new highs. Big RED FLAG is issued when we move below the 8 period ma, as we have now done.
Notice after the completion of 5th waves, the index makes new lows, filled with impulsive fear. Then notice the WAVE 1's of the new up cycles, filled with impulsive strong buying.
I drew this up for you, because this is how you make the most money; by catching these impulse moves. The biggest, easy profits are in these wave/impulse turns.
You can beat your head against the wall trying to catch the next $20 in Apple or the next $2 in Bank of America, as the stocks swing back and forth daily; or you can count the waves, adjusting, readjusting the counts and price targets, positioning yourself for the turns as they get near.
This is why we are accumulating TVIX down here. Because we believe we are in a 3rd wave, 5 of 5, about to move into 4th wave impulse down.
Too many novice traders get hung up on bottom price and exact timing. Let me clue you in: YOU WILL ALMOST NEVER BUY AT THE EXACT BOTTOM AND TIME.
$OEX50 breadth indicator measures % of stocks above 50 day. This just shows that the market is at the top of its capability to push a broader amount of stocks higher. This is not a valid time indicator.
Keep in mind, once markets top, they tend to go into long distributive patterns that generally can last 3-6 months.
This indicator may suggest a Truncated 5 wave, SPY making lower high to complete the trend.
Here is the XIV which moves inverse of the $VIX. I like trading the Volatility index, especially now days because there are so many good ETF and ETN products to use.
XIV is one that we will pile into, once we see a completion of 4th wave, and the $NYSI retakes the 8 period moving average. (We will cross that bridge latter)
You can see the XIV has closed outside its upper BBands, same as the SPY, and is nearing calculated resistance. Again, this is a wait and see for now.
Despite price/time technical possible turn dates past, the market has sailed past them by gaping above these resistance areas via the pre-market futures ramps.
The question is-WILL THE FED USE THE SAME BAG OF PRE-MARKET FUTURES RAMP TRICKS THIS TIME, OR IS OIL TOO HIGH AND WAR WITH IRAN TOO CLOSE-THUS THEY NEEDS STOCKS TO MOVE LOWER?
Finally here is a chart of TVIX-which has performed very well verses its peers the last 4 trading days. I also like that as of today, the TVIX and $VIX are now 1 to 1 in price.
This chart technically doesn't tell us a darn thing. (Sorry, I know you were hoping to hear otherwise)
When TVIX gets a point and figure or Three Line buy signal, I will let you know. In fact, I am waiting on that to purchase more shares.
What I can say is, stocks will do 1-4 day counter trends within the existing primary trend (which is down); this expired today. If TVIX can push higher tomorrow, then we are getting somewhere and I will probably add to my stash.
Keep in mind, if you buy TVIX at $17, or $14, DOESN'T MATTER. Your accumulating for the 4th wave turn.
Now, I sold TVIX last time at $20, because it was clear, the market wasn't going to turn, thus locked in some profits. But, I have been buying it back on the new lows.
Being down a few points on TVIX is like Kentucky Basketball being down 10 points with 35 minutes left to play. (It ain't a big deal, don't fret about it)
Once again, the markets are moving into a period of price/time ratio that could bring in a 5 of 5 of 3rd Wave top.
Until this top is in, and the 4th wave is in motion, my post have been a little less in frequency. If I'm not saying much, its because nothing has changed and we are not near any price/time targets.
I've said this before, will say again, don't be surprised at how far this market can go up, and by the same token, don't be surprised at how far we are going to go down. (I expect S&P to bottom around 400)
We live in times of extreme bubbles and extreme collapses, this time will be no different.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long TVIX and will add to the shares as noted or sell the shares without notice based on chart patterns.