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Booooriiiing!!!
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Booooriiiing!!!

by The MoleNovember 3, 2008
Booooriiiiiing!!!

Booooriiiiiing!!!

Boy, today’s tape was mind-numbing – almost as bad as Friday’s mental torture. I’ve said it before and I’ll saying it again – I can’t wait for this election to finally be over and done with. In my mind it really doesn’t matter who actually will become president tomorrow as it should have very little impact on our economic outlook looking forward. Again, this only relates to the markets – in respect to the future of this country this might actually be the most important and historic election you will ever participate in (assuming you’re a yank and weren’t too lethargic to get your fat ass registered). Whether you care about politics or not, the market is taking a wait & see attitude and I expect the coming days to be more interesting. I’m running a bit late here, so let’s dispense with the formalities and get right to the charts.

I know it’s messy, let me walk you through it. I see two main probabilities here, both of them incur a drop probably starting tomorrow or Wednesday (indicated by the red line). Both scenarios also rank about the same in terms of probabilities as indicated by the percentage bubbles.

It seems that the market is going to embark on a large move towards the middle of this week, and it’ll be either to the upside or downside. I guess most of you suspect this much, and the only question remaining is where the fork in the road is going to be. Based on the momentum I’m seeing in the market right now (more about that later), we are overbought at the moment and thus I do expect a pullback and that soon. Where the pullback occurs, in my mind will also give us some indication as to which scenario is most likely going to play out.

  1. The Rally: Based on the fibs, which are also fairly closely backed up by 2sweetie’s retracement levels, we should reverse to the upside around 912 or 886 on the SPX. After pushing through 969 again (which is strong resistance) we would probably bounce off of 1025, retest 969 and then proceed up towards 1075. Berk talked about this early this morning as well, and I will post another chart.
  2. The Drop: A.k.a. the triangle we discussed last week. I think the earliest we would reverse towards the upside would be 886 to complete wave {d}, but I would get more confident if we push towards 860 or a bit below. After that {e} would top around 855 (completing 4 of (3)), after which we would embark on 5 of (3) most likely ending around 754 (another retracement level).

Obviously, entertaining the rally scenario indicates that I suspect that wave 5 of (3) has ended on October 28th, in would then appear to be ending diagonal. I have considered that idea briefly last week but didn’t take it too seriously. However, the momentum last week has been very bullish and we don’t want to limit ourselves to the bearish side when the market presents us with evidence that we are tracing out more than a short consolidation rally.

If we forget about Elliott Wave Theory for a second, here’s another way to look at the recent market activity. This was sent to us by one of our members (I forget who it was, please make yourself known so I can give you credit), and the idea here is that we might be tracing out a Head & Shoulder pattern. Strangely enough this would almost be identical to the rally scenario and wave pattern I presented previously. Food for thought – and this chart is actually why I am assigning both wave counts the same probability.

Exhibit A: The TED spread – it’s narrowing and is pointing down. We can debate about the fact that it the only reason this is happening is due to central bank guarantees, but that doesn’t change the fact.

Exhibit B: Spread between Moody’s 3 month Corporate BAA yiels and the 30-year T-Bond yield – has also narrowed to 5.18% (sorry, I don’t have a chart for that since I have to do it manually). I know, that is not a huge decrease, but it’s starting to move up. Frankly, what has triggered the narrowing is that the TYX has gone gangbusters last week – it’s at 4.369% today. The TNX also has been melting up and bonds find themselves at a support line right now. If they breach that line in the coming days this yield spread should narrow even further and I expect that a rally in equities will play out. If the line holds and assets are flowing back into T-Bonds then I expect this spread to widen again quickly, since the Moody’s yields have actually been on the rise. A widening spread would give credence to the triangle/drop scenario above. Hope all this makes sense to you lower leeches.

Exhibits C, D, E: Most of my stochastic and MACD indicators on various charts are screaming overbought right now. All the indexes are way overbought on short and medium term basis. Another indicator many of the pros use is the NYSE McClellan Oscillator shown above. If you ignore for the moment the long spike down it becomes clear that 60-70 indicates an overbought condition while -60 to -70 means that the NYSE is due for a bounce (like about two weeks ago). Well, right now it’s ringing ‘overbought’, giving additional credence to my trusted stochastics.

