Month: July 2010

S&P (SPX)

Hamilton

SPX JULY20 2010

EW is a rather difficult thing to use at times as there can be a multitude of possibilities. Apart from that we had the heretofore unheard of flash-crash right in the middle to confuse matters even more. In constructing the proper count, that is the MOST plausible one AT THIS TIME, all the rules have to be adhered to with respect to overlap, size etc. etc. and comparisons with other indexes can be helpful.

The pattern leading to this latest down trend is a “expanding diagonal triangle” a.k.a a flag or pennant which has the very predictable attribute that it will be retraced in its entirety, that is to somewhere between 990 and 1010. (see green lines) The flash crash almost reached that point but not quite, assuring any observer that it was not just a flash in the pan due to thick fingers , but the real thing, that would still go lower. That almost certainly had to be a wave 3, the remaining question was of what degree. I have drawn 3 different counts that are plausible; in the red one wave 2 is an irregular flat: in the blue one the correction is quicker and the down trend is continued earlier, now in the 3d 1-2 ; in the purple one wave one down continues a lot longer and the wave 2, a zig-zag, is not at all complete as wave c of 2 can easily retrace 50 to 60% or more, 1125 is a minimum.

Which one is correct, if any , remains to be seen but for the bears the purple one will be the most frustrating – which is what is usually in store.

AZO, Autozone

Hamilton

azo2 azo

I have never even heard of this company but it counts pretty well simple because there are a number of clear patterns, a megaphone, a triangle and an irregular flat a-b-c. Also we are approaching the upper parallel trend-line and both the RSI and MACD are not confirming the new highs. The trick is to get the patterns in the correct order and in the proper degree, which I may or may not have done. This thing is so robust that even a few minor changes do not effect the outcome all that much. One more little wiggle is required but around $210 this is a sell! The first target would be at $135 or so, by coincidence also this years low.

Euro/US$ July 17,2010. Bovespa etc. etc.

Hamilton

A month ago I suggested that the Euro would turn at around 116 or so, this on the simple basis of symmetry in the down legs. It actually had hit the low at around 118 a couple of days earlier. Here is the chart again;

Euro July 17 2010

The symmetry, using vectors, is best found using the green lines, any point on the circle representing the vector of the first green line a. which is why we did not quite reach 116. Anyway, here we are at 130 – up a cool 10% – for a currency that was supposed to be wiped off the face of the earth. The next stopping point is around 136 where there was a congestion area and where the 50 day moving average resides.

Interestingly there is a way of double checking this thesis; as it happens the Bovespa , the main index in Brazil , is (at least for the past few years) almost perfectly inversely correlated with the Euro/ US$ exchange rate. So if the US$ goes up the BVSP should go down. Here it is;

Bovespa

Clearly the Bovespa attempted a double top but failed marginally. From there it has broken down quite sharply and is consolidating. My best guess is that we need AT LEAST one other leg down as a best case scenario (as drawn in blue). Should that happen the outlook for the Euro strengthening to at least 136 makes a lot of sense.

A drop in the Dow Jones would further strengthen this outlook ( these charts are not on the same scale!

DJIA july 2010 1 djia juli 2010 2

Here is the best count I could come up with at this time. Similar counts can be made using the FTSE, S&P, CAC and a whole host of other indexes (except the DAX!) As a minimum a second down-leg should occur soon ( even if this count is not correct as most alternatives are equally bearish). The Canadian dollar (against the US$), is, by the way triangulating implying that a fairly substantial and fast move could occur straight ahead. Given the BRIC/commodities/ exchange rate interdependencies, my guess would be down. Remember that all though we do not speak Portuguese here our dollar is now a commodity dollar and behaves much like the currencies of the BRIC.

BP , again – where might it go?

Hamilton

BP july 2010

Ultimately BP could go to the $60 level being the top in an A-B-C multiyear correction. We will see but if this does happen it will not be in the next few weeks or months. So what is the shorter term target? Too many things are going right at this time. Exxon  takeover, Arab capital injection, blame spreading,and dozens of other considerations that mean very little. So why not depend on the chart?  $47 is about 62% retracement of the C leg. It also corresponds with wave 4 of 3, a common event. An island of sorts has been left behind by the two gaps on the way down and up, I do not expect the stock to enter this area again, so a drop below $34 is now unlikely. So far the rise from the lows has occurred in a very narrow channel suggesting that it is one single wave! Corrections are invariable a-b-c structures, so if this was a correction which I very much doubt, the stock would first go down only to rise again later. If it is a new bull market, which I prefer to think it is, the first leg up should be 5 waves which probable means that we have one more to go which could easily add another $6/7 to get us to $47 in the first round. There the stock should be sold ( and perhaps bought back  $10 lower).