After completing Wave 5 of the bull run; SPY has now worked out 3 minor waves of WAVE 1 in the new bear trend.
This chart shows the true trend line of the bull wave; and calculated FIB pivots.
One of these areas should be the end of minor IV bear, before we move to minor 5 low to complete this first bear wave; sometime late June or early July.
Here is stats on Google trends for search words: "Bank Run". The words are being searched at an all time pace; this might be insight into actual investor concerns not yet reflected in risk investments such as stocks.
IWM is ETF for Russell 2000.
The chart is showing an EVE-EVE double top; this is two rounded top patterns. The previous year, June was a good month, beginning at the Bullish DOJI marked June 2011.
Today the weekly chart has a Bullish Harami pattern. The question is will June repeat 2011? In my previous post, I indicated we might do better to compare now with the last bear year-presidential election year 2008 and not the previous bull year 2011.
Drilling down further using volume by price-clearly most investors over the last 30 days are in the Russell at $79, thus UNDERWATER. Depending on how the news cycle goes the next few days; this VWAP could prove to be too much resistance for bulls to overcome. Or, with a few carefully placed news releases, this could fire up the algos to push stocks up to a lower high, sames as June 2011.
The put/call ratio shows no nervous bulls as of yet, even though the VWAP shows they are mostly underwater.
The blue line represents the p/c ratio, the red line is the price of IWM. IWM doesn't bottom, until the blue line, p/c ratio, gets above 4.0. As you can see, even though bulls are under water and May was a bad month for them, the put call ratio barely budged-showing complete complacency.
Conclusion:
The p/c ratio and $79 VWAP seem to suggest IWM has further down to go before EW1 can be reached.
If we are using 2008 as a road map, then we can expect to reach the 1st leg bottom sometime late June or early July.
Coordinated Central Bank news would change the technical dynamics in the short run.
Often in times past, market tops can be marked and remembered by events that pointed to good times as "far as the eye can see". Was FaceBook IPO one of those times?
On May 1st I posted this SPY chart and indicated that we were in Wave 4, and that conditions have been met to complete the wave. The chart had FIB upside targets for Wave 5.
Finally, after what seems a life time, we can now count a solid 5 wave completion of the bull run. Typically bull runs last 2-3 years, bear runs last 1.5 years.
All the talk now is when is the bounce, where is the tradable bottom? The answer is: nobody knows for sure.
What I want to focus on is a different question: where is WAVE 1 likely to complete? Lets not look at tradable sub-wave bottoms within WAVE 1.
The point is, if we bounce anytime soon-should we cover our short or add to that short; sell short the bounce? We have to keep the concept in context. It's not important at what price the SPY bounces; IF THE BOUNCE IS A SUB WAVE, WITH FURTHER DOWNSIDE TO GO TO COMPLETE THE MAIN WAVE 1.
To look at this properly, the next chart is a Kagi 2% chart of the last bear market year, the 2008 Presidential election year.
Lets use apples to apples comparison years; 2008 bear-2012 bear, for a road map of dates and/or probable weeks of tops and bottoms of the MAIN WAVES, in order to maximize our profits.
In 2008, Wave 1 down started in May, and completed in July around option expire week. This is based on 2% moves in the index that trigger the black buy Kagi or the red sell Kagi. All the noise/sub waves in between are removed from the chart.
Our strategy-is to pile on to shorts, with every bounce in the market, all the way into July. In July, we apply a % trail stop that moves with the stock, raising our stop price as the short moves further into profit, until we finally get stopped out.
Just follow the blueprint from here; begin shorting option expire week of August, all the way into the Presidential election; cover for Santa Rally, short Jan 2013 for the final 5th wave.
Could a coordinated FED action put a wrench in this plan; sure. But we can deal with that if and when it happens. I believe the FED will not embark on QE3-4 months prior to a Presidential election; just as they took no action in 2008.
Here is a chart of the XIV, which is the inverse of the VIX.
Stock markets take the long way around to a final destination, always. We can see in the XIV chart, despite countless Europe interventions, Fed speak, and trillions of dollars spent-XIV has managed to simply make a lower high, confirming the overall larger picture, which is a confirmed bear downtrend.
I have marked the change of direction DOJI candle, confirmed by the long reversal candle the following week.
Continue to build positions in VIX trading products such as TVIX; take advantage of what will be a long slow bleed of Americans 401k retirements, and the ensuing panic that is sure to set in.
We can see this is a multi year chart with a defined true uptrend line. Along the way, the energy sector has moved substantially above its mean trend, but in the end, always reverts back to trend.
With only a few dollars more to reach the trend, and an RSI reading that is NOT OVERSOLD as of yet; I question if this long term trend can be sustained.
Is this a large Head N Shoulder pattern that will put the energy complex into the poor house, the middle east looking to go to war, and a major sell signal for all risk assets??
I don't have the answer yet, but believe we are about to find out real soon.
On March 22nd I posted this chart indicating that April 1st or 180 days from a significant previous low could begin the 4th wave pullback that we have been looking for.
On April 1st, finally a target date held, and we did indeed get the 4th wave pull back.
The next chart is a current SPY with calculated topping pivot prices over layed. The Roman numbers count the 5-sub waves that complete the 3rd wave marked 3V.
To confirm the 4th wave, we look for two things:
1. The index to pull back in an equal or similar number amount to previous pull backs in this sub wave and/or
2. The pull back to overlap the sub 4 wave pull back, either equal to, within the range of, or exceeding.
Both conditions have been achieved; a match in total points, noted with a circled B, 7 points, and the pullback was large enough to overlap the sub IV pull back within 3rd wave.
This now puts us squarely in a 5th and final wave to completion before the markets begin to price in the real world.
5th and final waves tend to be 30-45 days in length. You can make your date calculations based on the low dates of the 4th wave, which showed a double bottom; begin to make shorting plans.
We will use the current calculated FIB pivots for top targets. Those are subject to change depending on how bullish this 5th wave gets. (Remember, per Wall St, stocks never go down and are never expensive)
I'm looking for buy indication on the Three Line charts of multiple bear ETF's as the ultimate trend has changed signal.