But again, all these are medium to short term indicators, and although they suggest that a drop is coming, they do not discredit the rally scenario mentioned above. I just want to be clear on that – at the time we reach some of those ‘fork areas’ I drew out in my first chart many of those momentum indicators should be either in neutral or perhaps even oversold territory.

So, in conclusion, the next 2 days should be very interesting and probably a bit volatile, but in my mind not present much of a surprise. We proceed down and then the market will show us which way it wants to swing. We will keep you updated as things unfold and apprise you of any changes in how we assign the probabilities.

I have nothing to add to my last posting about Gold – it’s proceeding downwards and nothing has changed. I loaded up on some GLD puts and am prepared to give them a lot of leeway. Should we encounter a surprise rally that pushes up above some key levels I will let you know the minute I cut those positions.

I closing – I would suggest you keep your trading activity very light in the coming days. I myself picked up a few puts today in anticipation of a drop (go back to today’s intra-day posting for the symbols), but I will be very quick to take profits.

Whatever you do – go out and VOTE tomorrow, no matter who your favorite is. Always remember that many of your forefathers (as well as mine) gave their very life just so you can get your lazy butt off the couch, march to your local voting booth and exercise your your right to vote. Never ever take this right, as guaranteed by our wonderful constitution, for granted.

We the people – tomorrow we can make a difference!

Cheers!


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • jcoors

    Good post. I'm not voting though, there's no real choice between the candidates, and I don't want to be targeted when Obama's “civil defense” forces comb through voting records and start rounding up Republicans and Libertarians.

  • http://groups.google.com/group/monitoringthemadness/ johneeboy3

    Thanks again for all your hard work, Berk and Mole.

    My contribution today is a wave count on the 10 min chart. I got TOS now, so I can do more than just talk about it.

    To me, the action over the last few days supports the triangle interpretation, and lessens the possibility of a flat playing out, however I must admit that I'm not so good at counting complex flats – so it might be one of those.

    Check it out here if you're interested: http://dl.getdropbox.com/u/230105/charts/st/200

    Anyway, the initial impulse and the diagonal are pretty clear. So I'm looking for a decent (divergent) rally in the cash index in the coming session, which (if it's an ending diagonal) should not exceed 1013.8 (or else it's something more bullish).

    Cheers

  • http://www.evilspeculator.com berkshire

    Here are my thoughts on FSLR. Overbought on short term, rallied 60% in 5 days, approaching resistance, one of my favorite stocks, and waning momentum. $180 would be the maximum for a simple [ABC] correction, however that MAY cause some overlap issues.

    daily – http://screencast.com/t/nUihQpEy6n
    60d/60m – http://screencast.com/t/lhSnH7uV

    Skål!

  • molecool

    May I also offer this: http://screencast.com/t/5wsWI4wehbL
    As well as this: http://screencast.com/t/5wsWI4wehbL

    Or in other words – I'm going to short the heck out of this one.

  • BigHouse(Aka Mr Vix)

    Jonhnee could the low back in Oct 28 or 27 be a truncated fifth of the wave 3. Meaning the rally since then was wave A and now wave B for a pull back staying above the Oct lows? Truncated waves are not common but its just a thought.If we go below 8750 on the S&P cash this would be less likely and the triange more likley.

  • molecool

    Ending diagonals, which I was talking about, are common after violent and long 3 waves.

    BTW, truncations are actually not uncommon at all – where did you get that idea from?

  • molecool

    “To me, the action over the last few days supports the triangle interpretation, and lessens the possibility of a flat playing out”

    We would have to keep rallying from here and I believe the bullish momentum has waned to the point where this scenario becomes unlikely. I wouldn't completely discard it though…

  • BigHouse(Aka Mr Vix)

    This thought came about from the people at Prechter 's camp . It is not very strong but i feel it is important to at least bring it up. I want to bring every possible pattern on the table. You can email me at fcg1433@yahoo.com and i can talk about this more. I would share this on this thread but Prechters stuff is not public but for subscribers.

  • Steve

    Great market analysis but,

    “Always remember that many of your forefathers (as well as mine) gave their very life just so you can get your lazy butt off the couch, march to your local voting booth and exercise your your right to vote.”

