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Is The Market Topping Again? (SPY, GLD)
July 29th, 2010Goto commentsLeave a comment
Here at TMTF, I enjoy making controversial calls based on Human Behavioral topping and bottoming patterns, often referred to as Elliott Wave Theory. This is a difficult pattern recognition model to follow as there can be numerous interpretations. Instead, I look for additional clues like sentiment indicators, a few traditional technical indicators, headlines in the news and covers of papers etc. Recently I saw an article on Bloomberg indicating that short positions were at two year lows, with the ratio of longs to shorts at 2 year highs. Those types of indicators I use to help confirm if I’m on the right or wrong track with a forecast.
Right now I think the S&P 500 (Investors can use the SPDR S&P 500 ETF (NYSE:SPY)) and markets are topping in a counter-trend ABC-X-ABC rally that really started with the May 25th lows of 1040, to the June 21st highs of 1130, back to the Jul 1 lows of 1011, and now to 1121 so far the highs. That 1121 number is a Fibonacci 50% re-tracement of the 2007 to 2009 highs to lows, and just 9 points below a 61% re-tracement upwards of the April highs to July 1st lows. Evidence mounts now that August could prove tough for Bulls and some risk aversion here is a good trade in my opinion.
Back in late June I saw similar sentiment and Elliott Wave topping patterns in Gold (Investors can use the SPDR Gold ETF (NYSE:GLD)) as well. The headlines were bullish, the talking heads on CNBC were all saying to buy any dip in gold and stay long. A 21 month rally was topping and I went ahead and stuck my neck out and predicted a multi month correction. Since then Gold has dropped from $1243 to $1158 at it’s recent low, and should be heading to $1043 eventually if I’m right. It takes awhile to knock the sentiment down from overly optimistic levels, just like with the S&P 500 top in April which I forecasted in mid April as well.
The S&P 500 would need to clear 1130 aggressively for me to cave in and call 1011 the bottom. That was a 38% fibonacci re-tracement of the 13 month market rally, and it’s possible that was the bottom for sure. Normally though, you would at least get a re-test of that low, and possibly a drop to 942 area on the S&P 500 which is a 50% fibonacci re-tracement of the 13 month rally. In addition, the pullback so far only lasted about 8 weeks relative to 13 months of rally, so I think there is another several weeks yet before we can call a bottom in 2010.
Below is an interesting chart showing recent action since late May in the S&P 500 index. Investor’s like to act in patterns and this seems to show a good one. Best to you and your trading!
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狗仔卡
发表于 2010-7-29 06:06 PM
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发表于 2010-7-29 07:14 PM
