Gaps

Gaps are points in the price progression that are skipped over. An example of a gap is included in the Apple chart from the beginning of the year. Price often returns to "fill a gap" as it did in the Apple example. On Friday of last week, many stocks and indices gapped lower, so expect many of them to come back up to fill the gap before resuming downward. There is a chart of Abbott Labs attached that shows a nice filling of the gap in the short term. It is done is such a way that there is a high probability Abbott will not go to a new high in the near future. Short term trade (high risk) for ABT - December 55 puts selling for $1.50 should go to $3.20 in a week or two.

Is it Real?

Well, today's Dubai crisis could just be a short term correction or a turn for a new down direction in the markets. I propose that it is the latter based on several long term factors including:

1. Dow Industrials has completed a 50% retracement from the March low

2. All markets are reacting negatively including metals and stock markets with no exposure to Dubai

3. The long term dollar chart has completed a pattern that indicates it will have a dramatic turn upward (chart attached)

4. Numerous individual stock patterns suggest complete ABC retracements from the 2007 highs as well as having reached strong resistance levels

However, having said all of that, confirmation will not be complete until the S&P 500 closes significantly below 1070

My recent previous calls:

AXP almost hit my target of 42.50, reaching up to about 42.20.

MCD hit 64.50, much lower than my low 70's target, but I believe it may still have strength to get there but that depends on its pattern in the coming downturn.

S&P 500 went beyond 1080, up to 1110.

retracement

Summary:

1. AXP heading up to 42.50.

2. A few more up and down days in the indices with S&P500 working it's way to 1080.

3. MCD continues higher but reaching short term resistance. Buy more if it goes to 60.

I made a call a while back suggesting that American Express (AXP) was ready to turn down at the 50% retracement from the all time high. However, it has now decisively broken above the 37 mark and looks to be heading to 42.50 which is in the region of the 61.8% retracement and the 200 week moving average. McDonalds continues on its way to 73 though is reaching short term resistance in the 62 area. The major indices appear to be in a retracement mode as stated recently. This pattern must be watched carefully because of the potential for numerous stocks to break to new highs. Some indices could follow. There is significant resistance for the S&P 500 at 1080. Breaking above that level significantly would bring into doubt the 1100 recent peak as a long term peak. For the time being, the S&P 500 is hitting retracement targets as recently noted. In the short term (several days) I am expecting some down days then a few up days and that is when we will reassess to see if an upward retracement is completing or stocks are moving to new highs.

BNI and retracement

Let me make an adjustment to my comment on BNI from the last post.... BNI is not likely to go above 83 unless Warren Buffet decides to buy it.

Overall I think there is still some retracement action going on in the markets, although the S&P did hit 1050 which is technically adequate for an entire retracement in a hard selling market. If there is an indication that the next leg down is underway, I will repost. One of those indications would be an S&P 500 close below 1025.

Short Term Update

It looks as though the major indices may have completed an initial leg down and are due for a retracement. It is impossible to tell how high it will go, but the highest expected for the S&P 500 is about 1080. It could be as little as 1050. Below is a chart for the S&P 500 showing a nice Elliott wave pattern. As for individual stocks, the calls on MCD remain. I am also closely watching AXP which looks to have a nice topping pattern completed but might retrace up to 35.5 before the next leg down. The short term pattern on BNI is uncertain but during the current index retracement, it is not likely to go higher than 83.

The turn looks real.

After Wednesday's performance in the markets, the top is almost certainly in. Selling pressure is heavy so BNI may not make it up to the 80's for a retracement, but MCD should make headway toward 73 as the indices do some upward bounces against the new downtrend.

MCD and BNI

My previous posts about topping indices have persistently been for short range tops. My apologies for not having noticed that trend in my chart reading. The current call for tops should be intermediate time frame, meaning that a new multi-month downtrend is starting. It may have already started, but not sure yet. I do not know whether there will be one more top or not, but if so it should be the last for a while.

On an individual basis, MCD is thrusting from a one year triangle, still making it's way to at least 73ish. BNI has a strong chart for a bounce to 80-83 but then enter a strong downtrend. It's around 77 now. You can click on the charts to see them bigger.

Not done.

