XAO Technical Analysis

[Julia]

So basically situation is as follows-the decline started to slow down and market is sporting an overlapping waves which is a sign of a probable turn soon. It is like a car-before the turn it slows down. Of course, the driver can change his mind at the last second and decide not to turn, and we can do nothing about it. But the probabilities at this stage are more bullish than bearish.

OK, let's revisit this additional prediction from you later.

You seem to rely totally on EW. Others might also take into account basic fundamentals, not just in terms of individual companies, but wider global and national factors.
I think you made a prediction about NAB going higher some days ago. The following day the company offered pessimistic news re their UK operation.
How does your EW take into account this sort of factor?

At the opposite end of the spectrum there are the value investors who say they don't care in terms of a few % either way what they pay for a stock, that it's irrelevant what the market is doing if they believe in the ultimate value of their chosen stock. OK, but wouldn't it be reasonable to make the most of volatility as at present by buying at a lower rather than higher price?

If there's some good news about at present, I've not seen it. Instead, we have dodgy employment numbers from the ABS here, the European 'recovery' more shaky than ever, jitters about the prospect of increased interest rates in the USA, what is essentially war in the Middle East, Ebola which is threatening to become a global epidemic, continuing squabbling about political direction here in Australia, China slapping tariffs on coal, and so on. Hardly conditions for any sort of bullish market outlook, I'd have thought.
But perhaps I'm just a pessimist. Extremely glad to be minimally invested in just a small pure yield p/f right now.

 

[Porper]

If there's some good news about at present, I've not seen it. Instead, we have dodgy employment numbers from the ABS here, the European 'recovery' more shaky than ever, jitters about the prospect of increased interest rates in the USA, what is essentially war in the Middle East, Ebola which is threatening to become a global epidemic, continuing squabbling about political direction here in Australia, China slapping tariffs on coal, and so on. Hardly conditions for any sort of bullish market outlook, I'd have thought.
But perhaps I'm just a pessimist. Extremely glad to be minimally invested in just a small pure yield p/f right now.

Julia, Elliott Wave doesn't take fundamentals into consideration at all. The patterns are as presented irrespective of whether we have overriding optimism or pessimism. However having studied Elliott for several years I believe it's better used as a confirming factor as opposed to using it as a standalone trading method. Rimtas will disagree no doubt, but this is my personal view.

As you rightly say pessimism is high which is often a precursor to a reversal. Usually major market tops are made when everybody and their dog are bullish with everything being rosy. The reverse it also true.

 

[rb250660]

...it's better used as a confirming factor....

So it's great in hindsight. Awesome

 

[rimtas]

OK, let's revisit this additional prediction from you later.


I think you made a prediction about NAB going higher some days ago. .

Yes, there was a perfect setup in EW terms and I picked up the bottom within cents, jumped all in with 1:4 leverage and let it go. As you said, the next day NAB announced bad news(though probably not, it was later, but I do not want to check this as it doesn't has any value) and it rallied for the whole week up in total +3,5% from the bottom. For a short term traders it would be enough and they could already exited, but my strategy was different as I am chasing only big returns and not interested in small ones. Maybe NAB will rally again soon when ALL Ords hit the first wave's bottom, but without a perfect setup I can't get in, that's part of my discipline. I do not like losses, especially floating ones.

And yes, you noticed correctly-I am relying only on EW, others on fundamentals, some on quantitative technical analysis. Many people, many approaches to the market, many strategies. I do not say that other strategies a bad, but how to pick the wave extremes using them is a very muted area to me. And as I can see from this forum, people using these other strategies usually are averaging down accumulating loses with hopes they are owning a part of business which can't go broke according to them.

I do not rely on fundamentals because they are not the force that is driving stock prices up and down. The market mood is the main force, and when it turns negative, fundamentals are the last thing what it cares about. Only on a positive mood looks like fundamentals are working, but the truth is that even stocks with bad fundamentals rise in a wave of positive mood in the markets. And when people do not understand why, they blame technical, they say it is a technical rise because everything is rising.

