Gee, Think.

20-Day 30-minute Candle Chart with Trendlines and Historic Resitance. 

 

The QQQQs Fund is seen here to be finding support in the lower trendline from July 21st of this summer’s sharp rise.  We can also see tha the QQQQs made a run at the 43.31 high from January 1st, but could not maintain the high ground.  The Trendline from July 21st was an especially important line of support over the past week.  It held the Qs up a good three times.  The price also bounced against 43.31 twice, and even broke through briefly.  It looks like we are coming to a turning point for the Qs as the Summer Trendline approaches the Resistance from the winter high of 43.31 on January 14th.

I’ve been reading more of John Murphy’s “Intermarket Analysis” book
lately. He has a couple chapters that discuss various business cycle
theorys and what they mean for the financial markets. As I understand
it, the idealized behavior is this:
1. Bond prices rise
2. Stock prices rise
3. Commodity prices rise
4. Bond prices fall
5. Stock prices fall
6. Commodity prices fall
Steps 1, 2, and 3 are part of an economic expansion. Steps 4, 5, and 6
are part of an economic contraction. The expansion is positive growth
and the contraction is negative growth. The time between steps 3 and 4
is when the economic growth actually turns negative, but it is decling
from the middle of step two to the midlle of step 5.
So, having read this theory on the business cycle and it’s relation to
financial markets, I’m going to try and plot our position in the steps.
Everyone who’s paying attention to the stock markets can see that we’ve
just experienced a major downturn. We also know that commodity prices
were soaring during this downturn. The commodities were corrected as
well if I remember correctly but I think they are still heading up.
This last week was a great week for the Dow, Naz, and S&P, but are
stocks done falling?
I think bond prices have been falling because yields have been
increasing. I think this means we are somewhere around step 4, which
would nake this an early recession. If that’s true we should see stocks
and bonds continue to fall over the next months. Commodities should
join the fall eventually as well.

I’ve been reading Barry Ritzholt at bigpicture.typepad.com for about 3
months now, and I’ve got to say that I admire his work. He frequently
presents well thought out posts on the stock market and economic data.
It’s a great pleasure to read his analysis several times a week. He’s
got something going for himself that I would eventually like to
establish for myself.
I dream of having a blog where I document my thought process on the
financial markets and offer my analysis through words and charts daily.
What’s the business model?
The blog is an archive. Each day I add to it, the archive becomes more
of a testimony to my capabilities and skill. After several years,
anyone visiting my site will be able to easily search for any of my
writings since the blog started. This would be a wealth of financial
knowledge, similar to a book. Of course, my early years will be full of
mistakes and fumbles, but to err is human and perhaps showing my
progress will also be of value.
As I become well versed in topics of technical, intermarket, and elliot
wave analysis I can share this knowledge with others. I’ll be
simultaneously using the analysis I post as a basis for my own trading.
When I become a profitable trader I’ll make money off the trades and the
distribution of my “expertise.”
The best part about this model is that it will leave me free to work
from home or travel. I strive to spend more time at home and with
family. The job I’ve described would certainly make that a reality.

3 Month Daily QQQQ with 4-Day Simple Moving Average, originally uploaded by Gare and Kitty.

I’m going to head out on a limb and call for today to be an up day. I know that there is a lot going on in the middle east with Israel and Lebannon. I know that this is pushing the price of Oil higher, which tends to hurt stocks.

However, the candle from yesterday looks like a great Doji, which typically signals that the trend is set for a reversal in the short term. In this chart we can see that the the Doji signal has been misleading several times, but at a glance I think it’s held for at least the very next day.

Elliot Wave Analysis Qs July 16th, originally uploaded by Gare and Kitty.

This is my first attempt at the application of the Elliot Wave method of analysis. Regrettably I have not had much time to work on this image and its details, but nonetheless I am going to post it. At the least, it will be instructive to me. I should be able to look back at this and see where I went wrong. Now that I’ve got that out of the way, here goes:

I have diagrammed the progression of a motive bear wave. I see it as possibly having completed its fifth wave, and thus approaching the A phase correction. I wish that I had the time to be more precise. Having more time I would measure the lengths of these waves. Measuring their lengths in both price and time movements would serve to verify my wave count and also aid in ratio analysis for the purpose of predicting the length of the next price move.

