Elliott Wave Articles

The TED spread (the difference between 3-mo. LIBOR and 3-mo. T-bills) has completely normalized. Currently it’s 19 bps (it’s close cousin, the OIS spread is down to 14 bps), which is the same level that prevailed during much of the 2001-2003 period. Easy money and weak growth expectations, coupled importantly with strong confidence in counterparty risk, is what drives the TED spread to these relatively low levels.

If growth expectations weren’t so weak, then the market would be expecting the Fed to raise rates soon, and 3-mo. LIBOR would rise; bill yields would be trading at least as high as the funds rate, if not a bit more. Instead, LIBOR is trading at 0.32%, just a smidge above bills which are at 0.13%. If counterparty risk weren’t so strong, then LIBOR would be trading well above bills, because lenders would be wary of lending on the LIBOR market and would instead prefer to give up yield in order to get the safety of bills.

So the market has a dim view of the economy’s ability to grow, which can also be seen in the recent selloff in the stock and corporate bond markets. But at least we have overcome the very significant problem of counterparty risk. That was really at the heart of the meltdown last year. On balance I’d say this adds up to good news.

Thanks! to Scott Grannis @ scottgrannis.blogspot.com

Domestic (U.S) – In EST:

Aug 31 09:45 Chicago PMI Aug
Sep 01 10:00 Construction Spending Jul
Sep 01 10:00 ISM Index Aug ***
Sep 01 14:00 Auto Sales Aug
Sep 01 14:00 Truck Sales Aug
Sep 02 08:15 ADP Employment Change
Sep 02 08:30 Productivity-Rev. Q2
Sep 02 10:00 Factory Orders Jul
Sep 02 10:30 Crude Inventories 08/28
Sep 02 14:00 FOMC Minutes Aug. 12
Sep 03 08:30 Initial Claims 08/29
Sep 03 10:00 ISM Services Aug
Sep 04 08:30 Average Workweek Aug
Sep 04 08:30 Hourly Earnings Aug
Sep 04 08:30 Nonfarm Payrolls Aug ***
Sep 04 08:30 Unemployment Rate Aug ***

Foreign – In GMT

Aug 30 EUR German Retail Sales JUL
Aug 30 21:15 PM JPY Nonmura/JMMA Manufacturing Purchasing Manager Index AUG
Aug 30 21:50 AM JPY Industrial Production JUL
Aug 30 21:50 PM JPY Large Retailers’ Sales JUL
Aug 30 21:50 PM JPY Retail Trade JUL

Aug 31 0:30 AM AUD TD Securities Inflation AUG
Aug 31 1:00 AM AUD HIA New Home Sales JUL
Aug 31 1:30 AM AUD Company Operating Profit Q2
Aug 31 1:30 AM AUD Private Sector Credit JUL
Aug 31 1:30 AM JPY Labor Cash Earnings JUL
Aug 31 3:00 AM NZD NBNZ Business Confidence AUG
Aug 31 5:00 AM JPY Housing Starts and Annualized Housing Starts JUL
Aug 31 9:00 AM EUR Euro-Zone Consumer Price Index Estimate AUG
Aug 31 12:30 PM CAD Quarterly Gross Domestic Product Annualized Q2 ***
Aug 31 12:30 PM CAD Gross Domestic Product JUN
Aug 31 23:30 PM AUD AiG Performance of Manufacturing Index AUG

Sep 01 1:30 AM AUD Current Account Balance Q2
Sep 01 4:30 AM AUD Reserve Bank of Australia Interest Rate Decision ***
Sep 01 5:45 AM CHF Gross Domestic Product Q2 ***
Sep 01 7:30 AM CHF SVME-Purchasing Managers Index AUG
Sep 01 8:30 AM GBP Mortgage Approvals JUL
Sep 01 8:30 AM GBP Net Consumer Credit JUL
Sep 01 8:30 AM GBP Net Landing Sec. on Dwellings JUL
Sep 01 8:30 AM GBP Purchasing Manager Index Manufacturing AUG
Sep 01 9:00 AM EUR Euro-Zone Unemployment Rate