Expecting the Industrials to go to a new high (see chart). Not sure about American Express. McDonalds is on track toward 75 as last posted.

Long Run

We have had an astounding run in the markets over the past 6 months and portfolios should be looking pretty good for those that have been long in the markets. I had been expecting a shorter retracement and stopped posting in June after mentioning that the Dow could go as high as 9500, RIMM to 90, IBM to 110-115, and Qualcom to 46. As of this week they hit 9900, 88, 122 and 48ish respectively. For these particular stocks, I think the highs are in. A chart of American Express is included showing a 50% retracement from the all time high. I predict AXP to 22 over the next few months. I also included McDonalds which looks like it might thrust out of a triangle pattern to shoot up to 75-80. The overall pattern of the major indices is somewhat difficult to read, which usually means a retracement, not an impulse wave to new highs. However, that is still in question in my mind because of the inflationary moves by our government. Despite a lot of money printing over the last year, I believe the dollar is close to a turn that should take the dollar index to over 100 over the next year. The first step for that to happen is a close above 78. In the coming weeks, I will post some more specifics and charts about what I have mentioned. Also of note... it has been one year since the shit hit the fan and the markets started an Elliott 3rd wave down, losing 30-40% in a month.

Well, the top was not on May 8th.  There are many stocks that have a triangle appearance from May 8 to 28th, so for many of those, the current upswing is a terminating 5th wave in which the upswing should only last a week or so.  For others, May was simply a b wave and therefore there could be another run as big as the leg since March 9th.  For the stocks that I had mentioned previously.  TWM should go down to 35-40,  IBM up to 110, possibly 115, QCOM at least 46 and RIMM at least 90.  The trend is still up, so the bear is off the table for now.

New Trend

There is strong evidence that the drop in the markets since May 8th is the beginning of a new downtrend. I apologize for calling it a bit early in mid April. May 8th is a strong cycle date and there are numerous other indicators as noted on the chart. You can click on the charts to enlarge them. The small caps appear to have more potential for a stronger move to a new low.  The target range for the Russell 2000 is 250-300. This can be played using TWM which is a double inverse fund. I also believe that tech stocks should take a hard hit. There are 3 in particular with appearances that suggest a strong trend down is coming. IBM (101.37) should go down to at least 70 with 50 as another possible target. RIMM now at 72 should go below 40 (unfortunately there is a large gap up to 90 making this a riskier play). QCOM has also done a beautiful retracement from it's high in mid '08. It's target is 21. Some new highs are possible but should not last long. I expect these downward moves to take approximately 5 months. Any upward moves this week in the Russell 2000 or these individual stocks should provide good opportunities to short them. 
Good luck.

The money is in the waiting.

A somewhat better way to put the current market situation is that it is in no man's land.  The dow industrials has the potential for 9500, but it is overbought.  The money is in the waiting and I am waiting for a pattern that looks more reliable.

Failed resistance.

It looks like these markets have more up to go.  However, I am a bit leery of jumping on the upside mid-run.  We got stopped out of SMN at 23.50.  TWM (Russell 2000 inverse) I will still hold onto.  For individual stocks, MMM looks like a completed pattern and I expect it to go down to 52 as long as it stays below 59.2.  MCD looks like it has strong upside potential.

Next leg down

The Dow Industrials have reacted appropriately to trendline resistance.  As long as it does not move above the red line, it should make it's way toward 6000.  It will probably take 6-8 weeks.  TWM (now at 54.47)  and SDS (now at 67.19)  are good inverse funds to take advantage of the impending drop.  

Short term uncertainty

Originally posted April 8, 2009 by andrewgutman

I apologize for the back to back posts, but an indicator has changed (vix dropping) and left me uncertain about the next move in the market. Therefore, I am exiting positions and waiting for a more clear picture.

5th wave may be coming

5th wave may be coming
Originally posted April 6, 2009 by andrewgutman
There are numerous sectors approaching resistance and developing divergent oscillators. I believe there will most likely be a strong selloff in these markets, probably starting this week and lasting for a month or two. Below is a chart of the Dow Industrials explaining what I believe is happening. We must still wait for confirmation. Specific recommendations will follow in the days to come. Happy Trading to you.