Just like rotation w/in the circle of life (fixed income, FX, commodities and equities) it also occurs w/in the context of our markets. The S&P 500 has different weights given to different sectors. Take for instance, the financials (and of course the topic of this post) – in 2009 they made up only 8% of the index. Now, in 2013 they are almost 17% of the index. Technology, is the largest component of the index at 17-18% and it has stayed that way from 2009-2013. So, the banks have, essentially, doubled their exposure w/in this index and are, pretty much, the largest portion of the S&P. So … what have we been following w/ this sector over the past years ….?
in 2007, as the market was exploding higher, I again started to see some disturbing signs. The parabolic move in housing, the corresponding parabolic move in oil (which as the time made up 15% of the index and is now around 10) all showed that the sector rotation playbook was in full affect. That is, the banks will, historically lead us UP and start us DOWN – BUT – ENERGY will be the last to go. So, our first chart shows the sell pattern completing in the banks as the we came into the historical 2007 time frame. Couple things to take away — 1) the sell pattern worked but in the context of the S&P, which continued to go higher, we had to shift our focus to energy and look for that top to come in before the general market would start down. I presented this analysis to the multiple institutions that I was working w/ and for at the time and nobody wanted to hear it or pay attention to it.
The rest is, of course, history ….that pattern was extremely powerful and the financial industry collapsed.
One of my favorite gigs was working w/ the When2Trade Group and putting out institutional ideas around potential investments. We did it really really simply — as you can see below we gave a ticker, a price and a risk and some targets. So, mind you, at the “height” of the crisis I said “well, it’s time to BUY the BANKS.” And according to the now defunct, CNBC segment “trading blind” put out the following across the wires (went out to 100’s if not 1000’s of institutional desks)
Looks like a “blind squirrel found an acorn” again ….well, here’s what I saw and why the BUY PATTERN was so powerful. Spend some time studying if you want, or not, but the pattern was there and as a pattern recognition trader — what the heck, had to give it a shot.
Fast forward to the present and we can see a couple things: 1) a major sell pattern is close w/ in the 20-22 range AND the banking index isn’t even CLOSE to new highs. Hmmmmm
more to follow …
Since I’ve started a financial blog a couple weeks ago the response has been wonderful. THANKS … I have had multiple inquiries into doing an analysis of the equity market in the US. What I’ve tried to do is go thru 3 out of the 4 components of the circle of life (fixed income, commodities, FX) and show the larger macro view has played to a pretty well defined script. I have held off doing the equities because I’m trying to put the pieces of this puzzle together.
WITH FULL DISCLOSURE, and you will expect nothing but that from me, I HAVE TRIED MULTIPLE TIMES TO SHORT THIS MARKET AND HAVE BEEN DEAD WRONG ON THE DIRECTIONAL MOVE OF THE US STOCK MARKET. I STILL REMAIN A BEAR, BUT MY WOUNDS ARE NOT DEEP ENOUGH TO THROW IN THE TOWEL. So, unfortunately, I might bring some bias to the following couple of posts, however, I have spent the past couple days bringing out my eraser, licked my wounds and pride, and have methodically worked my way thru a ton of charts…trying to withhold a bearish bias I am objectively just looking and explaining what the charts are telling me.
The charts below are ETF’s of some of the worlds largest and, some could argue, important exchanges out there …the cliff notes of these charts is as follows:
CONCLUSION: since the top in 2007, none of them have made new highs, unlike the US Equity Market. Why?
UPDATE: pattern appears to have held. too early to call a new trend in place, will obviously need to survive the first major pullback. w/ such a major down trend in place, expect the lows to be attacked again or not? A “normal” correction will be very bullish in my mind.
been watching SUGAR for a while and, particularly the 16 dollar area on the continuous contract. this target has been HIT and, you might want to stack up on sugar products because it has the potential to be a big bottom … go get your fruit loops or coco puffs or what have you …
have a great weekend and off to the Nationals Game … 1% chance, you never know!
so, target zone depicted above and here’s the latest, up to date action:
Since it’s top in November 2007, the POUND has followed a nice script. It’s been extremely hard, I can imagine, for long term trend systems because it’s been stuck, I believe, in a multi-year triangle. As you can see from the charts, if this analysis is correct, then new lows below 1.3500 will be a reality. What I believe might have just completed is a 6+ month expanded flat correction, which appears to be the top of wave 2. I have not entered, yet. Am waiting for some confirmation and a lower time frame pattern to appear to allow me to manage risk. Please see the charts below and let me know if you have any questions.
