Not Much Noise, Not Much Signal

It was a relatively uneventful week in the financial markets, as US corporate earnings got underway. Even options expiration couldn’t generate a great deal of excitement, and the VIX fell back near recent lows. It’s one of those periods when bulls see the glass half full and bears see it half empty.

See my full analysis at Seeking Alpha

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4 thoughts on “Not Much Noise, Not Much Signal

  1. Hello Harry,

    Thank you so much for waiting. I needed to put together a cohesive analysis. I have two factors to discuss: the Elliot Wave theory and the basing theory.

    First, I want to discuss the basing theory. I learned from Investors Business Daily how to analyze bases.

    This is the very first time since the beginning of the March 2009 bull rally that market direction has gone BACK into BASE. I first was considering a handle, but this week’s action took price too low, back into base.

    Therefore, the new analysis is a base on base, which, IMO, lowers the possible new market highs, for the ending of QE2. The market is rolling over, which can be seen from technical indicator weakness: MACD, %D, ARSI and EMA, etc.

    Another method of base analysis is counting bases. This bull rally is extended with this being the 4th base. June 2009 is base one, January 2010 is two, April 2010 is three, and this is February base on base is the fourth. I am not counting the very shallow and short November 2010.

    According to IBD, fourth stage bases are prone to failure. That correlates to how it became a base on base, rather than resuming the upside with a proper handle. This week was the deciding factor.

    Now for the second factor: Elliot Wave. Here is what I already wrote. Then, I will continue.
    *************************

    How I count Elliot Wave is this way. March 2009 to April 2010 as waves 1 through 5. April 2010 to July 2010 low as the second, bearish, set of waves 1 through 5.

    Now for July 2010 to November 2010, I count the waves 1 through 4. Then I RESET the count from December 2010 to March 2011 low as waves 1 through 2. Therefore I see this present upside as wave 3.

    I am expecting wave 3 to run a while, then another leg down before topping on wave 5, with the end of QE2.
    ************************

    Continuation. It is coming to pass. Wave 3 didn’t last very long, when the market renewed the selling April 6, creating wave 4. I am expecting the last wave 5 to the top when the market turns the selling around.

    Friday, April 15, may have been the turning point. We must see.

    I am very curious to see what happens.

    QE2 is expected to end June 2011, but there have been rumors that it will be extended to end of July 2011. And maybe, IMO, it may even trickle to end of August.

    I have another extended analysis, also using the regression trend line, which maps out a possible systematic topping process.

    Again, thank you for allowing me to comment on your blog.

    Aloha,
    Shirley

    • Hello Shirley,

      Nice to hear from you. Your technical perspective on the stock market is interesting. I don’t follow the IBD system of chart analysis. Early in my investing career, like many others I read William O’Neil’s book, going through it several times while observing the markets and making my own charts. My conclusion was that there were better analytical methods.

      In a general way, the late stage base idea is a reflection of a common sense notion that a long bull market which resumes its advance after each corrective phase will eventually fail to make new highs and turn into a bear. I take no issue with that and in fact have written as much the last couple of weeks: be defensive until the Feb. 18th high is taken out.

      Your Elliot Wave counting scheme is a bit confusing to me on a couple of grounds. One is that I can’t recall – admitting I haven’t gone back through the book – the resetting of wave count to be an orthodox principle. Secondly I do remember clearly that wave 3 never being the shortest of 1, 3 or 5 is one of the inviolable principles of the analysis. Even so, it’s all a little unclear to me.

      In any event, at the end of the day it seems we have arrived at a similar conclusion by different means. It sounds like we are both cautious or defensively positioned as a result of the ongoing correction. However I remain open to the possibility of a continued advance after a period of consolidation, on the basis of good corporate earnings and improving economic data. Though I write quite a bit on technical analysis, remember that I was trained as an accountant and fundamental analysis forms the basis of my outlook. I use the technicals to confirm and time entry and exit points.

      Cheers
      Harry

  2. Hello Harry,

    Thank you for your response.

    Someone, with whom I spoke, said that the Elliot Wave theory is highly subjective. I agree with that.

    Also, I just read on financialsense that one analyst is saying this February consolidation is an Inverted Head and Shoulders. That looks very accurate, which must be confirmed by the market.

    Inverted H&S or base on base, both are bullish.

    Your thoughtful analysis is very much appreciated. Thank you.

    And I agree with you that we may in fact be saying the same thing, but using different wording or terminology.

    BTW, I couldn’t find your full analysis on seekingalpha.

    Aloha,
    Shirley

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