FIBONACCI FORECASTER SHORT TERM UPDATE November 16, 2009 Greetings: Its convention week, Thursday turned into a travel day and here we are. Come to think of it, next week is Thanksgiving so we ll be on this Monday/Wednesday schedule this week and next week. Every year I work at incorporating one important new component into my game plan. There s only a few short weeks left in this year. Early on, I incorporated candlesticks, then another year it was Merriman s timing books, then it was the Gann material. Those methods came after I mastered the Elliott game. All the while I ve kept at my universal timing compass which is the area of my expertise. I ve been a fan of Andrews work at a distance for a long time. With everything that I do I had to find the time to incorporate it. So you ll see that I m starting to sneak some median lines into these charts. While others are the definitive experts in the field I believe they can be very useful here and I m ready. I think this is the next logical progression in financial geometry as my work continues to evolve. They are interesting to follow and hopefully you ll like them. I believe they have a place here and if Babson and Andrews took a combined $60 million out of the markets, its time to add it to the arsenal. I m sure some of you are very good at this method. Keep in mind that any opening tutorials we may do next year will be a service of convenience for those of you who are new to this method. I m not nearly the last word on pitchforks. You can find a lot of good information in the search engine. What my contribution will be beyond using the lines is like I ve done with everything else, it s the synergy of my readings that should complement the lines and the lines should complement the readings. For the most part, today you ll see that it does. Whatever tutorials we do here will be geared toward the marriage of the two methodologies. STOCKS AND SECTORS FCX is not ready yet as it continues to wrestle with longer term resistance. Arch Coal is at a very interesting point in time where we have a series of readings and a retest of the high right near 61% and a decent looking median line. Since this is an inflection the only way to buy it HERE is if we get a surging wide range candle. IF not it still has a shot at failure. It weakened late in the day but is still above the gap. 1
AA is giving you that spike and now the question is whether the retest of 61% is the place to get short. Our theme last time for oil stocks was to be short only for scalping as I didn t suspect the down trend to last too long. Now many of these commodity names have gapped up so you need evidence of failure to short them. This is not a clear indication because we are at the target but sitting on a gap up. If you got short based on Friday s action you are still in the game. 2
I told you steel could be a buy in the new week. AKS looks like its going higher. It will hit resistance above 19 at 61% but the theme here was I thought the sector bottom at the end of the month. I also thought we could have a steeper retracement and sometimes what doesn t happen is as important as what does happen. The gap up needs to be defended and any entries need stops at 18.09. 3
WHR is actually on the cusp of a swing play long. You can buy it in the morning if it holds this channel line. It s retesting the stop out point from last week and has a shot. It will go if the better market continues. 4
CBK remains on a watch list as the new low has an interesting reading. Today it gapped out of the down trend and while it may test the line again (and the gap), this does look like it wants to go higher. A really good example of how median lines support the readings can be found on the MAR chart. Last week with a 44% time retracement and.0625 reading, it was at the upper end of a descending median line. It was a candidate for failure. Now it burst thru but you can see is just hanging on to the trend channel for this rise. Today s high is almost a 49 reading. So to short this you need to see violations first of the uptrend and then see it jump the line back into the down trend. On the other hand if it holds the base, it can become a longer term buy. 5
ROST is at a key inflection point. A larger down trend could start at around 46.60 but if it jumps the line it could go on to set a new high. This one could go either way for you. JBLU is at a point where it could fail. Is it going to confirm an uptrend or not? It s really close. Same can be said for Brinker (EAT) which is testing resistance as well as trying to break the down trend line. It either fails or heads up to 16. 6
