Aug 28

Aug 28 Our cycle date windows begins today. INTC made a new high as expected. The setup for the hook is in place.

9:45 a.m. We will be travelling on some work related issues for a couple of weeks. The Put call ratio is 0.64. We can do with some decline. We added some SPY short positions.

12.30 P.M

We will be off in the afternoon and be out for a couple of weeks or so.

A recap our stance:-

Nice decline (at least nicer than the past few declines). More so, it comes bang in on our cycle highs. We showed you a big 34 week cycle coming in UTX (and also the DOW) around first week of sept1. In our cycle model, today was the top of the may 13th (low) cycle. Usually when multiple cycles, elliott wave labels match up we expect see a sharp decline. We will give this decline upto 15th Sep. We must break back below the 1000 and very preferably at least visit last swing low 980 by then.

Accordingly, our PF has various kinds of put and short positions on SPY, FXI, QQQQ, UTX. We also have long positions which are essentially house money in dividend paying stocks like INTC. We usually take profits in stocks.

Now, if we don't see a decline by then - it gives an important signal that the market is rallying even on bearish cycles. We must respect that. Since then, the market can rally into november and even Mar-May 2010 possibly.

Our preferred scenario is however by our cycle work a decline into oct-november. Followed by another advance into July 2010. Fundamentally, we think a second stimulus will be passed by the government or atleast some of the spending of the first one will be brought forward in time.

See you folks in a couple of weeks.

We will off in the afternoon and be out for a couple of weeks.

Aug 27th

10:10 a.m Much better Put call ratio today (for the bears - 0.84). We don't think 1016 will give way here.

10:30 a.m We are going to act so - If the market dips below 1016 (briefly) and then back up, it will be a shakeout of weak longs and would propel the markets to the 1040 region. If we spend time below the 1016 region, say two hourly candles then we are going to correct more deeply.

If you have noticed the intra day action lately in the transition from correction to rally there is a very familiar pattern i.e. bounce into a support level, retrace back for a double bottom and a rally, followed by a triangle consolidation to a new high.

We think a rally is somewhere around the corner, as the put call ratio (PCR) creeps up above 1.

11.00 a.m Nat gas hit our $2.7 region.

Is there capitulation? - maybe.

Is it time to buy? - Not until we clear the 20W moving average. Given how compressed nat gas prices are, there should be plenty of room to run if we close above the 20W.

12.00 P.M And the pattern strikes again. Unfortunately we missed the pop in our lottery long BPOP.

12.15 Lottery CIT exploded and with us this time :-)

1.00 P.M Out of CIT for 4%, not bad for 1 hour. On another note, watch GS intraday chart.

Does the pattern remind you of some other chart?

- Doesn't it resemble the SPY chart since the march bottom? If it holds true, we should

a failed HnS and a thrust up. Sweet fractal if it comes to fruition.

5.00 P.M Big move coming soon - four tight range days. No prize for guessing it should be to the upside. Another of our lottery long PRKR exploded. We believe there is lots more upside to this one. It has a 17% short interest as of last record. If that still holds, we could easily see a 50% move in 1 week. That being said, the "quality" of lottery longs has been going down for a week now. We can find very few unexploded ones with the RIGHT setup. Ofcourse, we will post here if we find any. We are curious to know if you did manage to catch any of these.

Cycle wise, tomorrow onwards, we are also into a big cluster of cycle dates from 28(+/-) until Sep-mid. Lets see if our cycle model holds up. Meanwhile the advance-decline line continues to make lower highs in the face of the advance.

Aug 26

10:30 a.m We are not going to fall if the Put call ratio is this bearish

10:50 a.m Volume is looking good today. Most trend reversals are presaged by a volume expansion. Ideal for the bearish case would be a big volume day and a small price movement.

12:30 a.m. The put call ratio is at ~1.15. Quite a few expecting a correction. Look at INTC, looks like it has recharged its energy.

2:30 P.M The strength in INTC is telling. We believe a breakout to a new recovery high is in the cards for this name over the next week or so.

2:50 P.M INTC looks destined to break its long term resistance line from the Oct 2007 highs - the bear market trendline. Meanwhile the put call ratio is still hovering around 1.1. This is not forebode well for the bears.

