A broken record

I've been claiming that we're "near the top" for almost a month now. Yet, every time we have another bullish day, I feel more confident that my analysis is correct. I last posted about the overall market here. I feel that the market will print a long lasting top in the next few days (perhaps even today), and that we should soon start a sharp decline.

The above daily chart of SPY highlights my elliot wave count. As I mentioned in earlier posts, I think we are in an ending diagonal since early Nov. 2008. We are currently near the peak of Wave-iv. You can see that since the Mar. 2009 low, price action has unfolded in 3-waves. Wave-a was a standard 5-wave rally, whereas Wave-c appears to be an ending diagonal. You can see that there is substantial resistance in this zone:
  • the upper trendline of the 5-month ending diagonal
  • the upper trendline of the Wave-c ending diagonal
  • the 61.8% fib extension of Wave-a
In addition, volume has been contracting as the ending diagonal has worked higher, a very bearish sign, and price is diverging with the MACD histogram. I think it's worth mentioning that WFC's magic earnings today have convinced everyone that the worst is over. However, I would think this is bullish near a low, not after a 30% rally.

As usual, time will tell if I'm right, but many signs point in the direction of lower prices in the coming days.


Anonymous said...

Hey narayana,

Don't take this the wrong way but just a suggestion, as long as there are bloggers/traders like you who keep posting their bearish calls and reluctance to throw in the towel on open shorts for the time being, the crooked ass market makers will keep pressing on the gas pedal because they know there's still money to squeeze out on the upside. What's the risk to them? Along the way, they're just bringing in more dumb money that'll be left holding the bag once they finally pull the plug. The higher they take things, the thinner the air, the dumber the sucker, and the easier it is to steal. And if you've been trading long enough, you already know this but the top will probably coincide right about the time most bears finally decide to concede defeat or get blown out entirely.

What's worse and what's really keeping the top from coming is smaller retail traders/bearish bloggers keep publicly letting the crooks know that they haven't capitulated yet and are actively adding to losing positions instead of cutting them loose and stepping aside for the time being. The more you're wrong, the more they're right and they keep adding to winners until they stop working. If you really wanna see the top get put in, at least stop posting your bearish conviction online as a collective group and step to the sidelines already or at least make it appear that way. I know it sounds crazy but once new shorts stop getting initiated, the mofo market makers will know that it's about time to let the air out because there's nobody left to squeeze and we'll stop seeing phantom PPT style end of day rallies on vapor. And naturally, the only one's left to profit will be themselves as they've been selling shares/calls to all the late sucker bulls and/or buying cheap otm puts from late and overly optimistic put sellers looking to collect some "safe" premium. They'll gladly reverse their positions so they can rake it in again on the way down.

I'd really like to see the collapse/pullback too but I think we're heading higher still until the last of the greedy, most stubborn bears that have thus far been unwilling to lock in their enormous profits from the past year helplessly watch it all evaporate into thin air. (Sorta like the what happens to ignorant bulls who can't identify market tops and hold on the whole way down.) And who knows, it wouldn't shock me to see a lot of bears back in the red after having been up over 100-200%, as they keep doubling and tripling up on losing shorts. So just plug your nose and buy the market, it's cheap and the rally is just getting underway.

Narayana said...

Thanks for the comment

rrman said...

I don't think the MM's pay much attention to a blog like this....they know how the herd thinks and they play their playbook