Quickly, I’m wondering if it’s OK to say “I’m really not sure.” A case for one more low move on Silver was shown last week and, in part 1 we discussed how the gold/silver index certainly looks like a nice bottom has been carved. As you can see, I am trying to post the “past moves” to show how we are able to use these moves to try and paint a “yellow brick road” to follow … the only issues w/ our yellow brick road right now is Gold might have put in a good low while silver hasn’t…that divergence leads me to I’m not sure. What would I like to see happen …? Well, as a dollar bull, I would like to see the metals make one more move lower and then we’ll at least have an idea of the path (or a better one — nothing is certain) that they have decided to take. When I say metals I mean Gold and Silver for now. This week I will catch us up on the march up and down of copper and palladium, followed by oil.
Take a look, a case can be made for either and that’s the beauty of the markets … it’s all probability and the ability to manage risk and deploy capital …since I am a little cloudly on the count I’ll give you a quote “it’s always better to be out of the market wishing you were in, than in the market and wishing you were out…”
Lastly, I would like to take the time to personally thank Mike Jenkins (www.stockcyclesforecast.com) for everything he has taught me and continues to teach me …and, of course, my true friend and wonderful man, Larry Pesavento (www.tradingtutor.com) He has helped me in so many ways beyond trading ….two amazing men.
Here are the charts …and, just to show you some “music” I am putting a musical gold chart in …. note how the “gravity center” and the last “note” of octave 2 were on top of each other …coincidence? Yes, a complete coincidence because the fundamentals had everything to do w/ it …. or not.
After the Silver post the inquiries regarding Gold have flooded in … so, in part 1 we’ll take a look at the Gold/Silver Index. The $XAU is the Philidelphia Gold/Silver Index and consists of 16 precious metal mining companies. This index and the $BUGS are the two most watched precious metal indices in the world. The index and the spot prices of Gold and Silver have moved in sync, nicely at the low in 2008 and mostly on the way up and down. The interesting aspect to look at is the lag in the spot gold price once the index had reached it’s target …this is what I’m looking at for a reference point. As you can see, the recent low in/around 82 was a very strong harmonic target and fits nicely into a potential big low for the index. However, when we show spot Gold in part 2 we have the potential (which would fit nicely into our preferred sequence of events) for the Spot Gold to turn in/around here for one more low. I would like to see the $XAU consolidate/pause/bounce around the recent lows while gold finishes one final leg before beginning a POTENTIALLY explosive BULL MOVE. Stay tuned and enjoy the charts … again, know nothing about the fundamentals of the Gold metal or the 16 companies just following the bouncing ball of patterns that can make very nice entries to manage risk possible.
Will update the Spot Gold chart later this afternoon or tomorrow … back to mowing the grass.
$LNKD on a great run … no doubt.
However, certainly appears some stiff resistance is overhead. Wait for a signal reversal candle/bar (weekly) for confirmation that we are at/near a top.
Notably, w/ IPO’s , it’s tough to count the initial move. In this case, an ASSUMPTION is made that the first correction from 122 – 56 is a 2 and then we go in a very strong and powerful wave 3. It’s “easy” to see 5 waves and w/ this much thrust/momentum I am inclined to say this is a 3 w/ a 4 to come and then another buy after a correction. The major corrections have lasted almost a year 1-2 and (1)-(2). The minor corrections (3)-(4) are a good 6 months long so caveat emptor is warranted from “now” to perhaps another 5-10% higher ….
Have a great weekend.
and, as always, rock on!
PS — might be interesting to watch 261.80 and 271.82
Here’s an update to the AMZN charts below …while I still feel this count is correct, we did make another high. Therefore, new targets calculated. I like to call the following chart, below, “musical polarity.” As you can see, the blue arrow to the left is the “rock hitting the water” and it causes the “waves.” In this case we try to align price and time to PROJECT areas of support and resistance. We use the past support/resistance and time components to project potential inflection points.
Note how the first arc down EXACTLY nails the low in TIME ….I then use the next points in price to project using 1.1892 (musical note C of equal octave scale) and 2.0 which is the “next octave. as you can see they were important points in TIME and PRICE. The 3 o’clock position on the arcs are timing components. All this tells us is that we have a “good arc” or “good splash of the rock.”
