Wednesday, May 5, 2010


I'll start off by saying that I don't think the recent selloff is going to be an intermediate type decline like we saw in January and February. It's probably too early. Most intermediate cycles have three daily cycles nested within them.

This is only the first daily cycle correction. We should still have at least one more daily cycle yet to go and it's probably more likely we have two with the next intermediate term decline coming around the end of summer.

Let's face it the market has only dropped 3.8% so far. Even if it reaches the 1150 support level we would still only be looking at a meager 5.7% decline.

I have to ask is it really worth all the false starts and multiple losses trying to catch a minor short trade in a cyclical bull market? Let's face it virtually no one is going to sell at the exact top and exit at the exact bottom so the odds aren't good one would catch even 5%. And if the bull does something to surprise us a profitable short position can evaporate overnight. Hey all it would take would be the Fed extending the TARP program or another round of QE and any correction would be aborted immediately. No, it's just not worth the big risk of big losses for small returns.

Shorting a bull market just isn't a very profitable way to make money.

That being said I like the way gold and miners are holding up so far. Neither one has even dropped below the 10 DMA yet.

My four keys have been met. That means I'm back in "Old Turkey"  mode. The goal is to reach strong hand status again. You don't achieve that by trying to time every little wiggle.

Now I'm certainly aware that this could be an A-wave topping out and I might have to ride a B-wave down. I'm perfectly willing to do that. Let's face it in the big scheme of things any B-wave at this stage of the game is just a minor blip. A blip that we won't even be able to see on the chart by the time the bull is finished.

So if I must I will twiddle my thumbs while I wait for the next C-wave.

For multiple reasons though, I don't think this is an A-wave. I think this is still an ongoing C-wave that has one last explosive move higher. On the chance that I'm correct I don't want to lose my position now.

I'll let the day traders worry about the short term wiggles :)

Hey if I'm wrong the bull will correct my timing mistake anyway.


  1. Toby,

    I looked up your reference to your four keys:
    "Tuesday, March 2, 2010

    I'm still sitting on the fence as to whether gold is stuck in a D-wave decline or whether this has been a very tricky midpoint consolidation. I will say the recent strength despite a strong dollar is very encouraging.

    There are four important requirements that have to happen before we can say with a high degree of confidence that the C-wave is still in play.

    The single most important is the dollar. We simply must see the intermediate dollar cycle top."

    Your single most important key of the Dollar putting in a top has been negated twice since that March 2nd post.

    Gold has risen since then, but you state that "No C-wave has been able to fight a rising dollar. "

    I think that we need to see the Dollar back below the 50 MA to confirm a C-wave advance.

  2. I've been just as amazed as everyone else that gold has resisted the dollar. Actually it has rallied almost $150 in the face of a rising dollar.

    At some point we will get an intermediate dollar decline (its way over due) and that should spark the final phase of the gold rally.

  3. You know,

    That fact that Gold has risen $150 in the face of the rising Dollar probably speaks more to the fundamental weakness of the Dollar and when the Dollar does finally roll over, we will see an explosive move in commodities in general and Gold (he he he) in particular.

  4. It's the falling euro that has made the dollar look good. waves of currency-denominated capital are sloshing about the globe, looking for places to land. currently it is avoiding the euro, and there aren't many candidates to move to. this supports the dollar.... for now.

  5. Looks like your runaway move ran away HA HA HA

  6. yes we would have had to recover from the first 40 point decline for that to remain intact.

    But then again I've never has any desire to invest in the stock market.

  7. What changed your thinking from a final explosion up to ~1400 by summer to now an extended bull until perhaps into next spring?

  8. I haven't really changed my outlook. As soon as we get by this correction we will just have to see how powerful the rally is out of the low.

    Historically the rally should last at least 1 year 11 months or longer. The fly in the oinment is that we are in a secular bull market which may contract the bull.

  9. May 6, 2010, 8:15 p.m. EDT

    Nightmare on Wall Street: Stocks swiftly dive then recover Dow industrials recoup some after near 1,000-point plunge, but end sharply off.

    NEW YORK (MarketWatch) -- U.S. stocks ended with steep losses Thursday after an afternoon meltdown lopped nearly 1,000 points off the Dow Jones Industrials Average -- its biggest intraday drop ever -- before a comeback of sorts, as Europe's troubles took hold on Wall Street and talk of errant trades exacerbated the swift selloff.

    "We're not talking about a couple of companies going bust; we're talking about countries," said Peter Boockvar, equity strategist at Miller Tabak, of worries that Europe would not be able to contain debt troubles that sparked riots in Greece.

    At the worst of the afternoon freefall, the major stock indexes were all down 8%, with the Dow Jones Industrial Average (INDU 10,520, -347.87, -3.20%) diving 992.6 points before halting its decline, finishing at 10,520.32, off 347.8 points, or 3.2%.

    "The panic in the middle of the day was market makers that just disappeared, and every machine on Wall Street was trying to sell into a market that didn't exist. That was a bizarre electronic quant panic of people selling into a black hole," said Boockvar. See story on questionable trades.

    Questions about trading

    As equities fell the most in more than a year, 10-year treasury notes rallied, with yields dropping the most since September 2008 and the euro falling to a new 14-month low against the U.S. dollar, below $1.26. Credit-default swaps spreads for North American companies jumped, and gold futures climbed closer to an all-time high past $1,200 an ounce.

    The finish marked the Dow's biggest point drop since Feb. 10, 2009 and largest percentage decline since April 20, 2009, according to Dow Jones Indexes.

    The S&P 500 Index (SPX 1,128, -37.72, -3.24%) fell 37.72 points, or 3.2%, to 1,128.15, the worst day for the index since it fell more than 4% on April 20, 2009, according to Standard & Poor's.

    The Nasdaq Composite (COMP 2,320, -82.65, -3.44%) declined 82.65 points, or 3.4%, to 2,319.64.

    Analysts compared the day's trade to the market's reaction to low points in the 2008 financial crisis.

    "The markets have an eerie feeling similar to the timeframe when Lehman went down," said Andrew Brenner, head of emerging markets at Guggenheim Securities.

    More than 17 stocks fell for every one that gained on the New York Stock Exchange, where nearly 2.6 billion shares traded and composite volume topped 10.7 billion.

    A brief plunge and then partial snapback in Procter & Gamble Co. (PG 60.65, -0.10, -0.17%) , Accenture (ACN 40.95, -0.15, -0.35%) , 3M (MMM 83.06, -1.18, -1.40%) and other shares -- some to as little as a penny -- suggested a technical or trading glitch might have accelerated the sharp, swift drop in indexes over the period of less than an hour.


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