The opposite is true-when good stocks with good fundamentals go down on the negative dominant, people say that this is only technical drop and these stocks will recover, that's why they are seeking shelter in good stocks with good dividends during declines. But if ordinary correction turns into long term trend, it doesn't mater what fundamentals are, god or bad-people with pessimistic mood will drown the whole thing to the bottom.

Hopefully I cleared my point of view, which is personal. Other people has their own, I do not mind.

P.S. I actually do not know what people using fundamentals are doing in this thread. They should skip it. Technicians live in they own world and the clashes between two groups are always volatile. Why do this? I personally do not post in the threads of fundamentalists, but never mind to speak about animal spirits here.

 

[IFocus]

So it's great in hindsight. Awesome

I haven't been following this market lately but EW among other factors help get me out of the market Nov 2007 and kept me out long until 2009 but wouldn't say its the panacea of all trading.

 

[Julia]

And as I can see from this forum, people using these other strategies usually are averaging down accumulating losses with hopes they are owning a part of business which can't go broke according to them.

I do not rely on fundamentals because they are not the force that is driving stock prices up and down. The market mood is the main force, and when it turns negative, fundamentals are the last thing what it cares about. Only on a positive mood looks like fundamentals are working, but the truth is that even stocks with bad fundamentals rise in a wave of positive mood in the markets.

The opposite is true-when good stocks with good fundamentals go down on the negative dominant, people say that this is only technical drop and these stocks will recover, that's why they are seeking shelter in good stocks with good dividends during declines. But if ordinary correction turns into long term trend, it doesn't matter what fundamentals are, god or bad-people with pessimistic mood will drown the whole thing to the bottom.

Thank you for discussing your approach. I particularly agree with the portion above that I've bolded.

P.S. I actually do not know what people using fundamentals are doing in this thread. They should skip it. Technicians live in they own world and the clashes between two groups are always volatile.

Perhaps so. But I don't see why this should necessarily be so. Part of the point of my earlier post was my puzzlement about people who are so exclusively focused on a single approach. Just seems to me that to take into account, to at least some extent, important fundamental factors which influence the market mood you've described above, plus maximising entry and exit points with a simple look at a chart, makes sense.

The last thing we need is yet another squabble over FA v TA which is not what I'm trying to provoke at all. Perhaps the differences are mostly just about time frames?

 

[rimtas]

important fundamental factors which influence the market mood you've described above,

I can not buy this because I think the opposite-the dominant market mood is creating a fundamental factors, which are the consequences of that mood. That's why I think fundamentals lag the market and it is not worth my precious time to be interested in them. Positive mood drives the stocks higher and creates good fundamentals. Positive people spend more, are more open minded, less cautions.

But good earnings doesn't mean the stock will rally further and the opposite is true. I think the best buying opportunities are not when the fundamentals are shiny, but when companies constantly fail to generate profit, they cut dividends and try to seek mergers to survive. These conditions accommodate major bear market bottoms and present anyone with good long term buy entries.

My point above is about the whole market, which is like a sea-waving from one extreme to another, always seeking to be in the middle. Separate companies are like drops in the ocean and they can be bought or sold for different reasons than the whole market which operate on a herding basis.

 

[Julia]

We may be talking at cross purposes here. My reference to 'fundamental factors' was a poor choice of words.
I didn't mean the fundamentals of any company, rather global and local events and their likely outcomes which influence market mood.

 

[rimtas]

global and local events and their likely outcomes which influence market mood.

Could you please tell at least one example when and how major global events influenced market mood and turned it around? Cause I don't know any. There were major earthquake taking 200K lives in Indonesia, volcano eruptions that grounded the whole Europe(and beyond) fleets resulting in billions of losses to companies, Huricanes like Catrina and Yassi to name the few, localy a Brisbane flood resulting in special taxes to cover expenses and so on from natures side...

Man made disasters were 9/11 attack, Iraq war that followed, now we see half the world fighting terrorism, many local clashes in the streets to name just a few..

Does any of these negative events some how changed or disrupted the dominant market trends at that time? Just take a look at the charts and you'll be very surprised to see that any events people see as "important to the market" had no any impact on the local and global share markets.

