go the dragon
chart update 25/01/2012
market sentiment bullish, amid negative news... could be a Rally to 14000
chart update 18/08/2011
DJI chart 5 years update ?? note formation of a channel??
TRADINGMATRIX UPDATE
an update as 2/06/11 based on ASX stocks modul
if you compare to previous modul, note the change of cycles
the center column which was red is disappearing
signals are that the trend is down, but finding support and due for change
i believe september could be the first swing
c
now we are in the correction mode..
the first sell off is happening now
the mont of june is approaching
ELLIOT WAVES THEORY
Home > Stocks
12,400 -- An Important Level the Dow Hasn't Broken
Will the Trend Channel Continue to Provide Resistance?
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| By Susan C. Walker Tue, 15 Mar 2011 17:15:00 ET |  Email |  Print |  RSS |  My Updates | Bookmark and share It!  |
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Remember the book that came out at the top of the dot.com mania in 1999 with the title, "Dow 36,000"? Within six months of publication, the stock market bubble burst and that prediction didn't come close to being fulfilled. One of the book's authors is now trying to make amends with a recent op-ed apology in the Wall Street Journal to introduce his new book, "Safety Net."
Contrast that with an equally bold forecast Robert Prechter made last month that has held up: The Dow Industrials won't break 12,400 this quarter.
Prechter's market call was based not on mania madness, but on a wave pattern that began in the early 1930s. He wrote to Elliott Wave Theorist subscribers on February 15 that the Dow would not break the 12,400 level this quarter for a compelling reason -- because that level is part of a decades-long trend channel that provides a large degree of resistance. In terms of the scale of his vision and the degree of the wave count (what we call a Supercycle Degree), Prechter's forecast is just as bodacious as "Dow 36,000."
Point of fact: Right after he published his forecast, prices in the Dow kept rising that week. In fact, they rose right up to 12, 391 on Friday, Feb. 18.
And then what did they do the following Monday?
They fell off.
And they have continued to fall off to below 11,900 through March 15, 2011.
That's what you call good technical analysis. Forecasting is based on probabilities, so no one gets it right every time. But this is a perfect example of spot-on analysis coming to fruition. Now, we will wait to see if 12,400 will continue to provide resistance to the Dow through the end of this quarter two weeks from now.
Read for yourself how Prechter described the situation last month in this excerpt from the Theorist. (We also provide a chart that subscribers received -- with a few labels deleted.) Then decide whether you should have this same kind of invaluable analysis delivered to your email inbox the middle of every month. For a limited time, you can start the Financial Forecast (which includes the Theorist) at a deep discount. Learn more about your special offer.
Excerpted from The Elliott Wave Theorist, published February 15, 2011
Dow is About 100 Points from its Supercycle-Degree Resistance Line
Way back in 1978, Elliott Wave Principle showed the developing trend channel of Supercycle degree. We have been tracking prices with respect to this channel ever since.
As happened in the 1920s, the smaller Cycle degree channel was steep and carried prices above the longer term upper channel line. …[T]he rally into 2007, came back to test the underside of the lower line of that smaller channel.
Now [another] wave is stretching towards the upper channel line of the Supercycle, the one touching the highs of 1937 and 1966. This line denotes a Dow that, from a psychological point of view (not to mention other points of view) is "extremely expensive." The peaks of 2000 and 2007 were "ridiculously expensive."
When prices exceed an upper channel line (in what Ralph N. Elliott called a throw-over) and then fall back below it, they sometimes return to test it before turning down in greater earnest. The April 2009 Elliott Wave Theorist showed an example of such an occurrence in the Gold+Silver Index in 1980.
This quarter, the line cuts through prices at approximately the Dow 12,400 level. Given the wave labeling and the extreme sentiment, the market seems poised to stop near the trendline. Given the importance of this line, the market would almost surely have to accelerate strongly to penetrate it.
[Editor's note: The Dow stopped just short of the 12,400 level at 12,391 on Feb. 18 and has fallen away from that level since.]
