Monday, February 08, 2010

Bull market boxes

Here is a daily chart of the cash S&P 500. I have drawn a stack of 87 point boxes (blue rectangles), starting with the one defined by the June-July 2009 reaction. Friday the market dropped to the bottom of the third box. In doing so it matched the percentage drop of last year's June-July corrections. These are two good reasons for thinking that Friday's 1041 low will hold.


Kishore said...

Carl, if there is a drop below 1041, i.e. from the top box into the middle box, will it then go to the bottom of the middle box i.e. to 960?

What is stopping it to drop into the middle box and finally into the lower box?

9.2% correction is not written in concrete for all eternity. Trends do change. Ofcourse, we need concrete evidence before we can say that the trend change has occured.

Moreover, we are only an articially created ramp up of the market from March 2009. The same kind of thing hapened in India when Big Bull Harshad Mehta (May his soul rest in peace!) managed to invest huge amounts of money from banks into from Bombay Stock Exchange. Americans are learning!

Dave Narby said...

OK, I'm going to be a contrarian here...

We're not in a bull market, we're in a bear market, and we are going to retrace 50% of this bear rally, which puts the SPX at 912 or so.

We will see this level because stocks are wildly overvalued at 50x earnings, and there's no more money coming into the market.

This will probably result in some other price pumping measure from the PTB, but we will not see new highs until the bad debt is cleared from the system.

Tippy said...

Couple of thoughts on this theory and why this move may be different from the others, therefore making the 'just because it's the same as the last pullback' logic shaky. Other opinions appreciated.

(1) The volume on this 9.2% pull back is much larger than the earlier 9.2% pull back.

(2) The amount of cash on the side was much greater earlier in the uptrend. We've used up 6 months worth of cash, therefore the amount of fuel remaining has shrunk.

(3) Inherent valuations were cheaper at SP500 860 than they are here 25% higher at 1065, leaving the current market less attractive than the earlier 860 market.

(4) There was better support at the given 860 point in July due to the cascade down from 860 that took place in February and only lasted a month. That 860 support built for 6 months, from OCT to MAR. We really don't have a support point up here that has been defined by that length of time or volume trading. A down move here doesn't have as much defense as it did in July.

(5) We are much closer to the end of easy money now than we were 6 months ago. If you play the discounting mechanism theme, then there is downside. Easy money at SP 860 provides much more support than less easy money at SP 1065.

Just some discussion on a very slow trading day. Discussion?

Kishore said...

Exploits of Harshad Mehta in 1992 seem to have been repeated in the US since March 2009.

Such ramps ups end up in market collapse. That's why the chief architect of the collapse of the US economy, Greenspan, is currently "worried about a decline in stock values".

PM said...

Hi Carl,

We have three good chances for a confirmed buy signal this week, they are as follows:

1) IF on Friday February 12th we close above 1053.60,

2) or close above 1038.40 on Monday February 15th,

3) or close above 1022.10 on Wednesday February 17th,

Any of these conditions would confirm a new buy signal. Right now, we only have to wait it out and watch.


Kindest regards,


Kishore said...

Goldman Sucks, with the backing of the FED, the US Treasury and the SEC is probably a close equivalent of Harshad Mehta, including the bonuses.

The end of this "Bull Market" has already been written on the wall. The end will be just like the end of a scam on a gigantic scale.

TA.Stockman said...

While I agree that easy money is getting tighter, whose to say that it won't continue? I think that there has been a lot of momentum to the downside since 1150, but I'm not foolish to believe 100% that this is the "Big One".

There is nothing in the cards to say that the Fed will not keep shoveling in the cash to prop this up. To speculate that it is over and that 1-2-3-4-5, A-B-C, i-ii-iii are definitely in the cards is foolish. Setups of such type are meant to be broken...and then the Elliotticians will revise their count again...that 1150 was not the end of B, but 1200+ was, or 1300+ was, etc., etc., etc..

Follow the price, not what people say. The longterm box theory that Carl presents is correct...until it isn't.

jeff said...


I'll gladly take a few shares of UPRO off your hands when the S&P hits 950.

If you recall, I said 1130 wouldn't be surpassed. Well, I'm lowering that now to 1100.

BTW, you owe me $500.