Sep 02 1:30 AM AUD Gross Domestic Product Q2 ***
Sep 02 8:30 AM GBP Purchasing Manager Index Construction AUG
Sep 02 9:00 AM EUR Euro-Zone Gross Domestic Product Q2 ***
Sep 02 9:00 AM EUR Euro-Zone Household Consumption Q2
Sep 02 9:00 AM EUR Euro-Zone Gross Fixed Capital Q2
Sep 02 23:30 PM AUD AiG Performance of Service Index AUG

Sep 03 1:30 AM AUD Trade Balance
Sep 03 7:55 AM EUR German Purchasing Manager Index Services AUG
Sep 03 8:00 AM EUR Euro-Zone Purchasing Manager Index Services AUG
Sep 03 8:00 AM EUR Euro-Zone Purchasing Manager Index Composite AUG
Sep 03 8:30 AM GBP Purchasing Manager Index Services AUG
Sep 03 9:00 AM EUR Euro-Zone Retail Sales JUL
Sep 03 11:45 AM EUR European Central Bank Interest Rate Decision ***
Sep 03 23:50 PM JPY Capital Spending Q2
Sep 03 23:50 PM JPY Capital Spending excl. Software Q2

Sep 04 7:15 AM CHF Consumer Price Index AUG
Sep 04 11:00 AM CAD Net Change in Employment AUG ***
Sep 04 11:00 AM CAD Employment Rate AUG
Sep 04 14:00 PM CAD Ivey Purchasing Managers Index AUG

*** Highly influential

Notice: The Bastiat Group, Inc. has attempted to verify the information contained in this calendar, however, any aspect of such info may change without notice.

Key Earnings Announcements This Week:

Monday, August 31, 2009
Before: JAVA (?)
After: FMCN (?), SINA

Tuesday, September 1, 2009
Before:CRMT, RAIL (?), GIGM (?), NOVN (?), TUTR
After: ADCT, AVAV (?), APSG, DCI, SEAC, TTWO, PAY

Wednesday, September 2, 2009
Before: BRLI, BTH, BF.B, DHT, JOYG, SYNO, ZLC
During: -
After: ABM, PSS, GEF, HOV, MATK, OXM, SAI

Thursday, September 3, 2009
Before: AHII, CIEN, DLM, FLOW (?), JTX, LAYN, MDZ (?), MEI, MOV, SCMR (?), TK, UTIW
During: JOSB (?)
After: ARST, CHP (?), COO, ESL, GIII, PSEM (?), ZQK, SNDA, SWHC (?), TSCM, ULTA, WIND (?)

Friday, September 4, 2009
Before: HRB
After: -

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

In order to see where the Stock Market may go next, I like to step back and look at a Longer-Term View by using Monthly Charts:

1 – using some Moving Averages (14/18), you can judge the overall Strength of the current Market by seeing Price relationship with a Historical perspective . . . although she has climbed back Up quite a ways, the Market is only now back to some kind of levels of normality as judged by the 14-month moving average.
The S&P-500 would need to keep on chugging upwards and past the 18-month moving average in order to truly be Bullish in a Longer-Term view . . . something that would be incredible given how far she’s come Up already and given the current economic conditions, though seen lately through trumped-up glasses:

2 – using this same method of judgement, QQQQ is on the Bullish side already .. Technology being a Strong Sector .. BUT, will soon be bumping up against Strong Resistance and has struggled lately even getting past the initial Resistance of 40.00

In conclusion, I expect a pull-back .. in SPX to retest that 968 break-out level and in QQQQ to retest the MAs now below it.

The Markets sure have been moving Up lately . . very quickly . . . and on Decreasing Volume .. ever since March-2009 . . . AND, with bad economic news coming out every week!
We ask ourselves, why?!? . . . especially those who keep Shorting the Market trying to catch the next swing Down after this Over-Bought state she’s been in for some time now.
Well, maybe it’s exactly because the economy IS bad and the US Government is adding LOTS of money INTO the economy and devaluing the US-Dollar .. even as the economy does NOT get better.
Looking at this chart really shows the way the Stock Market tracks the US-Dollar .. inversely!
So, maybe the Markets have been rising since March because the Dollar has been falling!
Maybe the current Stock Market rally is the result of a collapsing dollar . . . maybe the fear of inflation is rearing its ugly head.
Instead of getting excited about Earnings surprises, maybe we should be worrying about the upcoming cliff the Dollar and US-Economy may be heading towards … after all, there have been a good many Earnings disappointments as well.