4.06 P.M Another day, another green candle. The put-call ratio is at 1.04. $CPCI closed at 1.9.

Today smells, feels, looks like consolidation. There is a big move coming one way or another in the next couple of days. As of now, we are guessing to the upside, following INTC's lead. Look at SMH, these are the leaders of the NASDAQ. SMH's formation doesn't look like a top.

• The upside hook is missing.
• The indicative high volume day is missing.
• No long tails above either -- look at the the previous Aug 7th top.

The weekly chart of GS looks like a bull flag for another blast up into the 175 area.

Can a bubble form in stocks again?

While we maybe thinking far in advance, if the markets don't turn by september 7th or so, we have an intermediate high turn date on november - meaning markets could rally all the way into that turn date, it could be a rise similar to the one in the shanghai index. So we give the market some time to turn down by mid september, we would have an inversion in my cycle model and then higher prices into our november turn.

Fundamentally, considering the FED's liquidity pumping scheme a bubble is not far fetched.

Additions to the Lottery List

Some more additions to the lottery list

1. CPF (target - 6)

2. BPOP(target - 3)

3. MTXX (target -??)

4. HNBC(target - 8)

5. HW(target - 4.2)

6. KNDL(target 16.5)

Another one to watch is HMY (symm triangle) -- which way is it going to break??

We would like to add, most of these are fundamentally trashy stocks. So one needs to time their entry and exits precisely. For this we use a simple trend following technique of a 5MA x 20MA crossover on a timescale of one's preference. The exit strategy is a close below the 5MA. Since these are so explosive a 15m timescale usually suffices to capture a decent 5-10% move.

Additions to lottery longs

Since our lotteries have recently exploded, we looked for some more and listed below are additions to that list.

1. DPTR(target $3)

2. HTE (target $6.5, bull flag)

3. PURE ( target $2.25)

4. OSIR (target $15.5)

Aug 24

10:10 a.m Dumped all KEY at 6.93. Picked up some PACR @4.05.

10:30 a.m Whoa! PACR. Sold 30% at 4.4

10:50 a.m PACR seems to be forming another triangle. Will add more on breakout. Our target is 5.21 eventually.

11.00 a.m Hmm Another lottery from the list below, DRL exploded. Unfortunately without us :-(

11.05 a.m And so did CT, hello, don't leave us behind!!! Stopped out of PACR at 4.3, Cannot complain with 7% in 1 hour. If it breaks 4.5 we will ride again.

11.10 a.m Stalking unexploded ones like IBNK. We may have to leave now for a meeting. We will be back in the afternoon. If you see explosive lottery longs do share :-)

12:50 P.M Short UTX@59.59

4:30 P.M Natural gas made it into our general target area of 2.7 (We believe the low was somewhere around 2.85). That puts our bias into neutral. Trading above 3.7 or so, should be the first signs that a multi month rally in natural gas is under way. Natural gas could even triple under such a sustained advance. This is not a call to buy but a call to watch. If the recent low breaks, 2.7 looms.

Lottery longs

Considering our last lottery long GGC (http://maybeitsclarke.blogspot.com/2009/06/lottery-long-ggc.html) literally exploded.

We believe we have another week or two of rally time. So these could really rally (10-20% in a day).

Here are some more from that list, and the technical pattern)

1. PRKR (target 3.57 - weekly bull flag, Short interest = 17%)

2. ABCB (target 7.3 - symm triangle)

3. AYE (symm triangle)

4. BAS (double bottom)

5. PWE (target - 17)

6. ABMD (target - 9)

7. CIT (target - 1.62, symm triangle)

8. CT (target - 2.41)

9. DRL (target - 4.39)

10. IBNK (target - 1.74, symm triangle)

11. PACR (target-5.21, symm triangle)

12. PGNX (target - 6.78)

Thrift is in a bullmarket

This is a long term chart of walmart. It shows a classical 4th wave triangle, with sideways consolidation of about 7 years. It rallied breaking out of the triangle for 1 year and has now looks like it has backtested the sloping trendline of the triangle. 12 months of rally seems way too small, both in price and time for 7 years of consolidation. We estimate walmart will reach $100 in the next 4-5 years. A bullmarket in thrift anyone?