In March 2008 Bear Sterns sold itself to JP Morgan at a price with more than 90% discount to the market but just 2 month later DOW was trading +10% higher, because only after the crash occurred analysts started to talk that this was the reason. Even after the collapse of Lehman Brothers in September 15, 2008, next week DOW was trading +5% higher, when now everybody are blaming it for the crash .
And so many people still believe that news somehow influence markets. They say-ok, maybe the market needs some time to digest these news, but at the same time they are waiting till company announce the results and expect to see market reaction next day, usually in accordance to results. When this doesn't happens, they say it was "sell on news" event and then wait for another similar setup, despite market proved it to be wrong again and again.

From EW perspective, no any major financial, nature, or social events were disrupting the wave structure at any degree; or reversing short/medium/long term trends before any pattern in operation at that time was complete.

It was, is and will be the fractal at all times, until the human neocortex becomes greater in size compare to the basal ganglia and limbic system, which are responsible for the social actions, market trends including.

 

[Julia]

Could you please tell at least one example when and how major global events influenced market mood and turned it around? Cause I don't know any. There were major earthquake taking 200K lives in Indonesia, volcano eruptions that grounded the whole Europe(and beyond) fleets resulting in billions of losses to companies, Huricanes like Catrina and Yassi to name the few, localy a Brisbane flood resulting in special taxes to cover expenses and so on from natures side...

Not at all the sort of events that I'd ever suggest made anything other than a temporary blip.

In March 2008 Bear Sterns sold itself to JP Morgan at a price with more than 90% discount to the market but just 2 month later DOW was trading +10% higher, because only after the crash occurred analysts started to talk that this was the reason. Even after the collapse of Lehman Brothers in September 15, 2008, next week DOW was trading +5% higher, when now everybody are blaming it for the crash .[
And so many people still believe that news somehow influence markets. They say-ok, maybe the market needs some time to digest these news, but at the same time they are waiting till company announce the results and expect to see market reaction next day.

I can't comment on the DOW. I'm only interested in what happens to my own investments here.
I've never seen anyone suggest that the Lehman's collapse was of itself responsible for the start of the GFC. It's perhaps just a convenient time marker for so called analysts to nominate as a deciding point.

At that stage pretty much all the talking heads were saying "don't worry, nothing bad is going to happen: just hold on to your shares, they will always recover". Most people seemed to believe them, and obediently held on while their invested capital halved in value. That's OK for many, it seems.

From EW perspective, no any major financial, nature, or social events were disrupting the wave structure at any degree; or reversing short/medium/long term trends before any pattern in operation at that time was complete. It was, is and will be the fractal at all times.

I know nothing about EW. I have noticed, however, that you, via EW apparently, have predicted the market here could fall to 1000, at the same time you were predicting a bullish future for BOQ. Doesn't seem to make much sense to me.

If you're suggesting that current events such as war in the ME, failed recovery in Europe, discomfort re suggestions of higher interest rates plus cessation of QE in the US, possible global epidemic of Ebola, slowing in China, faltering commodity prices, etc, are having absolutely no effect on our market, then we will simply have to disagree.

 

[rimtas]

I have noticed, however, that you, via EW apparently, have predicted the market here could fall to 1000, at the same time you were predicting a bullish future for BOQ. Doesn't seem to make much sense to me.

Ok, because you are already the second person here noticing this about ALL Ords 1000 and BOQ, I feel obligated to repeat the comparison on the bigger scale to clear any doubts about how BOQ will buck the ALL ords trend in the long run.

So here we go:







And not forecast yet, just assumption about All Ords





You should have noticed, that I expect BOQ rise only when the ALL ORDS will be in a countertrend move of Wave 2, which on this scale is almost invisible. Where is the bright future here?

Where does everybody sees anticorelation, I do not understand.

 

[Smurf1976]

I think the confusion arises due to different timeframes.

As for that yellow box, I'm not saying you're wrong or right there but it's a VERY big call for a drop of that magnitude. I mean, if we end up right in the middle then that's roughly a 60% drop from the most recent peak - ouch!

 

[McLovin]

I think the confusion arises due to different timeframes.

