Friday, February 12, 2010

Breakout ahead


Here is a pair of point and figure charts showing 24 hour e-mini trading. The lower chart is a one point box, five box reversal chart. The upper chart is a five point box, one box reversal chart and is a condensed version of the lower chart.

In the lower chart you can see that the market has broken above its descending trend channel while making a series of higher lows. I see a sequence of 35 point boxes evolving here and I think the market is currently in a 1057-1092 box (dash blue rectangle). I also think it bounced off of the support line of a green dash, bullish trend channel. Within a week or so the ES should be trading near the top of the current box and the upper line of the trend channel (green oval).

On the upper chart I have drawn a box of about 107 points in height encompassing the drop from 1148 to 1041. I think that during the coming weeks the market will establish itself in a 1095-1202 box. The lower line of the new box will be the midpoint of the current box. This is typical of the way boxes tend to stack on top of one another. The 1200 level is resistance for another reason. The July 2008 low, made when Fannie Mae and Freddie Mac collapsed, was 1200. This should prove to be resistance as strong as the resistance which was provided by the 1137 level, the low in September 2008 at the time of the Lehman Brothers collapse.

The sideways trading range that has developed during the past week on the upper chart is I think significant. It is bigger than any sideways range we have seen in the past year, and occurs at the bottom of a break in a bull market (still above a rising 200 day moving average). This combination of circumstances generally occurs prior to the start of a new bull market up leg. Counting across this base formation (horizontal green line) yields a target of 1155, a new bull market high.

17 comments:

Nick said...

Carl,
If we break that 1095-1105 area I'm dumping my shorts, getting long, and riding this thing back up to that 1150ish range. Your take on the market is well thought out and very appreciated... I'm sure next week people will have forget about this post and be asking "Where did Carl come up with 1200?" LOL

I do, however, HOPE for one more push down to around 1044 to cover my shorts.

Cheers!
Nick

jeff said...

I can't disagree with the analysis, but only the liars know 100% of the time where we are going. However, no sense being the first out of the gates to the long or short side.

You know which way I'm leaning, but I will obviously let the action dictate here before commiting funds(and maybe 5 book purchases).

On a short-term basis, the market is wearing off it's short-term oversold condition by going nowhere and the 30 day advance/decline is still over bought.

What the case, nothing is going to happen today heading into a long weekend.

jeff said...

since we didn't tank today, i'm looking for one more new high into the 1083-1085 before tanking.

as we all know, Mondays or Tuedays after holidays always seem to be up at the open. i expect this time will be no different.

Christian said...

Carl,

- CNBC is bullish.
- Wall St Economists are bullish (the majority believe that 2010 will end higher than 2009).

i.e. the mainstream is bullish.

Since i've been following you, you have been very good, but i don't get this contrarian position that you stand for. There are only very few people calling for major declines ahead, which IS contrarian to GS, CNBC etc.

Are you bullish on equities longer term? If so why? Do you see inflation and not deflation ahead? Or is your bullishness short term (next 6 months) only??

I cannot square your bullishness with the macro debt picture, which I believe to be global. I would love to understand your take of the macro picture, I guess you see a recession not a depression?

Please enlighten me.

Thanks

ga said...

Over $8 Billion worth of SPX had to be sold today to buy the new addition Bershire Hathaway at the end of the day.

Tuesday should be an up day, indeed.

Carl Futia said...

Christian:

CNBC and Wall street economists are ALWAYS bullish, so I discount their views.

Quite frankly,during the past six months I have listened to many bearish voices trying to tell me that they are the minority, and therefore that their views are truly the contrarian ones, not mine.

This happens in every bull market and I have been through 12 of them in my career.

The biggest error made by amateur contrarians is justifying their views by pointing to people who disagree with them, and thus trying to claim that they are taking a contrarian stance.

At this stage of the bull market there are many people who were hurt by the 2007-09 bear market and want a chance to replay it so they can show themselves and everyone else how smart they are. They are the generals fighting the last war.

Christian said...

Carl,

Interesting points on contrarianism, but what about the debts? Do you see it as manageable?

I notice that you are somewhat bearish on PM's, yet they seem to be tracking equities pretty well these days. DXY up = SPX+PMs down.

Again, I'd love to understand your longer term views and expectations on the macro side as a rationale for your equity bullishness.

catherine said...

Christian
Helicopter Ben is still there. Equitiy market goes down, print.

The next mega big money making moves are going to be in short government bonds, not equities, not real estate. it might need patience but it will come. Most people dont have the 1 or 2 years patience needed.
Not just Greek bond but Spanish, Japananese and US bonds.

As Harvard history professor Niall Ferguson put it so well in the Financial Times this week, “US government debt is a safe haven the way Pearl Harbour was a safe haven in 1941.”

BullandBearWise said...

Bullishness these days ignores how truly broken the economy is. For example, the Federal Reserve is no longer a functioning central bank and it may never be able to function again in its current form. The headwinds are much greater than most people realize.

Win said...

Christian,
Almost nothing on this site talks about macro analysis. On one occasion, about six months ago, I remember Carl posting about how rising bond rates were bullish. While all the bears saw the worst in rising rates, Carl was correct. All the rest of Carl's posts are based upon his work with Lindsay's cycles, his own box theory, his contrarian analysis of popular media, and his analysis of daily movements in the indices. From what I can see, he is almost a pure technician -- in the discounting of fundamental macro or micro (company balance sheet) analysis.

Carl has posted about a LT bear market in Bonds, which implies that he thinks U.S. debt should be sold. I am selling U.S. debt. He also keeps iterating that interest rates are going up. (Look at the daily guesstimates.)

While I agree with Carl's position on debt, interest rates and equities, I don't think he and I see eye to eye on PMs.

Win said...

Carl,

This is superb! I will study it carefully this weekend, to understand better your box theory. Thus far, I was only using it for vertically stacked boxes of the same size. In the last week or so, I have begun to understand some of its complexity. Muchas, muchas gracias, senor!

septizoniom said...

carl guesses better than most; he's the miller of bloggers. but he is only guessing.

TA.Stockman said...

I believe that we are ALL making the best "educated" guess that we can...well, at least the ones of us who are true technicians (and not leachers).

In formulating an educated guess, you use what you know/what tools you have. Some are better than others; none are 100%. Some are better for certain market setups than others.

I can truly say that I don't know which way we are going, BUT my indicators say that we are in an intermediate bear setup. Long-term, we are still in a rising channel, so it's bullish.

E said...

There are so many great ideas expressed here from a lot of traders more scholarly than me. Thanks to all for sharing your opinions.

I never did grasp point and figure, although I believe many old timers have grown up with that approach.

Is there any correlation with the Darvas Box idea with which I am more familiar?

I tend to be more reactionary in nature as I have gained some experience. On Friday I noticed the higher highs intraday and a wedge forming and switched my bias from neutral to long for the close.

Step by step, I will keep looking for the price action and pattern for clues.

Personally, I prefer catching more of the swings rather than buy and hold. More range available in the sawtooth.

Thanks Carl for your generous insights.

Meques said...

in 9 out of 10 occasions i bet on technical analysis. But when Greece problem is not resolved at all, do think fundamentals will limit upside move.

Win said...

Carl,

At the moment, I expect a ST top around 1195-1205 on the ES.

Win said...

Sorry, I meant 1095 to 1105.