    Our forefathers would have never tolerated an out of control government that robbed its citizens to enrich the banking elite. They revolted from the British over lesser crimes.

    Spare us the warmed over civics class BS which is echoed by the concentrated corporate owned media. Most of the population is slowly getting it though, fewer vote every year which is progress.

    Bake a cake, help a neighbor, teach a child, do something constructive as opposed to wasting your time on yet another candidate who will lie and steal from us all over again.

  • http://groups.google.com/group/monitoringthemadness/ johneeboy3

    Thanks, mole. I agree.

    Looking forward to finding out what the market has in store for us.

  • C.C. Rider

    I don't get it. Why would we keep rallying from here if it's a triangle? We are butted up against the triangle on the Dow, S&P, and NDX100 at 9300, 970, and 1330 respectively.

    This move is getting weaker with each attempt, especially in the leader, NDX100.

    http://stockcharts.com/h-sc/ui?s=$NDX&p=D&yr=0&

    The bulls are calling for a bottom, everyone expects an Obama rally, seasonally strong period. But memo to self, take the contrarian view when everyone starts leaning one way.

  • lisa
  • Ukla the Mokk

    Here are my main items of interest for put plays tomorrow…
    DE – http://screencast.com/t/rLahK4er72D
    DIA – http://screencast.com/t/7Haeg8MrRM
    DRYS – http://screencast.com/t/8paDGWXXlz
    MOS – http://screencast.com/t/JDtLqgEPbi
    QQQQ – http://screencast.com/t/5SvWjoJqGq
    WFR – http://screencast.com/t/W9DInWoyx
    XOM – http://screencast.com/t/q7gyiyzYnfJ
    A plethora of issues to watch. I'm not saying they're all great shorts…just great candidates. For most, breaking the low of today (which in many instances was a doji at resistance/key fib) is the most obvious trigger to be met.
    Good trading!

  • C.C. Rider

    Lisa, I read that earlier too. Good article. I've been espousing that same viewpoint for awhile. Declining volume and rising prices is a recipe for disaster.

  • gagelle

    Thanks molecool. Terrific analysis.

  • molecool

    Baking a cake doesn't change the system, pal. Humanitarian efforts are fine, but if you want things to change you need to make yourself heard. That is up to you – if you don't vote you don't deserve to to complain about the above.

  • molecool

    I grabbed DE today before the close – looked pretty defensible.

  • moneyfarm

    Thanks for posting your charts. I went short on XOM last week on earnings day via Nov 75 puts. What time frame are you drawing your fibs to get the 23.6% fib @ 73.25? Short term, I see resistance at 76.03 50% fib and the stock struggling to break above the declining 50 dma around 74.90.
    Cheers
    http://screencast.com/t/BkaU4yZN

  • http://z-stock.blogspot.com/ zstock

    XOM short looks like it might work, if I get in and out. I'll be following that one. XLE needs to retest $46 and ($56 = 50 day–?)

  • http://z-stock.blogspot.com/ zstock

    Good article, we're not even close to the bottom yet-Anyone that thinks this is a bull market, needs to get out of the market now.

  • GEO

    You are doing just fine, Molecool!

  • Ukla the Mokk

    All of my fibs are drawn on the longest possible timeframe usually. For XOM I actually drew it all the way back to 1970.

  • StoneDog

    I do not like the man myself, but i dont think it will be that bad.

  • GEO

    Are we like in 1974 by looking at http://decisionpoint.com/ChartSpotliteFiles/081… ? http://humblestudentofthemarkets.blogspot.com/ thinks a little differently.

  • DMA

    GLD up 3 percent in premarket! SH*T!

  • Samson84

    why does everyone keep saying our forefathers gave their lives for voting.? The Founders of this country actually had a deep suspicion of majority rule.

    If any of you follow Ron Paul, you''d realize that our elections are actually very undemocratic. Two parties hold a monopoly They're the ones who receive all the money from special interests, and they are the ones who write the laws making it hard for third parties to get on ballots. How can you call it fair if other parites can't raise enough money and can't get on the ballots in all states? Isn't a fair race at all. That's why I'm not voting this year, not because of laziness.