As for that yellow box, I'm not saying you're wrong or right there but it's a VERY big call for a drop of that magnitude. I mean, if we end up right in the middle then that's roughly a 60% drop from the most recent peak - ouch!

Nope, no confusion with timeframes. How can you expect a drop of anywhere between 40%-80% over the next 18 months and then expect any stock, much less a bank, to rise in that period? Like I said, you'd have to have superb, crystal ball, timing.

I'd be watching episodes of Doomsday Preppers not trying to grab a few bucks on BOQ on the way up.

 

[Porper]

So it's great in hindsight. Awesome

Very few understand the Wave Theory so usually come to the same conclusion as you rb2. Stick to what works for you, assuming you have a positive expectancy which is unlikely...you obviously haven't a clue about the Wave Principle.

 

[rimtas]

Agree with you, Porper. Wave Principle is quite complex, as the human nature itself.
I personally began trying to apply a rudimentary understanding of it as part of my investigation of technical methods of stock market analysis. I was keeping an hourly chart of the DOW and becoming more fascinated watching the waves unfold as Elliot and Prechter described and seeing many of my forecasts on that basis come to pass. I thought here was something not only true but important. It just needed some more thought and research. It took few years to understand the pattern connections and few more to develop a real trading strategy.

Previously I was like all others-trying to apply fundamental approach to the market, the quantitative technical analysis, but none of them were working, I was not able to trade using them, market doesn't reacted to the news, , earning anouncments, FED decisions or TA oscilators like ordinary thinking suggests, there was something missing to all of this.

I understand everyone who is against EW-this is not a method which you can learn and understand "overnight", that's why many people after familiarizing themselves with a basic patterns later are throwing in the towel trying to apply it in the real markets.
And the reason for this is the reverse thinking-to apply it successfully, you must think socionomicaly, this means you must see news, events, decisions of political and financial leaders not as the cause of future market movements, bus as the consequences of past ones. EW in not an ordinary technical analysis, it is the analysis of socionomic trends in a society.
The example of this can be earnings announcement from the company-instead of trying to predict what it means to future market trend, it is better to understand what kind of wave(of mood) previously in operation caused this kind of earnings to reach a daylight. Knowing(assuming) what a previous wave was, you can predict what will happen next. And so on.

 

[rimtas]

How can you expect a drop of anywhere between 40%-80% over the next 18 months and then expect any stock, much less a bank, to rise in that period?

I lost hope of trying to explain. I tried words, charts, there are still blind people out there seeing my prediction of BOQ rising next 2 years and not seeing the actual forecast on a chart where it could rise only 2 months inline with the market rise that should develop soon, and then crash next two years. Cheers.

 

[McLovin]

I lost hope of trying to explain. I tried words, charts, there are still blind people out there seeing my prediction of BOQ rising next 2 years and not seeing the actual forecast on a chart where it could rise only 2 months inline with the market rise that should develop soon, and then crash next two years. Cheers.

I saw it. I understand. I lost hope trying to make my point. Cheers.

 

[rimtas]

Let's see what sentiment is in US right now.

As of October 10, eight of the last 12 trading days had intraday moves of greater than 200 points in the Dow. Volatile days like these are a reminder for many that they need to wake up and take notice, because most people get taken by surprise.

Bullish stock market pundits recently held that, "a large exposure to equities remains essentially the only option for people with a 10-year or longer horizon." They still believe the market will continue to rise indefinitely because the average investor is currently disinterested in stocks and their return will fuel further advance. But the chart clearly shows an exceptional depth of public involvement.




In fact, the bottom graph of U.S. households stock ownership, which is drawn from the Federal Reserve's latest balance sheet figures of assets and liabilities, just hit a rare extreme. According to the second-quarter figures, the public's holdings of stocks and mutual fund shares (plus life insurance company holdings of stocks and mutual fund shares) equaled 34.4% of total household financial assets. That's the highest total since the end of bull market in 2000, when a record 39.4% of household financial assets were in stocks.
Notice that while household stock holdings continued to rise through the start of Cycle wave IV in 1966, they eventually reversed and continued to fall even after the Dow Industrials bottomed in 1974. In fact, household share ownership slipped to a low of 10.6% in the second quarter of 1982, when the inflation-adjusted Dow also bottomed.
This is the basic pattern: The public will hold at the front end of a bear market only to get washed out by the end. Over the course of the now-unfolding bear, a similar household contempt for stocks should carry this measure to an even lower level than in 1982.

