Doubts Galore

11:30am EDT: As predicted by the 1040 breach we continue to climb higher as this third wave extends further upwards:

The count at this point is fairly clear in that new highs are necessary in order to complete the current motive wave to the upside. The only fly in the ointment (i.e my count) is that September 16 turn date – but I have stated before that price is king and that time based Fibonacci projections are speculative at best.

I hate to break it to you rats but it seems that this September is going to be a good one for the bulls – unless we see a very rapid drop to the downside late this month it appears that we are going to paint another positive month in equities.

The Dow has reached the mid point of its old 2008 channel and we are now testing the wave 4 top painted back in October. Once that line is breached there’s only air separating the bulltards from their coveted 10,000 mark. At this stage I have little doubt that we will get there and even 10,333 – the 50% fib mark – might be in the cards.

Which is exactly what I predicted over six months ago – here’s what I said on March 8th, 2009 – right at the bottom of Primary {1}:

Well, now I’m telling you guys that we will see the Dow trading at 9,000 again by the end of the summer, and maybe – just maybe – we might even revisit the 10,000 mark. Yes, you heard it here first (and maybe on the Slope – damn you T.K.). Markets never move in one direction for very long – even though the last few months might have felt that way.

I have to concede that the past six months have been extremely taxing for any bear and exhaustion has reached painful extremes right now. Traffic and participation on Evil Speculator has dropped by at least 50% and many once faithful posters have long moved on to greener pastures. Again, exactly what I predicted would happen over six months ago:

So, besides bringing the noobs up to speed, why am I telling you rats all that? Do we really care about those ‘galactic cycles’ when trading on a daily, weekly, or monthly basis? Yes we do – because in a few weeks the nature of the market will begin to change. Initial cautious bullishness will quickly lead to euphoria and calls declaring the bear market as done and dead. I doubt that Primary wave {2} will last 500 days – after all this is a consolidation wave as part of a larger degree motive wave (see graphic above or in the sidebar on your right). But at minimum it will be measured in months and the characteristics of our daily trading reality will shift back to a climate resembling 2007. The pundits and politicians will exploit a market recovery as a sign that ‘the stimulus plan is working’ and that we are on the road to recovery. Do not be seduced and plan your trades accordingly, no matter at which degree of the wave cycle. The old buy and hold paradigm will only serve you well if your investment window is measured in months or weeks – not in years.

For us traders this presents us with an opportunity to play the long side, nothing else. As an added benefit we might actually see the options market become …. well … an option again. Volatility will eventually breach below 30 again, and that will change how options are priced and also decrease some of those nasty bid/ask spreads. A few months down the line, as we reach the peak of Intermediate (A) of Primary wave {2} we’ll be able to load up very cheaply at the top and ride Intermediate (B) down for a few hundred Dow points. As usual, it’ll be all about the right timing and I’ll be here to steer you rats along with my wave counts.

I couldn’t have said it better – well, actually – I did -so, there you have it. BTW, so much for Elliott Wave Theory not working – but it does prove one major lesson: It’s one thing to talk about a Primary degree bear market rally – it’s quite another to trade through it and come out the other end in one piece.

Finally, here’s a must read from some obscure blogger I never heard about but who describes current sentiment among us bears to a tee. It’s always good to take a look in the mirror every once in a while and to not just analyze the market but also yourself. Trading is all about you – not the market – we can never blame the market for our losses, insider monkey business and Fed manipulations notwithstanding.

The big question going forward is this: How many of us will still be mentally and financially capable of trading Primary {3} all the way to the bottom? Take a look in the mirror and then decide for yourself.

1:06pm EDT: Some poster brought up the fairly obvious (and huge) inverted H&S on that Dow chart. To be blantantly frank – it scares the shit out of me and of course I’m aware of the possibility that we bears will get slaughtered later this fall. But then I tell myself that our H&S over a month ago did not play out either – so, we shall see.