Now my eye is turned to the yellow highlighed area in/around 2007-2008. Note, by expanding the initial arc by 2.618 (fibonacci) and 2.71828 (natural log) we have arcs that EXACTLY gravitate price to them and the timing of the low is precise. Again, all that tells us is that we have a good arc. Now, we project all the way up to the top of the circle and now we have a target zone. one of the targets was hit Friday and we’ll see if the upper is hit around 329. We have NOT been given a signal reversal candle so the trend is still alive ….again, I like the count so I’m now “looking” for targets to adjust/confirm targets.
Still believe and looking for a TOP in AMZN to come ….
The waves in AMZN ($AMZN) have been extremely harmonic and, quite powerful to the upside. I’ve included a set of charts that are mean to show you the “subdivisions” that lead to, as my best, subjective, viewpoint can produce. Elliott Wave is hard and you either “see it” or you don’t. What most people do is count and use it as their only technical method. I never use it alone and, usually, only count when I have some very strong targets that have appeared ….
So, as you walk thru the charts, what I’m trying to do is work largest to smallest and break down what I see as a possible count …. remember three simple rules:
1. Wave 3 can never be the smallest / 2. Wave 2 cannot go below/above the beginning of Wave 1 / 3. Wave 4 can’t overlap end of wave 1. That’s pretty much it …
So … here ya go. Expect a top followed by a pretty big correction and then one more new high…? Stay tuned ….
Rock on, always’
What do we know about Silver ….? Well, for starts it was supposedly found in 5000 BC , has a melting point of 1,763 F and it’s atomic number is 47. Also, it sure has followed an ORDERLY, MATHEMATICAL and rather PRECISE PATTERN for the past couple years. I don’t know a darn thing about the fundamentals of silver … I do know it goes UP when there are more buyers and DOWN when there are more sellers. I like to tell people I’m an “Intermarket Musician” in that the only thing I do w/ regards to equities, FX, fixed income and commodities (I like to call them the circle of life) is look for PATTERNS in price and time based on sacred geometry and music. I draw pictures w/ crayons …
So, I have fielded a TON of questions about SILVER and also just watched another financial SILVER commercial and thought, “well, since JC convinced me to blog, perhaps I should post the moves in SILVER and the POTENTIAL move to come and a relatively SAFE and RISK CONTROLLED opportunity to buy ….”
I apologize in advance if the charts get too technical (again, it is BartsCharts) but it’s what I’ve trained my eye to see and since I have NEVER taken an economy or business course it’s this language that I pay attention.
The charts above show the “center point” for a foldback pattern … foldbacks are powerful in that “as above, so below” / “ying yang” / “black white” they will come into a point and leave a point in the same fractal. Note, the center points and the blue arrows pointing to the corresponding “node” which is balancing the move. Bottom line, at key nodes on the foldback you can find different techniques to get LONG and UP UP and away ….kaboom, hugh?
Chart above shows the POTENTIAL move coming …
HEIGHT of the MOVE can equal the length of the base … as the move is in full affect, I was starting to shift my mindset to taking profits for clients. Bottom line is like the $AAPL chart (potentially $MA), parabolic and emotionally fueled rallies will be taken out, very powerfully. So, targets are being found and discussed. However, remember the left side of the chart “a “blow off” spike could occur” KABOOM …..
Silver had finished it’s very PRECISE and ORDERLY pattern … the red arrows in the lower image are showing one more potential target around 51, but overall, the run had completed. Note the top chart … 3.1412 was used a bunch, musical notes were used and PLEASE NOTE a top at a natural square 7*7. Interesting …hugh?
Yes, your seeing some Elliott Wave counts. On a longer term basis, the wave patterns appear pretty harmonious so I’m sticking w/ them. My issue is IF the top at 49 was a big wave 3 or wave 5. Right now, I’m favoring it was a wave 3 top and we are correcting A-B-C in 4 w/ a 5 and new high to come. Here’s that picture:
Let’s get it on … not bad drawing pictures hugh?
Rock on, always’
Homebuilder’s Index has “recovered” nicely, as has everything, from the 2007-2009 timeframe. That being said, we have a very symmetrical and orderly pattern that has recently completed on the weekly timeframe. Additionally, take a look at the daily timeframe – the classic head and shoulders pattern pops right out at you. Stay tuned, but perhaps the big bad wolf is about to pounce and blow the house down? Or, not ….