Thursday, April 14, 2011

4/14 Daily Commentary

I'm currently long 4% SSO, looking to sell early tomorrow.
When DJ futures traded below 12,168 this was equivalent to DJI cash below 12,225.  I sold NQ futures for a 2.75 point loss.   When the cash market opened it appeared as if a 5 wave down was in progress, with wave 3 current.  I sold SSO at 52.80.  When all the indexes moved well above Wednesday's lows I knew a 5-wave decline was not in progress.  However, since the market is no longer on the bullish side of the DJI critical M/A I can only go 4% SSO and then only for a quick trade.  Got in at 53.09.   I'll be selling tomorrow and standing aside until Monday.  DJI and SPX are both in sub-minuette 4 of minuette 3 (or c) up. 
So the cash indexes have another pop upward tomorrow to complete wave (iii) or c.  SP futures 30-minute close above 1316 would go a long way to confirm that the rally is impulsive.

In the larger picture, taking out the DJI critical M/A was a bell-ringer for me and causes me to look at the wave count from a bearish perspective.  I can count the action since April 7 as a triple zigzag.  EWI counts differently and counts it a 5 down.  They count the final 5th up in the entire bull market as a truncated wave April 8.  This transforms an abc (without the truncated 5th) into a 5 down (with).  Tiny nuance makes major difference in forecasting.  Another aspect of this count is the triangle which lacks symmetry.  Finally, this count is only good for SP futures (the cash cannot strangle a triangle 4th wave).  However, as troubled as this count is, I must adopt a bearish interpretation to account for both the critical support break and the I1 peak coming Monday-Tuesday with new highs improbable.

I'm looking forward to Monday-Tuesday to begin to short the market.  Likewise on the 26th.  Those two dates I'll be entering longer-term positions (end of July, early August).  Until then I'm above +7 in the I1 and have to look for rally through Monday or Tuesday. 
The problem with this market is that world events are occurring with greater frequency.  The Japanese debacle threw market timing out the window.  The commodities collapse Monday and Tuesday dragged stocks down with them, as the beginning of the cutback in world growth forecasts have just started to appear.   I'm convinced this was a 4th wave in most commodites and that their peaks will occur within the next 2 weeks.  Silver has already made a new high.
Crude looks to have completed wave iv of it's final 5th in line with precious metals.  With this large a 5 wave completing I am no longer looking for crude to advance to $147 and to stay bullish until August.  The severity and timing of this 4th wave alters the outlook for the count.

Silver and gold, on the other hand, are on track having completed their 4th waves.  The count for gold is more plain than for silver, but the count is the same for both. The implications for silver with it's extended fifth wave are more severe once the turn occurs.  The Minuette 4th wave that just ended occurred sooner and completed more quickly than I had anticipated.  This brings the peak for precious metals closer.  I am now of the belief that the metals will peak on Monday, in line with a silver sentiment gauge that I use as an alternate.


  1. Hi Steve,

    Your PM1 for gold peaks the end of April or early May. Have you decided that the sentiment gauge for silver that you posted above will win out? If so, why?

    Good luck as you start building your short positions in the stock market. Do you plan to short specific sectors or will you stay with the general market as in spx, dow, and ndx?


  2. Hi Pima, Yes it's finally coming around. I'll short banks and buy SDS because it's so liquid. I'll be buying short Nasdaq mutual fund SOPIX. What do you think of mid-caps here? I am shifting my short date for precious metals to conform to the expected completion of the wave count. What are your plans?

  3. Steve

    Got stoped out of my shorts yesterday with a nice profit from the top. Looking for the SPX to get up to 1325 area and go short again.

    Jack C

  4. Steve,

    I have been following another blogger, Gary Savage, who tracks the PM market (as well as stocks and the dollar). He's pretty good at spotting daily and intermediate cycle lows. I have had a large PM position since January and have done quite well with it.

    Gary's take is that PM's are due for a correction into a daily cycle low, probably 5 or 6 percent. But he expects one more high after that correction.

    I have lightened my PM position accordingly, and plan to buy when it looks like the daily cycle low is in.

    Gary's blog is at

    He also has a premium service that I subscribe to for less than $20 per month ($200 per year, I believe). I have subscribed to various services (including EWI) over the years and his is the only one that has actually helped me make money.

    Regarding the stock market, I am planning to join you shorting the market, but will begin with a very small position. I have been burned too many times trying to short this market, so I will be very cautious at first.

  5. Steve

    Makes sence, thanks for the link.

    Jack C