Imminent and severe market correction

[dhukka]

Well the actual write downs were more like $5 billion, more than anyone expected. And guess what: the share price went up 2.5%. You gotta laugh...

Just a coincidence that Merrill Lynch and Washington Mutual announced big earnings downgrades moments before the employment data? 3Q07 earnings season is shaping up to be an interesting one.

 

[bean]

Maybe US investors are on drugs... on a high at the moment.
When it wears off soon they will be on a downer.

Hopefully Back to reality

 

[hangseng]

I hardly think this little blip we have just had can be called a severe market correction.

Look at the real correction in 2000, then look at what we have just had, you can hardly see it on the chart it is that minor.

Not to say we won't get the big correction but we certainly haven't had one yet.

Thats not a correction this is a correction (sorry being flippant, this is crash) Note the dates! Worst case scenario is the SPI could drop 1000pts back to the last correction point IMO, if it does it won't last long and I doubt now if that would occur.

Interesting from IC Charts notes today:
"The Dow Jones Industrial Average recovered to a new all-time high above 14000. The market may have sufficient momentum for one more rally, but I suspect that the party is over. Earnings disappointments in the financial, housing and homeware sectors are likely to continue through 2008 and there is concern that this will spill over into other sectors. Breakout above 14000 signals a test of the upper trend channel and a target of 15000 [14000+(14000-13000)], but this is a time for vigilance rather than euphoria."

 

[YChromozome]

The slow down and credit crunch in the US is one worry.

The other is the Chinese market. A graph from Alan Kolher's report on Friday. The market is about 1.8x overvalued :

 

[sassa]

Just a coincidence that Merrill Lynch and Washington Mutual announced big earnings downgrades moments before the employment data? 3Q07 earnings season is shaping up to be an interesting one.

But herein lies the problem.Are the earning downgrades true?When these large financial institutions lose a lot of cash,the Fed desists from requiring that the losses be be marked to market value.

 

[dhukka]

But herein lies the problem.Are the earning downgrades true?

Whether these companies will have to write more down in future periods we will just have to wait and see. However a couple such as UBS and Merrills seem to be taking their biggest hits in the 3rd quarter.

When these large financial institutions lose a lot of cash,the Fed desists from requiring that the losses be be marked to market value.

Firstly, in reference the write down of assets. This does not represent a loss of cash. This is a balance sheet adjustment that has to be taken through the P&L.

Secondly the Fed has nothing to do with requiring companies to mark to market. The market prices for the particular assets in question takes care of that. It is not nor has it ever been the domain of the Fed.

 

[Uncle Festivus]

Sassa,

Indeed the revision to August payrolls was welcomed by the market. It just shows how much statistical noise there is in the numbers and that you need to pay more attention to the revisions rather than the current month's data.

However I wouldn't say these are great numbers. If you consider that the increase in payrolls has averaged 97,000 per month over the past three months and that the US economy needs to add between 150,000 - 200,000 jobs per month just to keep up with new entrants into the labour force, then these numbers are not very good at all.

The unemployment rate rose 0.1% and it will continue to rise if the economy can only produce 100,000 new jobs a month and economics 101 tells us that rising unemployment is often a precursor to recession. That said, current employment numbers a long way from recessionary levels at the moment.

There is a trend developing, going by the 3 month averages. These are quarterly bars too so it looks to be aligned with the housing bust, which hasn't bottomed yet.

 

[dhukka]

The NAHB housing index is usually a pretty good leading indicator of payrolls and judging by the current trend the future doesn't look good. Source: http://contraryinvestor.com/.

 

[wavepicker]

The NAHB housing index is usually a pretty good leading indicator of payrolls and judging by the current trend the future doesn't look good. Source: http://contraryinvestor.com/.

Speaking of the housing index, looking at the HGX(Philadelphia Housing Index). This maybe in it's last throws to the downside for the time being. Still would look more completed with lower prices but then might start the largest rally since the whole bear camapaign started, but in no way implying the entire bear market has finished.

Cheers

 

[wavepicker]

This is my take on the current EW count of the DJI (Weekly), Have tried to number this chart as objectively as possible adhering to the rules and guidelines of the EWT as much as I can. There are other possibilities....

Cheers

 

[Porper]

This is my take on the current EW count of the DJI (Weekly), Have tried to number this chart as objectively as possible adhering to the rules and guidelines of the EWT as much as I can. There are other possibilities....

Cheers

Wavepicker, after the completion of the wave 5, where is this in a larger degree count ?

Are you expecting an a,b,c correction in relation to the count on the chart, then another impulse higher or a larger degree correction.

Just interested in your thoughts to compare with others and my own count.

 

[wavepicker]

Wavepicker, after the completion of the wave 5, where is this in a larger degree count ?

Are you expecting an a,b,c correction in relation to the count on the chart, then another impulse higher or a larger degree correction.

Just interested in your thoughts to compare with others and my own count.

Hi Porper, this is the way I am looking at things. This great bull market began after 1976 int he DJIA. This long term wave count since 1976 counts best as an almost completd 5 wave structure(on log chart-sorry don't have a chart handy)

There are quite a few alternates to the chart with both bullish and bearish implications. The best alternate that comes to mind is that within red
wave 5, green wave 4 is incomplete and blue wave b is about to complete and green wave is thus more of a sideways complex correction with green wave 5 of red wave to come later.

There is a good chance we may have hit an important cycle point on Friday or will do so in the next few days. This might be the start of a major correction that will be deep and last till mid November OR it could be a only minor (11-14 days) and then the market continues bullishly until early next year where there are some very long term cycles overlapping. But those same long terms cycles could even take effect from now.

