30
Oct
StockTock.com discusses the market action and what it means to our outlook. The market remains very vulnerable to a dramatic selloff. While the S&P was able to break above the triangle’s trendline, it did not violate Elliot Wave Theory. As long as the S&P does not trade above $986, the pennant breakdown scenario remains on the table. Interestingly enough, the S&P closed above its 20-day moving average for the first time since September 19, which happened to mark the end of wave 2 of 3(3). The VIX may also be a 20MA support. Keep an open mind and focus first and foremost on risk management.
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October 30th, 2008 at 11:03 pm
The video isn’t there, do you plan to post another one? thanks
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October 30th, 2008 at 11:17 pm
Its there I just watched it.
Great job Craig..an FYI…Asia is in the RED..
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October 30th, 2008 at 11:48 pm
I think action in yen will decide market direction tomorrow.
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October 31st, 2008 at 12:03 am
Here’s a video from the practical investor on the pennant formation.
http://www.youtube.com/watch?v=PLUWz2lDTCs
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October 31st, 2008 at 12:09 am
The easiest of easy money to be made is gone. Bubbles have bursted and the total value of the market has gotten a lot smaller. So making easy money is probably long gone. Most of the dumb money are lost, and only the strongest and smartest will survive…and they maybe waiting on the sidelines with lots of cash. Risks and rewards…bigger the risk, bigger the jackpot or go home broke. Gambling is when you bet it all on a few hands…professional poker players build their wealth slowly day by day, month by month, and year by year.
Are you a gambler or a professional poker player?
Good luck all.
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October 31st, 2008 at 1:16 am
I don’t believe the “cash on the sidelines” theory. The economy is deleveraging by raising and hoarding capital. Investors have gotten smoked by this bear market. Many have lost 40% of their savings. They now value the cash they have left more than ever. Why would they throw it into a fire that just burned them?
Think about what a stock is. Don’ confuse it with the company. Most companies will survive, but how much dilution will there be to shareholders. The smart money is out of stocks. And the dumb money is still trying to get out. A stock is not a company. It is a source of capital.
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October 31st, 2008 at 1:55 am
In the absense of IPOs, company stock offerings (aka selling stock from company treasury), corporate takeovers, capital flight out of the country and like events which actually affect the pool of cash there is always the same amount of “cash on the sidelines” buyers=sellers and cash simply changes accounts….price is a measure of desire or the psychology of buyers and seller to demand stock or demand cash….good point on what stock really is….its not a company…its more closely related to a fiat currency…..great site craig…love the intraday work you’re doing…
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October 31st, 2008 at 11:23 am
It is little difficult to double down when you have had a margin call. That is where a lot of retail investors are right now. The rest? Mutual funds cannot double down when confronted with redemptions, same with hedge funds. For others it is a high risk bet.
I favor the de-leveraging analysis. As leverage disappears it does not create money on the sidelines. Quite the opposite. It results in lower prices. Another reason I do not foresee a V shaped bottom to this market. A U at best, perhaps an L.
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October 31st, 2008 at 8:33 am
Good insight Hulu. The key to poker is to fold more often than not. It is pure money management coupled with recognition of those few times when risking your chips makes sense. Likewise money management is key to trading, as is recognizing those few times when risking your capital makes sense.
As Jimmy Rogers has said “trade as little as possible. I think of myself as someone who waits for something to come along. I wait for a situation that is like the proverbial ’shooting fish in a barrel’. Otherwise I don’t bother doing anything. One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people always have to be playing; they always have to be doing something. They make a big play and say ‘Boy I am smart, I just tripled my money’ Then they rush out and have to to something else with that money. They can’t just sit there and wait for something new to develop. Even people who lose money in the market say ‘I just lost my money, now I have to do something to make it back.’ No you don’t, You should sit there until you find something. If you say ‘I think this market is probably going to go up, so I will give it a shot’, what you have described is a very fast way to the poorhouse.”
Recognizing opportunities and money management, great keys to both poker and trading.
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October 31st, 2008 at 12:32 am
Thanks again Craig, great work. This site is a wonderful blessing. It might be useful to mention that IF we are in 4 of 3 instead of 3 of 3 (as badmofo’s blog contends), according to his analysis the S&P may retrace down perhaps to 907 over the next day or two (2 of 4). That may lead people to assume we are starting to crash when it may just be a bullish correction. Just a word to be careful about our shorts. If badmofo is right, we may bounce hard from 907 once 3 of 4 begins.
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October 31st, 2008 at 12:33 am
Also worth to note is that NDX is still closing beneath 20EMA
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October 31st, 2008 at 12:34 am
you do very good thecnial analysis
i love it very much
i from israel
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October 31st, 2008 at 12:44 am
Good post Craig. Tomorrow is the last day of October, so we have to crash tomorrow if history repeats itself with October being the worst month for stocks.
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October 31st, 2008 at 12:50 am
Great analysis Craig. However, how does Elliot Wave theory account for government intervention (i.e PPT)? Thanks
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October 31st, 2008 at 1:01 am
Think about when the SEC surprised the market by banning short sales on financials. The market squeezed on big volume. I questioned my wave-count and questioned EWT’s ability to react to shocks. But looking back, it is almost as if the market was ready for that announcement. It created the energy for wave 3 of 3(3).
The market prices in the possibilities of certain gov’t interventions, Similar thing after 9/11. The market was volatile, but ultimately resumed its prior wavecount.
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October 31st, 2008 at 11:26 am
EW is a social theory at its base, it is all about a crowd of people. That is why it works!
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October 31st, 2008 at 12:03 pm
“A great trader doesn’t watch prices (charts) he watches other traders”
The ultimate reflection of what other traders are doing IS price. You track price through charts. There are always two traders, the bull and the bear. The outcome of their effort is price, right? What else would it be.
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October 31st, 2008 at 1:05 am
I doubt it. The pennant is a continuation pattern. And if its an ending diagonal, or double bottom, we will see a reversal. And the VIX is at 63.
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October 31st, 2008 at 9:05 am
Craig, in the video you suggest that if this pennant plays out to the downside, the target would be the length of the pole from 2(3). You gave that figure as an equal point loss, wouldn’t it actually be an equal % loss?… so aprox: 965-(((1300 - 840)/1300) * 965) = 623
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