Aug 21

11.00 a.m. Alright, that makes sense, no more talk of 38.2% retracement being the top. One should always feel uneasy when everyone watches the same level. Sold some KEY from yesterday. Still own some KEY. We still expect another consolidation and another push to complete 5 waves up from 975. We could be in the third wave here.

Nevertheless, while we understand we are a tad early, we have started building a short position, currently 2% of our PF. Added a sliver of SPY short.

12:00 Gone for the rest of the day, limit order in for KEY at 6.99.

5.00 P.M Back, unfortunately looks like KEY did not hit 6.99. But no avail, we still expect it to hit $7 next week. On another note, look at the put call ratio $CPCE 0.51 - we are getting there. Meanwhile JNK:LQD failed to make a higher high. Stealth selling going on behind the scenes.

Making sense of it

UTX is one of the stocks we use for our DOW cycle work. It has an almost perfect 34 week top to top cycle. Also shown is the elliott wave labelling, Will 34 weeks be another top? It is also getting close to the 200 W ma and the 50% retrace has been achieved.

The 34 Week cycle comes in on the first week of september.

We re-ran some cycle models today. As of now we think -

This is one reason to believe there could be one more push to the 1030 area by the end of august which should resume a bear trend for 2-3 months. Below is the chart of CMA (most holding of BKX are similar).

It has textbook EW labels and is missing a 5th wave. We own some KEY (similar setup) from earlier today with a target of 7$. We believe the breakout could occur in the next couple of days.

What next?

We are looking for an IT bottom around SPX 840 by november, followed a new recovery high to SPX 1150 or so by may 2010. Ofcourse, this is all conjecture until the 34 week cycle is respected in the coming 2-3 weeks.

Look at the chart of JNK:LQD. The move away from risk is going on in stealth. It will come to the fore soon in stocks.

Aug 20

9:45 a.m. Dumped puts from Aug 6 at the opening for a small loss.

6.00 P.M We are somewhat lost. The internals, advance declines, volume etc., are degrading on this rally, our longer term cycles have turned down. But the market still keeps chugging along. We doubt we can break 1018 on such weak internals, atleast not during the day - maybe overnight. If this is indeed a pump job due to the FED liquidity injections, it is one fantastic job. Yesterday it was energy, today financials. Probably tomorrow it will be biotech and tech and so on. One thing to note is there are some marquee names which have given up rallying altogether e.g. FSLR, RIMM, INTC, LOW, SHLD. It is almost as if a few stocks are carrying the indices further and one by one the stocks are falling to the bear.

If there is no selling pronto, we will just have to sit this out until 975 or 1018 is broken.

Aug 19 -- warning signs

5.00 P.M We did not like the action today as a bear. This brings our previously painted scenario of 1033 right back on the table. If the market was actually topping out, we would not have liked to see today's gap down filled. The put call ratio this morning was 1.32. It has been consistently ~1 for two days. The interpretation is the market is bear heavy, lots of eager bears. China, India - the two markets which bottomed the first have fallen a fair way. We could have a scenario of a synchronized week or two of bounce, whereby the US makes a new high while china retraces this past move. $SSEC is also sitting at its 38.2%. So the stage is being set nicely.

Look at the chart of GS weekly -- it looks like a bull flag.

Look at the chart of D weekly -- it is hugging the underside of the 50W, with weakening volume. This is bullish action.

Look at KEY - it looks like a triangle, waiting for a rally to the 200d at 7.

We still own some puts loaded on from Aug 6th. We will let them go if the market fills the gap near 1005. We will seriously entertain 1033 SPX by August end - September first week.

As of now, we still believe there is going to be downside fireworks from mid september to november.

Mon Aug17

12:30 Closed lots of short positions HGG, FXI, INTC, FCX shorts, a few SPY puts, a few QQQQ puts. We are still keeping some. Wavewise, today's gap down was some sort of a wave 3. That means we have more downside to come. All this fits perfectly with our short term cycle turn date for the Aug 22nd (+/-). If our wave count and timing is on the dot, we expect waves 3,4,5 of this first downleg (from Aug 6 +/-) to finish by the end of this week/early next week.

On a side note, if you do like our work please say so :-)

If you don't, still let us know.

Aug 13th

We have a cycle low somewhere near Aug22nd. We put on short positions on HGG, SPY as said in the post previously. We have not made any progress on the spy short but HGG has given way nicely.