Want a Reason to Believe in a Downward-Trending Dow? We are bearish on the Dow, and if you are, too, the best way to find out how to take advantage of a bear market is to read our Elliott Wave financial forecasting service, starting with Robert Prechter's Elliott Wave Theorist. It's always compelling reading. For a limited time, you can start the Financial Forecast (which includes the Theorist) at a deep discount. Learn more about your special offer.
Did the bull market end on May 3?
That was when the Dow Jones Industrial Average closed at 12807.51 — which, at least so far, is the Dow's closing high for the rally that began in March 2009.
Contrarian analysis can't rule out that possibility. In fact, the behavior of various sentiment indexes in recent months is disturbingly similar to what has happened on the occasion of prior bull-market tops.
At least that is what I found after analyzing four different sentiment measures. I looked at the Investors Intelligence weekly survey of newsletter sentiment, data for which extended back to 1963. Specifically, I focused on the ratio of bullish advisors in this survey to the total of those who are either bullish or bearish.
I also analyzed the sentiment index maintained by Hulbert Financial Digest (HFD). It represents the average recommended equity exposure among a subset of short-term stock-market timers who are monitored by the HFD.
I sifted through the American Association of Individual Investors sentiment survey. As in the case of Investors Intelligence, I focused on the ratio of bullish responses in the AAII survey to the total of those who reported that they are either bullish or bearish.
Finally, I focused on the Chicago Board Options Exchange's Market Volatility Index, or VIX.
I analyzed how each of these four sentiment indicators behaved on the occasion of past bull-market tops, using the precise definition employed by Ned Davis Research, the institutional research firm. I found that sentiment is remarkably correlated with the stock market.
In fact, in nearly half the cases studied, bullish sentiment peaked at almost the same time as the market -- within fewer than five trading sessions before or after. It rarely has peaked more than a month or two before or after the top.
Because of this close correlation, sentiment can be used as a reality check on whether a market top has indeed been registered. If more than a few months separate the peak in sentiment and the date of the closing high up until that point, for example, chances are that the final top has not been seen. Another sign that the top has not yet been registered: Sentiment has peaked at much lower levels than those that prevailed at prior tops.
Unfortunately, on both grounds it's hard to rule out the suspicion that the May 3 top could be the end of the bull market.
According to the Investors Intelligence data, sentiment peaked on April 5, 28 days prior to the exact day of the May 3 high. On April 5, the ratio of bullish advisors to those who were either bullish or bearish came in at 78.5%, higher than the average level of 76.2% that stood on the occasion of prior bull-market tops.
According to the HFD survey, sentiment peaked on May 3, the very day of the market's top. The average exposure level then stood at 67.2%, versus an average of 79.6% from prior market tops. According to the AAII survey, sentiment peaked on Dec. 23 of last year, or more than four months prior to May 3. The ratio of bullish responses in the Dec. 23 survey to those indicating that they were either bullish or bearish stood at 79.4%, higher than the 78.7% average from prior tops. According to the VIX, investor optimism reached its apogee on April 28, five days prior to the day of the top. The VIX on April 28 closed at 14.62, which is less than the 15.51 average from prior bull-market tops.
Notice that the extreme levels of investor optimism recently reported by the various sentiment indexes are, in three out of the four cases studied, actually higher than the averages seen at prior bull-market tops. Notice also that, in three out of the four cases, the sentiment peak came within only a few days of the market's top.
Can contrarian-oriented traders, nevertheless, find comfort in the equity fund flow data? You may recall that those flows provided one of the strongest contrarian-based supports for this bull market in 2009 and 2010, as mutual-fund investors in both of those years pulled more money out of domestic equity funds and exchange-traded funds than they put back in.
This year, however, the situation has changed. TrimTabs Investment Research estimates that, following net outflows of $46.9 billion and $51.9 billion in 2009 and 2010, respectively, this year (through June 8) there has been a net inflow totaling $28.8 billion. So we no longer have the strong wall of worry that the bull market last year was able to climb.
To be sure, this year's inflows are not as large as those seen at prior bull-market tops. So the flow data are not, in themselves, sending any contrarian-based alarm bells. But, by the same token, those data no longer are providing the strongly bullish foundation that they were in each of the past two years.
The bottom line? The sentiment data no longer provide strong contrarian support for a bull market. And a number of the sentiment indexes are, or very close to, flashing outright sell signals.
