Is it Time for Plan B - B is for Bullish?
After today's sharp SP500 rally, the obvious question as a comment below asked is; "Have I changed my former bearish stance?" It is indeed a timely topic that requires a well thought out answer. I will do my best to provide that answer giving both sides of the equation.
In a nutshell, my short answer is no. I am maintaining my formerly bearish outlook - at least for now. However, this simple answer requires more explanation. Read on.
Previously, and if you have been reading this blog recently, I was looking for part two of a counter-trend decline, or expressed for Elliotticians; a Wave C down within an Elliott Wave Four trend.
This bearish view was therefore my plan A - or my primary market forecast. However, as I also educate on this blog, all expert traders and investors must keep an open mind. In doing so they should also have a what if plan. Often I call this - a plan B. Likewise, good Elliott Wave (EW) analysts usually have a preferred EW count as well as a secondary count (in the event their primary EW count is wrong).
Although, it is conceivable and even possible to force an unorthodox Elliott Wave C count as now being complete, there remain several significant technical clues that dictate suspicion and better EW counts.
Consider that to judge and suggest the Elliott Wave Four as now fully complete, and therefore to imply that today's rally is the start of a final wave five up and a likely breakout day, also must imply that after months of recent bullish upside in August to November, and after about a 220 SP500 point rally (a huge 22% rally in stocks in mere months), it is all completely worked off and now consolidated by a mere 25% retracement that lasted a few days and the correction was totally finished in just three weeks.
Given how close we are to a major terminating top (see - the big picture weekly chart) after almost two years of trend run-up - all based on global bailouts and liquidity injections, this type of exuberant bullish action is at least highly suspicious.
Has Ben Bernanke's constant monetary manipulation created a runaway market that will lead to an eventual crash? Perhaps.
So essentially, the only way I can see and verify an immediate new bullish trend up from here - is by another manufactured cycle inversion created by excessive Fed liquidity. To reach such a remarkable conclusion at present, I need more evidence - than a mere one day rally.
Therefore without doubt, or at least for now, I am maintaining my former bearish outlook until the evidence suggest I must change my view. This means I am not attempting to second guess the market. Rather, I am just closely watching the trend now to determine if indeed it has changed or something is happening that I did not anticipate.
I will therefore defer my ultimate and final trend thoughts for another day, or possibly even two days, if there is very little trading action (in a narrow range) tomorrow. Detecting a cycle inversion and thus a new wave five up is indeed possible, but currently I still view it as a low probability. However, ask what is going directly against my forecast? Look at the recent actions and statements of Bernanke.
Further, given the time for today's rally, the current scenario is also cyclically confusing (assuming another inversion) and yes, I rely heavily on cycle calculations, yet I do not disclose them in great detail here on the blog.
Nonetheless. as I have included cycle hints lately (December 03 and the coming Fibonacci event), I do expect we are now very near the best weekly period or cusp of the most significant December 2010 cycle hot-spot. These periods of cycle summation can and do cause changes in trend to occur.
As to the ultimate risk side of the equation, at present, anyone doing a forensic audit of longer term market internals should conclude there are very significant risks here. This is a dangerous manipulated market to err on the side of caution unless you use stops and can afford to have losses.
Stocks and much of the financial world of securities, including commodities and even bonds, are truly reacting in a knee-jerk short-term fashion to Sovereign debt problems, currency wars, and mainly to the massive artificial liquidity creation of Ben Bernanke.
Clearly, the strength of today's rally - essentially coming out of nowhere - was somewhat of a surprise and smacks of suspicion of more Ben Bernanke antics. After all, without any doubt Mr. Bernanke wants to inflate USA stocks even higher. He has stated that fact very clearly.
So in conclusion, let's face and admit one important Federal Reserve fact.
No one, unless they have privileged inside information from Bernanke and the Federal Reserve, can determine just how far the FED will go over the short term to prop USA stocks up in price via using FED and the USA Treasury liquidity and buy programs. Year end would seem logical for a critical period whereby the FED and USA Treasury do not want panic and market sell-offs.
However, fast forward about two weeks from now, and December will look substantially less appealing than it does right now. December is famous for low liquidity and also tax loss selling. So that so called Santa Claus rally that occurs seasonally in some years in early December, is equally often followed by the lows of a New Years hangover.
In summary, unless Ben Bernanke is your personal source for USA stock market information, this morning's early rally was anyone's guess. Essentially, seventy-five percent of today's SP500 Index gain was over in less than five minutes as I watched multiple SP 500 stocks gap up at the open.
Is this just another hint that the USA FED will further prop up the market in December? I will probably know by tomorrow.
In the meantime - spot the trend and go with it (on the technical charts provided).
I have posted two very different SP500 charts this evening. The first being an hourly chart that provides the micro short term picture of the SP500 Index. As my mark-up comments suggest - for now, I still believe the trend is down and we are very near Wave B termination, thus expecting a C wave down no later than early next week.
The second chart as a weekly chart, clearly depicts the far more important bigger picture or primary trend (Terminating Wave Five Up) and the potential for considerable downside risk after this wave terminates (projected in Q1 2011).
Recommended Reading
I have personally portrayed the unaudited USA Fed, Ben Bernanke, and global Central Bankers as being incredibly incompetent and monetarily dangerous far too many times to count in recent years. Yet here, in an interesting feature editorial from the Canadian Globe and Mail newspaper, others are starting to discuss what I have been saying for years.
Here is an excerpt from the recommended reading feature...
"Mr. Bernanke's policies among them, the creation of an artificial stock market boom are short-sighted and arrogant...." to read more click here
Sincerely,
James Kelly Sr.,
Editor in Chief, BBTL Blog
www.KRTT.com
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