Nonetheless, wave 1 and wave 3 appear to be of approximate equal length in price movement. This means that wave 5 should be related to waves 1 and 3 by some fibonacci ratio, perhaps 1.618. Based on this I would expect the fifth wave now in progress to continue to approximately 35.00. This would approach the 1.618 relation with waves 1 and 3.

Wave 2 appears to be a falling expanding triangle combined with a flat. This would make it a double three. Further, wave four could be a flat. This would coincide with the guideline of alternation between corrective waves.

There are some parts of this wave count that do trouble me. First, the second wave hardly retraces into the area of wave 1. That, and the fact that I just threw this sketch together in about 15 mins!

We will see how my analysis work out. I can’t know either way for certain, but that’s the sport of it!

Okay… So my analysis of the Qs volatility (QQV) turned out to be completely and utterly wrong. The Qs did not experience any significant upward movement this week. Actually they’ve been dropping like a rock, and their volatility is still going up. It’s bouncing off some of the fibonacci levels that I drew in my chart, but its not really treating them as significant resistance.

I knew when I did this analysis that I had not been rigorous because I didn’t have much time to look at bonds, commodities, or currencies. I didn’t expect to be so completely wrong though.

So maybe I should continue my analysis, but with a different strategy. I’ll continue to analyze the markets and come up with my trading thesis. Then I’ll do the exact opposite. If I could have replayed my trading history since March 1st in this way, and including the opposite of my QQV predicition, I’d be up over 40% on the year. I figure that I could ride out this anti-thesis play for a while. Then once I start losing with it I’ll know that my analsys is actually getting good and I’ll switch.

This morning I took a couple minutes to try and supplement my Qs analysis. I pulled up the 60 day chart of the Dow 30 and the Gold / Silver indices. I’ve learned through John Murphy’s “Intermarket Analysis” that the common trend is to see Gold (as well as silver and other commodities) rising as stocks are falling. Now maybe I didn’t quite have something right, but I could swear that this morning around 6:15 am I was looking at uptrends in both charts! How could the gold / silver index be rising as stocks are rising? Perhaps this is foreshadowing a future fall in stock prices. Maybe this has something to do with the strength of the dollar. Right now I’m not sure, but am confused.

I did a quick fibonacci tracing of the gold silver index and I think its currently bouncing between two fibonacci levels, and is either basing before heading up or forming a double or triple top before heading down more sharply. I saw the index moving between these levels through its action over the last several days.

Man I really need a bigger view of the picture, and a bit more analysis expertise because I’d like to be able to say that I think its moving one direction or the other!

I am continuing to read “Intermarket Analysis” by John Murphy. I’m really learning a lot from it. Murphy really reinforces the basics of what Jim Cramer gave me on his Real Money Radio Show. I’m reading Murphy’s book on Constance Brown’s recommendation. She mentioned it in her book “All About Technical Analysis” so I have to give her credit for noticing a good read. I think she may have worked with him at some point.
When I first heard about sector rotation and intermarket analysis I didn’t fully appreciate is importance. First of all I thought that intermarket analysis was really about the influence of global stock markets on the US stock market. It turns out that is really about the inter-relaionships beween 4 major markets in the US as well as the global markets. The 4 markets are commodities, currencies, stocks, and bonds. The trends in each of these markets affects the others. The collection of trends seems to really compose a much more full picture of the invesing and trading environment. I suppose that you can trade or invest without looking at more than one market, but why take a gamble like that?

Time will tell if I can use this new information to my advantage, but it certainly will give me more confidence in my next trade. This extra analysis will take more work though, that’s for sure.

This the the photo of a page in the book to go along with the last
post.

I’ve just received the latest addition to the Masterminds Unlimited
technical analysis library, the tenth edition of “The Elliot Wave
Principal” by Prechter and another distinguished market technician.
After reading through the first 30 pages or so I have to say that this
theory of Ralph Nelson Elliot’s is no joke. It’s details are intense
and I believe it will take many hours of work and practice to master.