This has been a very interesting rally, to say the least. The most shorted names have been squeezed hardest and rallied most. We have been amazed by its resilience too, inspite of our bullish stance and forecasting it right in the first week of july.

The price component (38.2% retracement) on the SPX has already been satisfied beginning of august. Maybe, we are just waiting for all the markets around the world to complete their 38.2% retracement. In particular, we are waiting on australia (AORD) which has been a laggard thus far . We ideally want to see some expansion in volume. Light volume rallying is bullish and can continue indefinitely. We want to see huge volume, whichever side it may be.

If our timing model is right, we need to see selling right from the get go starting latest by next week - otherwise we will be forced to sit back and quit our positions. We are giving the rally one more day tomorrow to make a new high. This rally has not been about price, but about time.

Addendum:

0. Keep an eye on JNK. We are beginning to see weakness, implying the rally is on borrowed time. Bears need to look for the ratio JNK:LQD to fall. Thus far it is promising.

1.We recalculated some possible scenarios and weighted them according to fib retracements and our cycle times. We believe a move upto SPX 1033 could occur. According to this scenario, we should then see a large retracement to 950 or so, which is the first target, the bulls will ofcourse buy this retracement. But we believe this will be short lived. We should see the entire gains from 850 or so erased by november.

The setup exists

We believe we may have seen the top or should see one very soon. In accordance,

we began initiating short positions today. Our model calls for an intermediate term bear market (about 3-4 months) into november 15th. We believe the brunt of the sell-off will be in the nasdaq and the semi-conductors and the commodities and probably less severe on retailers or autos - basically stocks which bottomed in oct, Nov will be hit hard.

In terms of price and time - we expect a brief, sharp correction beginning next week and into Aug 24th cycle low. We expect bulls to buy the dip but it will be a correction and should burn the bulls in september/october time frame.

On top is one chart we are looking to short - HGG. Our labelling is shown. This chart has beautiful elliott wave labels and a classic 4th wave triangle. Wave 1 has equality with wave 5 in time and price.

Travels and a Rant (Feel free to ignore)

We have been travelling around Asia for a month now visiting a few countries like China, Japan, Singapore etc.

Talking to people we can sense people getting more confident that a recovery is underway. There is a pervasive belief that decoupling is occurring and that these emerging countries will lead the world out of the recession.

The US has been losing its advantage steadily for the past 50 years due to the increasing govt intervention in the economy and the size of govt. as a percentage of GDP. While the emerging markets have the exact opposite dynamic - decreasing govt size as a ratio of GDP.

The belief of decoupling is well and kicking. Sure, there may be decoupling in the next 10-15 years but we think it is too soon. For the past 10 years there has been just one trade in the world essentially - the Long/Short dollar or the liquidity trade. Dollar rallying => liquidity tightens => market down. Infact it almost seems like, there is so much liquidity sloshing around the world that fundamental supply demand picture is still noise compared to the excessive liquidity ebbing and rallying markets. This credit crunch is the cure for this excessive liquidity.

We respect the likes of Peter Schiff. Obviously he is way beyond us in economic understanding. But his pumping of china, while understandable seems a hyperbole. We have often found that Schiff (rightly) questions US govt statistics while taking chinese govt statistics at face value. In our travels we saw lots of empty high rises in the cities of these emerging nations. We don't think the deflation cycle is over. It is going to probably take another 3-4 years.

On that note, when we get back we will do a risque post, our guesstimate on a 4 year chart of the US market based on cycles (dow jones and dollar) and elliott wave and our deflation cycle analysis. Just to keep a record and as a learning process.

A chart

We found some time to log on and do a chart of one of the asian indices. Asian markets are liquidity sinks and this rally is liquidity driven. Since these markets are relatively small, liquidity moves the emerging markets a lot more, creating greater volatility => greater price swings => greater trader emotion => clearer elliott waves. Just like the Nasdaq is the leader in the US, we follow the Korean index KOSPI. We consider the KOSPI to be the leader in Asia.

Our elliott labels are shown on the chart which explains our bearish stand. We have not shown our cycle work in there (since we don't have the software on our laptop). But our cycle and the apex of the kospi triangle all line up uncannily.

For future reference too, we suggest using kospi to look for liquidity cycles, it has some of the clearest patterns available.