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IS THE BULL MARKET OVER
A look at four different sentiment measures suggests that more pain may await investors.
Did the bull market end on May 3?
That was when the Dow Jones Industrial Average closed at 12807.51 — which, at least so far, is the Dow's closing high for the rally that began in March 2009.
Contrarian analysis can't rule out that possibility. In fact, the behavior of various sentiment indexes in recent months is disturbingly similar to what has happened on the occasion of prior bull-market tops.
At least that is what I found after analyzing four different sentiment measures. I looked at the Investors Intelligence weekly survey of newsletter sentiment, data for which extended back to 1963. Specifically, I focused on the ratio of bullish advisors in this survey to the total of those who are either bullish or bearish.
I also analyzed the sentiment index maintained by Hulbert Financial Digest (HFD). It represents the average recommended equity exposure among a subset of short-term stock-market timers who are monitored by the HFD.
I sifted through the American Association of Individual Investors sentiment survey. As in the case of Investors Intelligence, I focused on the ratio of bullish responses in the AAII survey to the total of those who reported that they are either bullish or bearish.
Finally, I focused on the Chicago Board Options Exchange's Market Volatility Index, or VIX.
I analyzed how each of these four sentiment indicators behaved on the occasion of past bull-market tops, using the precise definition employed by Ned Davis Research, the institutional research firm. I found that sentiment is remarkably correlated with the stock market.
In fact, in nearly half the cases studied, bullish sentiment peaked at almost the same time as the market -- within fewer than five trading sessions before or after. It rarely has peaked more than a month or two before or after the top.
Because of this close correlation, sentiment can be used as a reality check on whether a market top has indeed been registered. If more than a few months separate the peak in sentiment and the date of the closing high up until that point, for example, chances are that the final top has not been seen. Another sign that the top has not yet been registered: Sentiment has peaked at much lower levels than those that prevailed at prior tops.
Unfortunately, on both grounds it's hard to rule out the suspicion that the May 3 top could be the end of the bull market.
According to the Investors Intelligence data, sentiment peaked on April 5, 28 days prior to the exact day of the May 3 high. On April 5, the ratio of bullish advisors to those who were either bullish or bearish came in at 78.5%, higher than the average level of 76.2% that stood on the occasion of prior bull-market tops.
According to the HFD survey, sentiment peaked on May 3, the very day of the market's top. The average exposure level then stood at 67.2%, versus an average of 79.6% from prior market tops. According to the AAII survey, sentiment peaked on Dec. 23 of last year, or more than four months prior to May 3. The ratio of bullish responses in the Dec. 23 survey to those indicating that they were either bullish or bearish stood at 79.4%, higher than the 78.7% average from prior tops. According to the VIX, investor optimism reached its apogee on April 28, five days prior to the day of the top. The VIX on April 28 closed at 14.62, which is less than the 15.51 average from prior bull-market tops.
Notice that the extreme levels of investor optimism recently reported by the various sentiment indexes are, in three out of the four cases studied, actually higher than the averages seen at prior bull-market tops. Notice also that, in three out of the four cases, the sentiment peak came within only a few days of the market's top.
Can contrarian-oriented traders, nevertheless, find comfort in the equity fund flow data? You may recall that those flows provided one of the strongest contrarian-based supports for this bull market in 2009 and 2010, as mutual-fund investors in both of those years pulled more money out of domestic equity funds and exchange-traded funds than they put back in.
This year, however, the situation has changed. TrimTabs Investment Research estimates that, following net outflows of $46.9 billion and $51.9 billion in 2009 and 2010, respectively, this year (through June 8) there has been a net inflow totaling $28.8 billion. So we no longer have the strong wall of worry that the bull market last year was able to climb.
To be sure, this year's inflows are not as large as those seen at prior bull-market tops. So the flow data are not, in themselves, sending any contrarian-based alarm bells. But, by the same token, those data no longer are providing the strongly bullish foundation that they were in each of the past two years.
The bottom line? The sentiment data no longer provide strong contrarian support for a bull market. And a number of the sentiment indexes are, or very close to, flashing outright sell signals.
___
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