Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Jason Haver: Is the Current Bull Move in US Equities Sustainable?


A look at both sides of the trade.

Elliott Wave Theory is forward-looking, while much of classic technical analysis is backward-looking. And as the S&P 500 (INDEXSP:.INX) continues to power through resistance and moving averages, classic TA is giving buy signals left and right. The final arbiter, of course, is price, and price currently still hasn't reclaimed (decisively or otherwise) the all-time high -- which thus says the market hasn't given the "all clear" just yet.

That said, bears dropped the ball during Thursday's session. They had a chance to push through a number of key levels, but failed to even sustain the opening gap, which was quickly bought up and filled -- and SPX ultimately closed at new highs for this leg, directly inside Wednesday's 1827-1832 target zone.

Frankly, top calling in a bull market is a nightmare and possibly the toughest analytical gig there is. Tops almost never look like tops, except in the rearview mirror -- otherwise, who would be buying them? As the old expression goes, "They don't ring a bell at the top." So it can be a bit of a trap trying to call them at all, since you almost have to ignore certain bullish things.

In the last update, I promised to eat crow if the bullish signals ended up trumping the bearish wave count, and that's beginning to look like (an even more) distinct possibility. But we're not quite there yet. Biggest problem is, a few months ago I promised to eat crow if the near-term preferred count was wrong, and it ended up being right -- but I made the mistake of preheating that crow, then threw it back in the freezer. Which means that now it's freezer burnt, and I'm quite certain it will be particularly bitter this time around. I've definitely learned my lesson in that regard, and from now on, plan on stocking only Mrs. Paul's Microwavable Crow.

Not too long ago, there was a lot of talk of the January Barometer -- essentially the theory that "as goes January, so goes the year" for equities. An interesting study by Hennion & Walsh concluded that, since 1986, the January Barometer has worked 77% of the time. The flip side of that coin is that the average total return for the 23% of "signal failure years" was 16.5%. Something to keep an eye on.

While no one can deny that the price action has been unabashedly bullish, I'm still not entirely sold on the sustainability of a bull move here -- but I've added more detail to the bullish alternate count nonetheless. I'm also moving it up to 49% odds from its initial appearance on the chart (on February 7). This does call to mind one of the values of Elliott Wave, even when not everything pans out perfectly -- the wave counts accurately identified the intermediate inflection point at 1737 well before the rally had made much actual headway.

Click to enlarge

Next up is a closer look at SPX via the 30-minute chart. This next part is a bit premature, and hopefully doesn't get too confusing: Until the all-time high is reclaimed, the most bearish count of wave i down (which has never been my preferred count -- wave A has been my preferred count) remains alive. Wave A does not actually invalidate at the all-time high, due to the option of a large expanded flat B-wave rally. Just north of the all-time high sits what appears to be another important inflection point, as noted on the chart. If we make it that far, watch that zone carefully, as it could theoretically put an end to the rally and take us back down in a C-wave to new lows. More on this discussion will be presented in a future update if it becomes relevant.

Near term, 1824 is the first key zone for bears to reclaim -- and while there's no official "sell trigger" in that zone, it could certainly be used as a pivot. Incidentally, we're finally starting to see some negative divergences in RSI.

Click to enlarge

Finally, there are a few indices racing ahead of SPX, such as the Nasdaq Composite (INDEXNASDAQ:.IXIC), and still a number of indices lagging significantly, including the Dow Jones Industrials (INDEXDJX:.DJI) (not shown) and the Dow Transportation Average (INDEXDJX:DJT).

Click to enlarge

In conclusion, I'm well aware of the bullish signals which have dominated the action in SPX this week, and I'm certainly not blindly ignoring them. Again I'm left deciding between favoring the forward-looking Elliott Wave, or honoring backward-looking TA. For the record, I'm still giving marginal odds to the bear count -- but ready to eat my bitter crow directly if necessary. Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter: @PretzelLogic.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos