Monday 10-31

One of the reasons I am totally convinced believe that markets are inefficient is that in two full trading days, the gains from last Thursday have not been totally undone.

Today's loss in the SP500 wasn't even a full 2.5%!  (2.47, if you're an accuracy freaque.)  The day's action was down at the beginning, down at the end, and bumpy, grinding sideways between.

Just one more day on the roller coaster.  The market giveth, the market taketh away.

Investors were worried about the collapse of the brokerage MF Global and missing details in Europe's plan to contain the Greek debt crisis . . .

Bank stocks fell sharply after the brokerage MF Global filed for bankruptcy protection. Last week, the company's debt was downgraded to junk status by ratings agencies concerned about its large holdings of European government debt. The company is headed by former New Jersey Gov. and Goldman Sachs chairman Jon Corzine. Morgan Stanley slumped 8.7 percent, Citigroup Inc. fell 7.5 percent . . .

The Organization for Economic Cooperation and Development warned Monday that European economies will see a "marked slowdown" next year. The organization called on the European Union to provide more information on how it plans to stem the debt crisis . . .

The market is shocked - shocked, I tell you - that things which were blatantly obvious last week are still blatantly obvious today.  Excuse me if I bust out laughing.

Thu-Fri 10/27-28

Stock indexes went berserk on Thursday, with 3+% gains the norm.   Over 2% of this came within an instant of the opening.   There was a slight slide at the end of the day, and positive follow-through on Friday was nonexistent.

The explanation:

Stock indexes jumped more than 3 percent Thursday after European leaders unveiled a plan to expand their regional bailout fund and take other steps to contain the debt crisis in Greece.

Optimism ebbed on Friday as analysts raised questions about the plan, which left out many key details about how the fund would work. European markets mostly fell, and the euro declined against the dollar.

"It's a kind of sobering-up after a day of partying," said Jerry Webman, chief economist with Oppenheimer Funds in New York. "We got back to what's more of a square position, closer to where we want to be, and now we're going to take a couple of deep breaths and reassess what this really means."

There are still plenty of obstacles to overcome before the crisis is resolved. One troubling sign: Borrowing costs for Italy and Spain increased, signaling that traders remain worried about their finances.

OK.  I've got it.  A three percent across-the-board single-day gain was justified because of a poorly understood and not-thought-through event ON A DIFFERENT CONTINENT.  The next day's lassitude is taking a deep breath, because we need to reassess.

In other words, investors are damned fools, blowing around like leaves in the wind, and really have no idea what the hell they are doing.

Makes sense to me.

I wonder if Webman even realizes he has implicitly refuted the efficient market hypothesis?

Wednesday 10-26

The SP500 index jumped about 15 points at the opening, then proceeded to sag back below Tuesday's close.  It then bounced and rolled before climbing to end the day at 1242, close to the early morning peak.  Just one more dip in the roller coaster ride.

Tuesday 10-25

Today's decline wiped out yesterday's advance.  After a quick 20 point drop at the opening, the SP500 recovered about 10 points in an hour, went went mostly sideways until about early afternoon, when it slid again and dropped sharply at the end of the day to 1229.05, for a total loss of 25.14, just about 2%.  The DJI and NASDAQ also lost on the day, dropping 1.74% and 2.26%, respectively.

I can't make anything out of the wave form.  This could be the decline reasserting itself.  Then again - maybe not.

Monday 10-23

As of 1:15 p.m. the SP500 has reached a daily high of 1254.69.  This is getting quite close to the 66.67% retracement level of the decline from May 2 to the October 4 low at 1258. This still looks like a counter-current move with more declines to follow.

Update:  After rising from 1238.72 at the opening, the SP500 leveld off and spent the afternoon oscillating around the 1253 mark.  It topped for the day at 1256.55 shortly before 2:00 p.m., made another stab above 1256 shortly after 3:00,  and bounced in at 1254.19 for the close.  Momentum is down from a Friday morning peak, slid lower all day, and now is about zero.

On the other hand, the animal spirits were active today: contrary to what I said on Friday, the NASDQ was up about 2.4%, the SP about 1.3%, and the DJI only about 0.75% - inverse to relative blue-chippiness.

Back on the first hand, 1256 is close enough to 1258 to quality as a 2/3 retracement, as far as I'm concerned.  Not to say that the recovery is necessarily over quite yet, though - we'll have to see what happens the rest of the week.

Friday 10-21

For the past two years, the NASDAQ has generally outperformed the DJI and SP500 indexes.  You can see that by comparing the green line trajectory to the blue and red lines on this Yahoo Finance chart.  Just the reverse is happening this week, though. 