    Here's an article that make you think more about the election process. Ultimately, if we have to keep voting for candidates who both support bailouts and govt intervvention, we will see some bad looking charts going forward.
    http://mises.org/story/3170

  • Ukla the Mokk

    That's the way it goes…I'm not in that, but the consensus is that the path of least resistance on GLD is down so it may (MAY) be an opportunity to add to your position. But keep your exposure low. I had a tiny position that went from +32% at the close yesterday and is now at -21% at the open. Let's see where the market takes us.

  • molecool

    Yeah, that comes a bit unexpected.

  • BigHouse(Aka Mr Vix)

    Went in and shorted the qqqq's at 33.39 :)

  • Ukla the Mokk

    mole/berk…delete my comment if you must.
    TO ALL WHO ARE NOT VOTING…
    First, this is a trading blog, not a history, politics, or government blog. If mole/berk wanna make a plug to vote, fine. And if you wanna make a quick opine on that, fine. But if you're not gonna vote, for whatever reason, I don't want to read your BULLSHIT. I don't care what your excuse is…unfairness of the electoral college, two party monopoloy, whatever. If you don't have the balls to vote, you don't have the right to complain. Especially on a trader's blog. And if you honestly don't feel your vote counts, pack your shit and move to Canada or Mexico. There's a reason why _every single person_ in the world watches these elections: most of them would give anything for the right to vote in a country like ours.
    People like you are the reason two parties control our government. If every person who felt the way you do voted on a third party, things would be a lot more interesting and, arguably, fair. But you're whiners who don't bother to vote and, thus, you've created the problem you're bitching about because you don't have the balls to go and vote; nor do you have the belief in our system to get off your ass and vote.
    So again, if you don't vote, shut the fuck up.

  • BigHouse(Aka Mr Vix)

    Mr Vix is under 50 :((((((((

  • iwanttobelieve

    Nice work on the $SPX graph, the graph provided me some nice bearings this morning!

  • Samson84

    Evil, Did you remove my post on voting?!?! I thought this would be a good topic to discuss as it ultimately has long-term consequences for the US as well as the markets.

  • molecool

    I'm actually did just that :-)

  • http://www.myspace.com/181419967 JZT_CHIL

    “There's a reason why _every single person_ in the world watches these elections: most of them would give anything for the right to vote in a country like ours.”

    Well said! Most countries overseas have lower standard of living, worse economy, food shortages, worse politics with “regimes”… they'd do anything to come to this country, sell all their assets just to pay for a work visa, become nurses, etc.
    Some here in this country do not have an inkling what's really going on around the world.
    You've been blessed with this freedom & right to vote that hundreds of million of human beings on earth don't have.

  • molecool

    Jeeeeezzzz – all I said that it's a privilege to vote and everyone is going ape-shit about it. Should have known better and not made a comment about it.

  • molecool

    Bah – you just beat me to it!

  • molecool

    Exactly, a bunch of video game playin' spoiled brats. Probably never got a good spanking from their emasculated dads. I've been traveling the world when I was a kid and I've seen a lot of ugliness. Not even going to debate with those wankers – not worth my time.

  • molecool

    CLEAN CUPS!

  • Gumbo YaYa

    It just reminds me of old times when I hear you say that…

  • buyearlysellsooner

    I think you have it all wrong pal. If you vote in this corrupt election where the candidates are bought and paid for, then you have no right to complain about the system because you are endorsing this cesspool. A post or so ago, you wrote that the currency we work our lives for is essentially “bull shit.” How is that just?

    And do you think for a moment, you little trip to the voting booth is gonna change that? Over 80% of the population in the US opposed the bail out of the elite banks, and it didn't matter at all. The feds went ahead and did it anyway. You are living in a dream world to think that voting in national elections changes anything. It hasn't and it won't.

  • Gumbo YaYa

    It just reminds me of old times when I hear you say that…

  • buyearlysellsooner

    I think you have it all wrong pal. If you vote in this corrupt election where the candidates are bought and paid for, then you have no right to complain about the system because you are endorsing this cesspool. A post or so ago, you wrote that the currency we work our lives for is essentially “bull shit.” How is that just?

    And do you think for a moment, you little trip to the voting booth is gonna change that? Over 80% of the population in the US opposed the bail out of the elite banks, and it didn't matter at all. The feds went ahead and did it anyway. You are living in a dream world to think that voting in national elections changes anything. It hasn't and it won't.