I am short the DJIA and XJO as of last week, and will see where it takes me. If I get stopped then then the market is more bullish than I estimated and I wll tarde to the long side till next year.

Cheers

 

[sassa]

With apologies to thread writers at Market Watch in response to an article that the stock market will go to new highs in this month.
"Financial storm has definitely passed."
Cablegram to Winston Churchill,Nov.1929.

"We feel that fundamentally Wall Street is sound,and that for people who can afford to pay for them outright,good stocks are cheap at these prices."
Goodboy and Company,October,1929.

"1930 will be a splendid employment year."
U.S.Dept.of Labour,New Year's Day forecast,Dec.1929

"I am convinced that through these measures we have re-established confidence."
Herbert Hoover,Dec.1929

Sorry to break the continuity of the last three threads.Am not trying to draw any parallels to the current situation.

 

[ta2693]

A imminent market correction is coming.

http://au.blogs.yahoo.com/michael-pascoe/49/if-this-is-the-recovery-a-rate-rise-isnt-far-behind
interesting reading from yahoo finance. It makes very cautious on longterm investment.
"The credit crisis has been doing the RBA's job for it by making money more expensive, but just about every indicator you can think of is now flashing "rate rise".

There was another one today - retail sales remaining strong in August despite all the scary financial headlines and whiff of panic that was around for much of the month."

If the interest rate rise, market is going to have another correction. I am thinking whether it is wise to build longterm investment portfolio after the interest lifted?

 

[Porper]

Hi Porper, this is the way I am looking at things. This great bull market began after 1976 int he DJIA. This long term wave count since 1976 counts best as an almost completd 5 wave structure(on log chart-sorry don't have a chart handy)

There are quite a few alternates to the chart with both bullish and bearish implications. The best alternate that comes to mind is that within red
wave 5, green wave 4 is incomplete and blue wave b is about to complete and green wave is thus more of a sideways complex correction with green wave 5 of red wave to come later.

There is a good chance we may have hit an important cycle point on Friday or will do so in the next few days. This might be the start of a major correction that will be deep and last till mid November OR it could be a only minor (11-14 days) and then the market continues bullishly until early next year where there are some very long term cycles overlapping. But those same long terms cycles could even take effect from now.

I am short the DJIA and XJO as of last week, and will see where it takes me. If I get stopped then then the market is more bullish than I estimated and I wll tarde to the long side till next year.

Cheers

Thanks Wavepicker, here is a count in log of the Dow since 1946, with a few basic time projections thrown in (still learning) anyones thoughts appreciated.


My thoughts :Wave 4 is too short in time to be a completed wave.It must be longer in time than any corrective wave of 1 less degree, which it isn't.

If wave 4 isn't completed then wave c of 4 could go on 'till the next time projection which is 2014 !!. That means a bear market from anytime soon 'till 2014.

If wave 4 is complete then maybe we will have a bull market up 'till then.

Also note the next time projections which are in 2026 !! I'll almost be a pensioner by then

 

[wavepicker]

Thanks Wavepicker, here is a count in log of the Dow since 1946, with a few basic time projections thrown in (still learning) anyones thoughts appreciated.


My thoughts :Wave 4 is too short in time to be a completed wave.It must be longer in time than any corrective wave of 1 less degree, which it isn't.

If wave 4 isn't completed then wave c of 4 could go on 'till the next time projection which is 2014 !!. That means a bear market from anytime soon 'till 2014.

If wave 4 is complete then maybe we will have a bull market up 'till then.

Also note the next time projections which are in 2026 !! I'll almost be a pensioner by then

Thanks for your thoughts Porper,

If then in your count wave 4 is incomplete, we need an impulse down (wave C) to complete the irregular correction that started in 2000. This would imply a target sub 7200 pts. Either way it does not really matter then which wave count is adopted as they are both implying the same thing.

There are a myriad of possibilities in a long term EW count with data that goes back almost 200 years. I think that this is probably well beyond the scope of the general discussion on this forum. When one is faced with looking at long term wave counts, things become very subjective in terms of EW as there are too many possibilities. I tend to think that our jobs as traders is to reduce the number of possibilities not increase them (i.e. increase the probabilities)

However if looking at a long term chart, the crash of 29 must be counted as significant on a log chart. I liked to start my current count after the bear market of the 70’s because that is when this current great asset mania in stocks, land etc really started.

For the near term I am looking at other time cycles and other TA to help out with the decisions when EW is ambiguous about probable wave counts.

BTW Is your long term wave count software(Dynamic Trader) generated or is it done by you?

Often the software counts tend to focus too much on the swings and place very little emphasis of the patterns which are the key IMO??

 

[Porper]

BTW Is your long term wave count software(Dynamic Trader) generated or is it done by you?

Wavepicker,

Dynamic trader doesn't do wave counts, only swings of degree.I do all my counts myself and always will.

I agree that long term counts are very subjective, I only started at 1946 because thats when my data starts from.1929 should be in there as you say.

I don't think looking at a super cycle count should influence us too much, because as you point out, we are talking years for a wave C to complete.Impulses in the wave will be very tradeable, even as an invester.

 

[sassa]

Tonight on Bloombergs:
"Option traders buying of puts now exceeds buying of calls."
This is a fair indication that the Dow has reached its peak.

 

[sassa]

And I forgot to add,the last time puts exceeded calls was in 2001 and the market fell 34%.

 

[Awesomandy]

"Option traders buying of puts now exceeds buying of calls."
This is a fair indication that the Dow has reached its peak.

Not necessarily. We don't know the reason why the puts are being bought. If I'm running an equity based hedge fund, it is highly possible that I'm increasing my leverage to buy long to take advantage of the resumption of the bull market, while also buying more put options as a hedge. Of course, it's not as simple as that, but that's the basic idea.