(click on picture to enlarge)
CHART AU COURANT: Using the same techniques that we used to signal prior highs and lows, this daily chart of the S&P 500 warns of a short, sharp partial retracement of the rally from the mid July low. First, the daily stochastics is again overbought. Second, the price has retraced 38% of the previous decline (often the initial resistance level). Third, the pattern from last weeks low to this mornings high is a five wave pattern, often labeled as "wave A" of an A-B-C upward corrective bounce. Once complete, which will entail the imminent "wave B" pullback, followed by a "wave C" extension bounce, the entire bounce from last week will be labeled wave '2, like last weeks low was labeled wave '1. As I have talked about in the past weeks, this '2 peak will be the last opportunity to exit holdings prior to the largest decline since 2001's slaughter. In fact, I have drawn a light blue line where the typical wave '3 would eventually take this index; approximately 950-980, a full 23% below today's price. This would leave the S&P 32% off the May highs, and 38% off the all time high of Oct.'07. Since that would be the destruction if you held only the 500 largest companies in the country, and most of us don't hold that high quality portfolio, we would expect to see even worse damage to our own wealth. Another targeting method that aims at the sub 1000 level is comparing the relationship between price and the blue standard deviation band at the low in January to the price the S&P would have to fall to to match that level of fear in the near future. We can see that the blue standard deviation band is now approximately 993, and will be falling sharply if prices begin another slide. Finally, we can compare the ratio of the price declines ending in Nov.'07 (labeled '1) and ending in Jan.'08 (labeled '3) and find that '3 was approximately 1.4 times the size of '1. Since the decline after this lower peak in August would also be labeled '3, we can take the same multiple on the decline that just ended last week for a target. Last weeks decline was 240 points from the May'08 high. So, 1.4 x 240 = 336. If you subtrace 336 points from 1320 (which is where my light blue downward line begins), we come up with a target of 984. Why did I start my light blue line at 1320? That is the 50% Fibonacci retracement of the entire decline from May. Remember, the three most likely retracement levels according to Fibonacci are 38.2%, 50%, and 61.8%. With each independent targeting technique that points to a nearby target, the "cluster" grows stronger and acts as a magnate for price to focus on.
Bottom Line: Risk far outweighs reward in the current market environment, and holdings should be reduced into this August Bear Market bounce.
________________________________________
MARKETS: no changes since last post. See trade list below for shocking results. Economy wise, existing home sales are now the slowest since 1999, while inventory is at the highest level since 1985. Foreclosures now represent 1/3 to 1/2 of all home sales in the country, depending on region. So, as being demonstrated by the economy, the bad times are NOT over. This is further evidence that neither economists, pundits, nor media personalities are capable of advising us of the true situation in a helpful way. They may be doing the best job they can, but their tools are not adequate to forecast, no matter how accurate they are "in predicting the past"! Only the actual market itself can tell us anything about the future. And, only then if one has predictive tools (like Elliott Wave and Fibonacci analytics).
If you want to do some "oh my God" math, check this out. The median family home price in California has fallen from $510k at the peak, to $350k currently. Imagine the number of homes under $350k that have recently sold vs. the number of homes over $510k in order to bring that median number down over 30% in two years! In Seattle, the number of home sales is reportedly down 38% from this time last year. That's in one of the last holdouts of the real estate bubble. Wow!
POPULAR STOCKS TO LIGHTEN UP ON OR SHORT SELL: A multi-week rally began last week on July 14th. However, see exits on buys below for those plays that cooperated too quickly for comfort, there are a few companies that didn't get hit in the past two months of selling and are extremely overbought. These could begin their fall anytime. IBM above 130 or below 126, GE above 30 or below 27, AMGN above 55 (entered 62.08 on July 28), GS above 211 or below 172, RIMM above 130 or below 114, .
INTERESTING STOCKS TO ACCUMULATE OR BUY (if you have to): GE from 30 (entered at 27 on July 1, exited 29 on July 23, +7.4%, ) now buy under 23 for test 36 and add into 18, SBUX from 13-15 (entered at 15 on July 1) could test 23-25, GRMN from 40-42 (re-entered 43 on July 1, exited 49.5 on July 23, +15%) and will re-enter under 33.50, ABK from 2-3 (entered 1.69 on July 1, exited 2.63 on July 23, +56%), WM from 5-10 (entered 5.18 on July 1 and 3.18 on July 14, exited 6.18 on July 23, +48% on average entry price), BAC from 27-32 (entered 23.70 on July 1 and 18.70 on July 15, exited 33.70 on July 23, +59% on average entry price), C below 18 (entered 17.45 on July 1, exited 21.95 on July 23, +26%), and MSFT from 26.5 (entered 26.5 on July 1) could test 31 by year end, GM under 12 (entered 11 on July 1, exited 16 on July 23, +45%), BA under 68 (entered 65 on July 1, exited 68.5 on July 22, +5%), EBAY under 28 (entered 24.62 on July 17) for bounce toward 38, adding in the 18-21 range, and SNDK under 18 (entered 17.55 on July 1, added 13.25 on July 22) for bounce toward 35, adding in the 10-12 range, NVDA under 13 (entered 12.78 on July 7) for bounce toward 23-25, adding into the 7-9 range, VMW under 38 (entered 37.95 on July 8) for bounce toward 55, adding into the 18-22 range SBUX under 15 (entered 14.91 on July 8) for bounce into 25, adding into the 8-10 range, MER under 31 (entered 30 on July 9, exited 36.15 on July 23, +20%), and all home builders for bounce of 30-50% from their lows, but specifically, KBH under 16 (entered 15 on July 11, exited 20.89 on July 23, +39%) and will re-enter in the 15.5-17.5 area, HOV under 5 (entered 4.97 on July 7, exited 7.77 on July 23, +56%) and will re-enter 5.50-6.5, TOL under 18 (entered 16.80 on July 11, exited 21.80 on July 23, +29%) for and will re-enter 18-19.5, AAPL under 150 (entered 149 after hours July 21, exited 167 on July 23, +12%), YHOO under 17, and finally GOOG under 480 (entered 473 on July 21), adding at 393 and 283. X is also interesting down here under 140 (entered 139.98 on July 24, exited 166 on July 30, +18%), and SCHN under 87. XLF from 18-19.5, using 16.75 as initial risk level (entered 19.50 on July 28, risk level raised to 19.50 on July 30).
For what it's worth,
Ken