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Vegas may be on sale, but SHFL gapped through the line which is one of the reactions you would expect and now has a shot at 9.60. It has to hold the gap. Turning to tech, the SOX had a chance to top at 61% but did not and we are still looking for NTES to test 61%. I think EBAY, not showing weakness can end up at 26. It seems to be surviving and forming the base we like to see. The jury is out on biotech but that might be the sleeper play of the week if it holds a key line. You might need some patience with that. 8
The BKX absolutely had to hold 42.70 or it was OVER. With no margin for error it responded in a bullish fashion. There was a divergence working with housing. For now, 9
both couldn t be right going in opposite directions, banks started up but weakened late in the day. There is still an underlying strength here and of everything I ve shown you, the one that is most intriguing is the biotechs. If that goes, everything else takes care of itself. 10
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THE STOCK MARKET The area lagging the most had a chance to crack today but did not. While it s hit near term targets it still has the chance to go higher. We are talking about the Russell. The payoff to this condition still appears to be down the road BUT a new bull market would have small caps leading. I don t want to belabor that point, but it is true. You ll recall last time I told you that even though there was a bearish divergence in tech when we compared the NDX to the NASDAQ the readings suggested we did not see the high yet. The 6.13% reading was a smaller degree high as anticipated and how we have a NASDAQ that is setting new highs as well. Now the NASDAQ is up 8.9% but that is all we have. On the daily chart you can see the bigger picture which overall has seen a weakening of the trend but since the end of September a sudden strengthening again. As long as we stay at these levels which is 2160 and higher, we have a chance to go higher. In this case the lines do support the readings. Keep in mind the second pitchfork is of a short term nature. 12
On the Russell, it had a chance to start a new downtrend but didn t follow through and that is what the hourly chart is showing you. 13
The NDX is now up 162 points but what I probably neglected to tell you last week is that gap is on the exact target I had for a potential high. The point is that was the important point on the chart. The NDX chart on the daily is also quite interesting. From March you ll see a gradual erosion of the price action (orange lines). But off the bottom prices have stayed consistent to the upper median line with a few exceptions. But the recent surge in the past week is almost like renaissance for this trend or Jason from Friday the 13 th. The near term has us heading up near 1900. Overall we are now up 78% and 3.21 points a day. Last week we were up about 3.16, much closer to Pi? If that didn t kill this trend, I don t think these readings will. While we are on the subject of Pi, the new high in the NASDAQ negates that relationship from October 21 and when you start to see those relationships go by the wayside, you know there is still some strong underlying strength. 14
Turning to the SPX, the situation is slightly different as we ve seen how the median lines. The mid line was supported during the summer until gradual erosion set in. The recent high was a failure at the lower line. Now the shorter term line is only at the midpoint. So if it doesn t get repelled here we could get as high as 1200ish. We are up 67% off the bottom and 2.51 points a day. 15
The Dow is up 61% but probably still has a little gas in the tank up to the orange line. 16
BOTTOM LINE: From all of these charts, we can see that tech is leading to the upside and probably should continue to do so until such time the banks get hit. You ll see below that the banks got a reprieve today and we ll see what the bulls can do with it. Coming into today we had divergences all over the place and it appears the charts got a second or third wind. If anything weakens here it will be the Dow and/or SPX. Then again, this could be a burst that only lasts the week as we are upon the one year anniversary of the NDX bottom. But a lot of action could happen in a very short time. All these people on television do is blabber on about fundamentals. This has nothing to do with fundamentals. It has everything to do with the Dollar. AUSTRALIA Figure 1 Financials Hourly We needed to watch this chart very carefully. Last time we were very close to a 1-1 relationship on the hourly at 319 points. See how that clustered with the median line? You can see we had a small degree failure at the middle line, which is a clue that it was drawn in the right place. I d look for it to head slightly lower as we are a little off another 1-1 relationship. But this is not a bullish chart simply because the action was repelled right near the area of the consolidation from late October. Think of this chart when we get to the ASX 200 down at the bottom. 17