Today’s Lesson will focus on the Head & Shoulders pattern and we’ll look at the S&P-500 Chart and use Head & Shoulders (H&S) Analysis to predict the near future in SPX.

First of all, the term “Head and Shoulders” is used to describe a chart formation in which a stock’s price:

1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.

NOTE: this Commentary relates to the Bearish H&S pattern only and not the Bullish Inverted H&S.

Now, let’s learn about how to USE Head and Shoulders Analysis to forecast price movement and set some Targets as well as a Protective Stop Loss level.

Once we have a good-looking pattern where the head is above the two shoulders and the shoulders are somewhat near the same price, it’s time to draw the neckline. .. Looking at the two valleys between the head and each shoulder, draw a line connecting the lowest point of each valley to each other .. then extend that line to the right (ahead in time). .. This will be the line that we will wait for a Break Below of.

Once this is done, it is an interesting exercise to extend that neckline to the left (back in time) and see if it forms any previously unknown Resistance levels .. if so .. this would seem to Strengthen the importance of that line, IMHO.

So after a wait, the neckline does get Broken Below . . now what?

1. draw a line Down from the head (high-price) vertically to the neckline .. then look to the right and approximate that price-level
2. subtract that neck price-level from the head (high-price)
3. this gives you the measure of the expected move Down from the neckline break
4. take the approximate value that the neckline was Broken Below at and subtract the measured value from the previous step . . . THIS is the Target

Assuming you went Short on the neckline Break (Buying Put options OR Shorting the Stock), you’ll want to have either a mental level or actually place a Stop-Loss Order where you can limit your losses if the Stock moves back Up against you too much. Here are the possibilities:

• after breaking the neckline, a stock will often go back up and retest that neckline .. this is called “Throw-back” and is not a cause of worry .. yet! . . . so, a conservative place to limit loss/risk would be a little bit above the neckline to allow for that Throw-back to occur without stopping yourself out of what might be an eventual good Short.
• since Head and Shoulders patterns have a very good reliability of working (continuing Down), a popular yet riskier level to have a Stop-Loss is back up at the Right-Shoulder .. a little bit above it. . . This gives every chance for the H&S Pattern to “work”.

So, the Trade we had in the SPX after it Broke Below its H&S neckline has the following characteristics:

• Shorted somewhere above 880
• Target = 824 or so
• Stop Loss at 901 or 933 . . I’m leaning towards the 901 because of the large distance to 933 . . . you could always take the smaller loss at 901 and then Short again later if it rises higher.

Good Trading !!!

By having the long-term history available in all of the major markets, the ratios between those markets provide us with important reference points, alerting us to situations when one asset or market is overvalued or undervalued relative to another. On a macro level, this can result in a determination that raw commodities will provide a greater opportunity for wealth building than traditional investments in the stock market or vice versa. One can make a number of amazing observations when privy to these long-term histories. Shifts in the major asset groups typically occur only once every generation. In addition, such shifts may occur at historic extremes not seen in as long as 60 years.

For example, looking at the gold/silver ratio since 1910, we find the value of gold versus silver has varied widely throughout history (Chart below). In January 1920, one ounce of gold was worth 15.56 ounces of silver. In August 1942, one ounce of gold was worth 102.5 ounces of silver. In other words, gold appreciated significantly relative to silver. After establishing this high, the ratio declined for 26 years. In June 1968, it returned to its long-term support at the 1920 low. This in turn sparked a 23-year advance that returned the gold/silver ratio to its 1942 high. Based upon this chart, it becomes apparent there are times when distinct preference should be given to one market over the other. 

Given the current trend, it appears to be wise to be Long Silver instead of Gold .. and to lower Trade risk, Short Gold while going Long Silver to create a Spread.  Should ALL precious metals rise, you would still Profit from rising Silver .. however, should all Precious Metals fall, your losses would be minimized and you might even have Profits from your Short Gold position.

A Spread position may lower your Profits, but it can also lower your losses if wrong . . . and there is always the possibility of increasing Profits more than without the Spread by being correct on BOTH sides . . . Silver moving higher AND Gold moving lower! 

gannglobal.com

More Stock Tools, Products, and Trading Systems coming soon . . . 

for now we have our first two Products:

Seasonal Stock Investment System .. Successful since 2004

ACTS Trading System Blog Service .. Profitable since 2007