marketspath

So What are the timing systems telling for today?

Posted by Gary Dean 10/28/11 @ 11:00 am

The bulls have been on a tear in the month of October, able to walk around with the stamp on their chest saying "we were able to show the markets the best October in history.

They have done a fantastic unfortunately, we only caught 1/2 the run. We were getting long almost at the exact lows (IWM 60.70 last entry on the long side) but when IWM hit 67 the next day, I locked in profits, as an 11% move in 1 day was a great trade. Little did I know it would be at my original target of 74-78 in a matter of 18 trading days. So yes, the bulls have had a great run and for the most part, it was expected and why I think it made it here with little trouble.

Most bears that use Elliott wave counting, stamped the October 3rd lows as a major wave (1) down. Wave (2) typically retrace 62%/78% of the entire decline. IWM hit 62% yesterday and what wave 2's are made to do is convince everyone that the previous trend is back in place-which was up. Sop far, wave 2 has done exactly what is was suppose to do, if this is indeed a wave 2.

That is the problem with Elliot wave trading, you do not know you are wrong until a higher level gets taken out. In this case, it would be the previous highs that were made in May. That is a long ways away to find out if you are right or wrong. I use Elliott wave, I look at the longer term wave structure, but concentrate and trade the short term wave structure.

By combining my timing models which give me heads up a current move is losing steam and short term Elliott wave counting, I am able to try and figure out the short term wave structure and trade off these short term moves. One thing I am NOT good at with Elliot wave, is counting the squiggles. I don't have the patience for that type of counting nor do I want to trade those minute moves.

My goal is to concentrate of the moves that will net us at least 2% or more on IWM. As of yesterday, it appears that we finished wave 3 up of wave (2) and should see about a 20-30 point spx drop from those highs to make a wave 4, which wave 5 up to new highs should follow some time soon. I am thinking next week. Remember, the Bulls are wearing the "best October is history tag proudly" and they aren't going to let it go anytime soon-especially until the month ends.

But the Bulls are their own worst enemy. There isn't a person in the world that wouldn't want to see the stock market move higher. But it is the fashion in which the bulls move the tape that is frustrating many and having 50% of the traders hoping that the spx goes to zero. They don't know what "take a breather means-just as we just saw in the month of October.

The spx has moved some 20% off the lows in 19 trading days and has reversed its "breather" move at only 23% retracement pivots, usually intra-day. That is NOT sustainable!! So what happens with these types of moves, are all of the shorts get squeezed, any trader that was waiting for a pull back to jump in, just sits and watches the move and once the shorts are finished covering, we nose dive back down.

Fear is much stronger than greed. So when the shorts are finished covering and we start heading lower, it starts to snowball as traders have been down this road before. They see a massive move up only to give it all back and some 3 weeks later. The shorts that got squeezed are now re-shorting again and the supply simply outweighs the demand, especially when the original demand was fabricated (shorts covering)

During the last drop, the bearish sentiment was pretty loaded. When there are a lot of bears in the market, they can be used as a floor for the drop. The bears that are in a winning trade cover, which adds to the demand, which provides a floor at some point. But if you make all of the bears cover at once, you get moves like we just saw, which as I mentioned are unsustainable, but on the way down (which it will come down) there is no floor anymore, as all of the shorts are out of the market.

The traders that were waiting on the sidelines for a pull back, will chicken out as the drop will almost look like a crash, as the volatility down is always stronger than on the way up. So again, the demand that may have been there if they used a normal speed approach on the way up, is now gone.

So our short term timing systems, which are made up of ratio breadth charts, are looking for a pull back soon. The 15 minute timing system is in an inverted sell signal and if they try and push this market even higher today (bulls are pigs, so that may happen) the 60 minute timing system will then trigger a 2nd sell signal.

Usually when the 15's and 60's are in line, we do get the larger pull back. That is pretty much what I am expecting in the coming days. But for the 60's to trigger a sell signal, we should see a higher high than Thursday at some point.

Our $tick indicator is throwing out some major sell signals. I have been mentioned to members that I believe a major move down is looming. I am calling it D-Day and it could come sooner than some are expecting. Unfortunately, I can't give you this date or time frame. It just wouldn't be fair to paying members. But if you are interested in learning when it is, please come and join our premium member service. Our $89.95 2 month special may be ending soon, as we are switching payment providers and my developer is not sure we can offer it.

So up in this area, carefully pick you spots to short and don't marry the short side on the first drop. They almost always come back up and at the least test the highs. Below is a chart of our 15 minute timing system. Just one of 6 that our members see each night. Our timing system has NOT been wrong since put in place, almost 2.5 months ago. Good luck trading. G-