S&P500 Technical Analysis Base On The Elliott Wave Theory (Part-4.IV)

S&P500 Technical Analysis Chart:
S&P500 forecast from 08/06/2010 to 08/25/2010:

"Click on the chart to zoom in."

The wave structure is getting complicated. At this point I'm not sure if today low (1039.38) is the 3rd wave or not? Therefore I'm going to use "alt-III" as the alternative wave until I get some clarity on the market direction. If S&P500 could rally to 1080 it should mark the 4th wave(see the chart "alt-IV"). I give only 20% chance for rally to 1080-1090. S&P500 should rollover at 1080-1090 and heads lower to 1010. If S&P500 breaks 1010 there is 80% chance S&P500 tanks to 950. If the 1010 level fails to hold, it means my original wave counts was correct and 1039.38 is not the wave-III. In this case 1010 will be the 3rd wave (wave-III) and 970-950 will be the wave-V that marks the end to sub-wave(3).

This is a "dead cat bounce" *1 not a buying opportunity. I would add to my shorts as soon as I see bulls running out of steam. On the other hand if S&P500 gets above 1131 bulls will have the upper hand. In this case S&P500 should rally hard to 1170.

*1: The dead cat bounce is a reference to a short period of recovery for a given security. While there may be a temporary and modest rise in stock price for the security, the momentum quickly ceases and the price either levels out or begins to drop again. Generally the degree of increase in the price of a stock is limited, and may involve a stock that was not considered favorable in the first place.
Source: wisegeek

LIBOR & Ted Spread Chart (08/20/2010)

I post the LIBOR chart every fridays. Just type Libor in search box (it is located on top left corner). You will see all Libor charts.
LIBOR-OIS (USD SWAP) 3M chart:
Ted Spread Chart:

I post the LIBOR & Ted Spread charts every fridays.

S&P500 Technical Analysis Base On The Elliott Wave Theory (Part-4.III)

S&P500 Technical Analysis Chart:
Last weekend I said "I'm looking for move lower to 1070" and S&P500 just did that on Monday S&P500 tanked to 1070 and we got the bounce. Now we have to wait to see if this is a dead cat bounce or we are making the next leg up. As you see in the chart we could make a new up trend channel, (see the chart in dashed orange line). what i like to see before make any conclusion would be a strong rally and break the 1131. At this point I give 45% chance to rally to 1115 then S&P500 should roll over. Please note we must be open to possibility of rally higher, but it would be very unlikely.
I give 55% chance to move lower with in next 2 weeks. what you need to pay attention to the violation of 1070 and 1056 levels. If S&P500 tanks below 1040, we should visit 950 in no time.

Market update 08/17/2010

S&P500 Technical Analysis chart:
Nice short squeeze! we should wait to see if 1096 would hold or not. If S&P500 tanks below 1096 you should close your long positions, and go to cash. If S&P500 would not stay above 1096 it would conform the bull trap. Note if we get a bounce from 1088 it would be very positive. As long as S&P stays below 1096 bears will have the upper hand.

David Rosenberg on Double-dip Recession

He has a point. This is what I have been saying all this time. The 2009 rally was nothing more than inventory cycle. Fundamentals would not support the Wall Street wishful thinking about new bull market. We never came out of the recession in the first place.

S&P500 Technical Analysis Base On The Elliott Wave Theory (Part-4.II)

S&P500 Technical Analysis Chart:
"Click on the chart to zoom in."

So far my forecast worked out very well. Pay attention to 1070-1066 for the possible bounce. Next week will be hard to predict, but I think bears would have the upper hand as long as S&P500 stays below 1096. I would give just 30% chance for rally higher, my bullish target would be 1096-1115. To me 1115 is too extreme but we should be open to unusual events. If S&P500 breaks below 1070, I would give 70% chance for continuation of downtrend to 1056-1040.

Here are some important supports and resistances for the S&P500 in the coming week:

R1: 1088
R2: 1090
R3: 1096

S1: 1070
S2: 1056

LIBOR & Ted Spread Chart (08/13/2010)

LIBOR-OIS (USD SWAP) 3M chart:
Ted Spread Chart:

I post the LIBOR & Ted Spread charts every fridays.

S&P500 Technical Analysis Base On The Elliott Wave Theory (Part-4)

S&P500 Technical Analysis Chart: "Click on the chart to zoom in."

S&P500 has formed a rising wedge, which from technical stand point is a bearish formation. I will provide two scenarios.
Bearish scenario: If S&P500 breaks the wedge, it will fall like a stone and surprise many traders. It should tanks to 1094 there is some support at 1094, but I think it will break 1094 and tanks to 1070-1056. Please note S&P500 could get a bounce from 1070-1056. If S&P500 tanks to 1040, there is a good chance it falls to 950 by end of September. It would mark the end of sub-wave (3). I give 70% chance to violation of wedge formation and big drop in coming week.

