Tuesday, March 10, 2009

Yeah Baby!

Stock Information from stockcharts.com

Put on your rally caps, friends, we're goin' for a ride! I expect the stock market bounce that began today to be a nice, sustained Sucker's Rally, possibly up to around DJIA 8,800 or so at the very least (this is NOT trading advice, just speculation on the direction of an index) over the next few weeks or so.

These kinds of ferocious rallies are common during bear markets. I wouldn't want to be short right about now, but that is just me.

I expect the mood that drives this rally to be almost manic in its insistence that "the bottom is in" or "we've washed out the weak hands finally" or some such phrase that will be picked up and shoved into our brains via teevee, radio, newspaper and "spontaneous" email chains.

A manic positive mood might lead to:

  • Suspension of "mark to market," in which by removing the stethescope and unplugging the diagnostic equipment, we create a condition of non-illness. It worked for Enron!
  • "Earnings Surprises" from some banks and finance companies (of course, everyone will remain quiet about their Level 3 assets and the cratering of their customers' balance sheets)
  • "Real Change" via something like movement on a Federal health care bill, or maybe excitement over the proposed education bill and the sense that the worst is over for the economy and "yes we can" move on to more exciting ways of blowing America's few remaining shekels.
  • A more "in your face" approach by local officials and people who still have jobs that "things aren't as bad as the bad, bad media make it out to be!" Enjoy it.

We are getting a gift here folks - one last surge of positive mood before we waterfall over into the next wave down into a swamp of negativity.

Keep your head. Know where you are in the economic cycle. Understand that mass mood is powerful - and that you can gauge it and use that knowledge to help position yourself and your family.


David said...

Is it [2] {brackets instead of circles) or just 4 of (5) of [1]?

I'm thinking the latter because the VIX/VXN just didn't seem to quite get high enough to cap [1].

As usual, however, those who still own stocks "for the long term" have no good options. Sell now and watch the market rally higher, or hold and watch the market collapse lower causing a capitulation sell right before (you know it) a big rally.

Mr. Market's casino is humming with the happy noises of robbing the rubes (Boobus americanus) blind.

Flagg707 said...

My guess is it is a 4, but I must admit I lost a lot of jack back in the 2003-2005 period with poor recognition of wave structures, so I try to hold off on public opinions of even primary trends these days.

I agree 100% that the days of buy-and-hold-for-the-long-term are dead. Technical analysis should make a huge comeback much as it did in the 1970's.

Stephen said...

You must be doing your own Elliot Wave count (and might be correct), but Prechter group's short term count disagrees with you (atleast their "most likely count") They believe that there is still i more thrust to new lows to complete the count before 1 is finished. From their Monday Short Term Update service:
Not every degree of trend unfolds in a textbook fashion, but if we were to see an “ideal” Elliott wave from early January then the market will at some point rise in Minor wave 4 and then fall to another new low in wave 5 of (5) of 1 (circle).
We will soon find out which count is correct!

Flagg707 said...

@Stephen - Thanks for passing that along. You are right that we certainly are going to find out soon!

David said...

I'm with you there, Flagg, in taking a beating in '02-'05. That was where I discovered that I had to have a whole other system for identifying the trend. It was a six figure education.

As to Stephen's comment, speaking only for myself, one has always to do one's own analysis. In my own case, I found that following the analysis of others tended only to amplify my own analytical biases, causing me to overtrade and, even worse, to dig in and sandbag positions that I should have abandoned. I made many costly errors trying to trade on someone else's market calls. I may get whipsawed periodically (like today), but I've avoided taking big losses this way.

To the best of my knowledge, no professional trader relies on "outside" analysis (not that I'm a pro...I hate trading too much to do it for a living even if I was good enough, which I'm not).

And, for the record, my count remains 4 of (5) of [1] of c. So far, at the Dow's high today, it hasn't even retraced .382 of the wave I'm counting as 3 of (5). A temporary upper diagonal is in the vicinity of 7400 and the Fibo 38.2% is near 7175. A rally to between these two, on fading momentum, may be an attractive short if it breaks the right supporting diagonal.