The NASDAQ is now slipping behind the DJI and SP500.  At a detail level, the late day surge took the DJI above the morning high.  The SP500 finish fell less than a point short of the morning high of 1239.03.  The NASDAQ never challenged the morning high. If this is the start of a trend, it would reflect a kind of flight to quality, as the blue chips out-perform their lesser brethren.  In a downturn, outperforming means not doing as bad as.  

The current advance probably has some legs left in it - though the NASDAQ might already have run out of steam.   The .667 retracement level in the SP500 is around 1258 - less than 20 points from today's high.  It might take a few days to get there.

Then, the decline can resume in earnest.

Thursday 10-20

Today, the SP500 started off continuing yesterday's slide.  This reversed shortly after noon, and the ensuing move up retraced just about 2/3 of the drop from the high late Tuesday afternoon.  Cycles within cycles.

Taking a somewhat longer view, here is an updated close up of the first graph from last Thursday.

The daily highs. lows, and closings are in red, green, and yellow, respectively.    For the last 9 or 10 days, the movement has been sideways, and mostly contained between the .382 and .500 retracement levels of the drop from the May 2 high to the October 4 low.  Evidently this stage of the correction is tracing out some sort of flat.  This implies that a new recovery high will be achieved before the next down wave begins.   For what it's worth, these moves have also been hugging the continuation of the former lower boundary of the up-slanting August-September trading channel.

Something will have to break soon

Wednesday 10-19

The SP500 chopped around near 1225, the area of yesterday's close, from the opening through about 2:00 p.m.  Then it lost 20 points in an hour or so, and then chopped around near the 1210 level for the rest of the day, closing at 1209.88.

The theme for the last 6 or so weeks, despite some dramatic daily moves, has been sideways.  This has been a corrective pause in the downward thrust that began with the May 2 high.  The difficulty is extracting from all this hash the start of the next down phase.   Eventually, this will become clear - sometime in the next several days or weeks.  In all likelihood, a significant downward move is ahead of us.  We just don't know when.
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Tuesday, 10-18

Yesterday's decline in the SP 500 index continued past today's opening, looking like it might be the start of something.  Then it turned around and the strong move late in the day gave us the highest intra-day high (1233.10) since August 4, when the index was falling fast and hard from around 1350.

The corrective wave continues.
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Monday 10-17

After a quick drop at the opening, today's decline was neat and orderly.  This is probably the beginning of the next down phase I mentioned on Thursday.  The wave action appears to be at quite a small level of trend.

It was a consistent down day, with all the major indexes dropping - even oil and precious metals - and a decline in all 30 DJI stocks.   In fact, the blue chips got hit harder than the more speculative issues.

DJI      -2.13%
SPX    -1.94%
NDX   -1.58%

Note that I've added an interactive chart widget at the top of the page, courtesy of freestockcharts.com.  Play around with it a little bit.  It's quite versatile.

Fri 10-14

This morning's near-vertical rise filled the open gap from Wednesday, and also reached a new intermediate high, edging out Wednesday's 1220.25 by an additional 1.19.  This appears to be a continuation of the correction from either the 10/04 or 8/09 low.   Since 8/09, only the declines have had an impulsive look.  The advances have been overlapping, and look like corrective waves.

Not much to add, unless something dramatic happens in the next hour and a half.

Update:  I won't say this is dramatic, but the index did inch a bit higher today, topping at 1224.61 before slipping back a hair to close at 1224.58.  Hmmm.  Now the chart at Yahoo shows an opening gap up.  Earlier in the day, it showed an actual steep climb.  I have my doubts about the accuracy of the Yahoo charts - at least at a detail level.  But I don't know where to get anything better.  And, they're free.

Thursday Market Action

It looks like the most recent corrective wave might have finished, and the decline can resume.

Sometimes, it pays to take a step back and have another look at the big picture.  I was surprised by the scope of this advance because I thought it was occurring at a lower level of trend.  It now seems clear that the  correction is occurring at a higher level.

The next open question is the wave count.  I've been operating on the presumption that the October 4 low was the end of a downward impulse, and the correction that followed was a zig zag pattern.  This may still be correct, but there is another possibility worth considering, and that is that the bottom of the impulse was way back on August 9.  If this is the case, then all that has transpired since has been part of a running flat corrective pattern.

The alternate wave counts are from the October 12 Elliott Wave Short Term Update.  The charts are mine.

The two charts below illustrate these possibilities.  Daily highs are traced by the red lines, lows by green, and closings by yellow.   The channel for the zig zag correction is included, as are the .382; .500; and .618 retracement levels, based on a May 5 top.  For these charts, I'm assuming today's highs and lows are already in, and left the closing value open.

By either wave form, the next expected move is down.