The bullish scenario would come to play if S&P500 get above 1131 resistance level and stays above it for a couple days. My bullish target for S&P500 would be 1170. I think 1028 would be a good candidate for sub-wave(2), but if S&P500 get above 1131 I have to adjust my target to 1170 instead. At this point I give 30% chance to my bullish scenario to become reality.

Big picture: Base on Elliott Wave Theory, S&P500 finished the leg#1 in the March 2009 and from March 2009 to the April 2010 S&P500 has made the leg#2 (see the chart in pink). I think we are in the leg#3 that would be the strongest wave down. Note each wave is made of 5 sub-waves. The leg#3 will be the biggest of 5 waves structure and should finish sometimes in 2011-2012. On the other hand if the Federal Reserve Bank intervenes in market by quantitative easing it will provide artificial liquidity and cause the market to rally hard in this case S&P500 would rally to 1300. Quantitative easing is the last bullet left in federal reserve bank's arsenals, do not count on it. It naive to think Bernanke is going to use it at this point. If the federal reserve bank would use it now, what are they going to do when Europe crisis get worse?

Please note fundamentals are very weak and would not support the rally to 1300. Today unemployment data was horrible as you see in the graph below the employment situation got worse than last bear market as you see in the chart we are much lower compare with 2003 bottom therefore the Wall Street comparison of this rally to 2003-2007 rally is just a mirage. In the last recession consumer mortgage their houses and took advantage of easy credit market, but this time there is no easy credit, and housing market is a mess. The U.S. congress has failed to address the housing crisis. Instead of going after cause they went after symptoms. Government did not do anything effective to stop the foreclosures. If bankers modify loans thay have to writedown those loans in their quarterly earnings, but if they keep them as it is they are not obligated to report their delinquent loans as losses. The number of modify loans is a big joke. It’s obvious someone who is unemployed for a while it is likely to default on his/her mortgage. High unemployment speeds up this vicious cycle.

Congress came with a stupid excuse that they did not have any tools to deal with a big financial institution who could cause a systematic risk. Oh really! Do they think their constituents are a bunch of dummies who believe any nonsense they tell us? It was insulting to my intellect, what are they thinking?

In March of 2008 they witnessed how Bear Stearns collapsed in matter of days. How couldn't see there might be more shoes to drop. From March 2008 to September 2008 that Lehman Brothers collapsed they had plenty of times to pass a legislation to deal with too big to fail institutions, but they did not! They made the wrong choice and bail them out. They should have put all insolvent financial institutions in FDIC receivership then injects liquidity to the economy through them. Instead they bailed them out. Bankers put the money in the stock market and shot the market higher instead of lending to businesses.


Congress just kicked the can down the road. It’s sad to see financial lobbyists could influence the financial reform bill and water down the Volcker rule. Please note that the new bill does not address too big to fail and despite president Obama claim if one of these insolvent institutions like bank of America or City group failed taxpayers are end up paying for them.

Hours of work Graph:
"Click on the chart to zoom in."

LIBOR & Ted Spread Chart (08/06/2010)

I post the LIBOR chart every fridays. Just type Libor in search box (it is located on top left corner). You will see all Libor charts.
LIBOR-OIS (USD SWAP) 3M chart:

Ted Spread Chart:

I post the LIBOR & Ted Spread charts every fridays.

Market up date (08/03/2010)

Quick up date on market. S&P500 made a higher high which is bullish, please note that S&P is over extended, it's extremely overbought in short term, but as long as S&P500 stays above 1100 bulls have the upper hand. Fundamentals is weak and does not support the rally, but stock market is a big casino, institutions ignore bad news and send the market higher. You should ignore economics data and trade base of technical in short term. You could go short if S&P500 tanks below 1094 and stays there for a couple days.

Second Quarter GDP Does Not Support The V-shape Recovery

The second quarter GDP fell by 11.11% compare with first quarter, it fell from 2.7% to 2.4% . We observed a moderate gain in government purchases that helped to increase the Q-2 GDP. The big problem spot was the worsening in net exports that could be explained by Europe sovereign debt crisis and higher dollar value that put American companies in disadvantage. Year-on-year, real GDP is up 3.2 %, compared to up 2.4% in the first quarter. We should thanks Keynesian economists for encouraging the congress to pass the huge stimulus package.
What you need to pay attention to is that for the “V” shape recovery we need 6% GDP, therefore 2.4% GDP does not suggest the robust recovery.