As stocks finished their recent rally, the consensus of the experts hardened into a near monolithic belief in the inevitability of higher prices. A September 8 survey of 490 investment professionals by Carter Worth of Oppenheimer & Co. showed "a clear [bullish] consensus as to how the remainder of the year plays out." With the S&P trading just over 2000, 95% of respondents said the S&P 500 will finish the year in the black, while 89% called for further gains from then-current levels. Just 5% of respondents expected the S&P to close in the red, which would entail a fall of 7.6% from its September 8 close at 2001.54.

The biggest firms were among the most bullish. On September 8, a Bloomberg headline announced that one "Sees Decade-Long Global Expansion." A week later, the chief stock strategist at another said he was so keen on the prospect for equities that he was leaving to start his own company. "This is going to be one of the longest bull markets in history, and I wanted to take advantage of that," reported The Wall Street Journal.

From December 31 to the closing high on September 19, the Dow Industrials gained a little over 4%. By Mania Era standards, that's a relatively mild performance. But the relentless string of record highs continually revved investors' engines. By September 12, the media was egging things along. Noting that the S&P 500 was at 2000 and "setting another record every day," the headline of a major web column stated confidently, "NASDAQ Is Poised to Top 5,000." At 4568, the NASDAQ was still 9% away from this round-number milestone and 10% from its all-time high. I don't think it will make it. But confidence has been so high that to most observers it seems inevitable. This early September graphic from the Drudge Report captures the basic sentiment:






Narrow though they were, many of even the most resolute bears succumbed to the euphoria generated by the second-to-last round of new highs. In the first week of September, the percentage of bears as reported by Investors Intelligence slipped to just 13.3% That's the lowest total since February 1987, which was in the latter part of Primary wave 3, the strongest wave within Cycle wave V. The recent low reading accompanied a slew of bullish conversions that were so pronounced that The Wall Street Journal produced this "Missing" poster underneath the headline "Bears Turn Docile."






The long period of optimizm has made forecasters aggressively positive on stocks and the economy. An economist and an investment strategist at Morgan Stanley have just predicted S&P500 will rise 50% to 3000 by 2020, 5 years from now. I agree entirely on the 3000 number, just disagree on the index. Citibank's technical team is predicting an even faster gain, projecting the s&p500 as high as 2400 by January 2015, just three months from now. It even recommends that no one worry about seasonal weak September-October period this year.

At the same time, the chief international economist at Morgan Stanley predicts that the "recovery from the great recession could easily extend another five years", with growth of 3,5% in 2015 and 3,8% in 2016. He's not alone. The consensus among economists is that US will enjoy years of growth at a 3% clip.

All these predictions have their bases, but I think one of them is unconscious: the shared optimism of the crowd. Major institutions can afford the smartest economists on the planet, but at this point is better to bet against them anyway. Recall that the consensus has also been calling for accelerating growth in Japan and Europe. But Japan has reported a stunning 7,1% annualized rate of economic contraction for April, May and June. That's depression rate. Meanwhile, Europe is on precipice of deflation, and US maybe as well.

Will Australian markets hold? I don't think so. In 2008-2009, there were no markets on the planet climbing against US, even currencies, commodities markets were falling. Today's extreme historical optimism is sending a message to EW minded investors/traders to be prepared for a major turn.

 

[sails]

...Where does everybody sees anticorelation, I do not understand.

Your charts are much appreciated, Rimtas. You clearly have a good handle on EW and it's something where I only have basic knowledge. I look forward to your informative posts..

Not everybody understands the nuances of TA but this thread is precisely for that purpose so I don't understand the problem either!

 

[PennD]

I'm stoacked your posting here Rim!!!
I will be getting some charting software in the next week or two and look forward to sharing some charts, learning and riding these waves with you!!!
Cheers,
Penn.