Figure 2 Info Tech Hourly I ve drawn the same set of median lines here as I did for the Financials. Once again, the readings are being supported by the lines. It was my contention we had a probable 3 rd wave high with the 2.38 reading off the secondary pivot. This new sequence looks like a benign congestion area and this could be a small triangle en route to another high. Look for support to contain this move and it may consolidation until it hits the middle line. The Telecomm area did not back off but nevertheless we do have a larger degree sideways consolidation which has fulfilled our smaller degree calculations from a couple of weeks ago. We ve replaced our short term readings from Sept. 10 to Oct. 18 with a sideways move yet it still does have stiff resistance at 1160. But the fact that we now have NEW INFORMATION of the 1.46 low and 1.60 reading taken out last week means it has a shot finally at heading higher. Let s just say for now that 1160 is going to be a big inflection point. 18
Figure 3 Telecomm Hourly Figure 4 Consumer Discretionary Hourly Last time our Consumer Discretionary chart had a small degree reaction to the 1.89 reading but is now at the key decision point at 7.77% off the low. We ll see if it can break through but our smaller degree pullback tested a gap which held so we ve had small 19
polarity flip. Expect some testing at this line and a potential pullback if it hits 7.86 or 8.0%. Figure 5 Consumer Staples Daily This chart is interesting because when we draw these median lines off the triangle you ll see it stopped going down at exactly the right place. It was 6.75% down and I was looking for a stronger cluster. Nothing says these things have to confirm but it did. We are back at the key middle line once again. The readings are not quite there but could be by tomorrow so we ll see. The Materials chart below is still fairly complex. We ve got red lines, green lines and wedge lines. First of all the 141.6 reading started weak but held on and now we are higher. The red is the longer term line, green off the March low. What you see is the new high candle from yesterday is smacking right into the green line. What you see in any event since late August is the price action taking place in the lower median area. What that means is a gradual erosion of the strength of the trend. An alternative view here is we just completed an expanding 4 th wave triangle but it is more likely the recent low completes a flat pattern and the wedge is still not complete. The bottom line is there is stiff overhead resistance at we get to the 12500 area. Another factor is we are up 88% at 361 calendar days. This is another of those charts hitting a one year anniversary to the low. So while this chart has healed, it still time to be cautious on it. 20
Figure 6 Materials Daily Figure 7 Energy Hourly Originally I was looking at a test of the horizontal line for Energy but prices started getting tired last week. As it turned out the readings from last week created a smaller degree pullback. Due to Dollar weakness oil is getting well this week so this one should 21
now have the strength to get up to the line. But I am concerned about crude oil s inability to set new highs in the face of new lows for the US Dollar. Figure 8 ASX 200 Daily Finally, we ll end where we started as the overall index is lagging likely due to a weaker Financial sector. This chart is similar to the Russell as it hit near a 61% retracement like other areas moved on to new highs. The story of the day here is the ASX 200 is not at new highs. From this chart you can see a consistently good move but not overpowering since the July low. It spent a lot of time riding the mid line. Finally we hit that 1-1 last week and find itself sitting on the lower rising median line. You can see we are all over the map from one sector to the next. Now we have to see how this test plays out. GOLD, SILVER AND THE XAU Our readings from last week were not even close to giving us a CAT 3. With the divergencnes we had there was the potential for more damage but we barely got a tropical depression. With all the readings taken out, especially on the XAU chart we do have the potential for a mini bubble forming here. Now the door is open to a move to 195. Going forward, the price target is largely going to depend on how fast we get there. We are right in the 360-65 day window for the Dollar to last year s high and a week away from that 261 day window. I suppose we solved the problem as to whether the Dollar bounce from LAST WEEK is an inversion. There is really only one reason the metals are going higher and that goes without saying. 22
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The Gold chart had a good bearish engulfing bar last time from the STANDARD TRIANGLE THRUST TAUGHT IN ELLIOTT WAVE SCHOOL. It had to be respected even if it did not work out. So here s what I ve done. I ve taken the daily chart and condensed it to a weekly so you can see a larger perspective. I ve drawn a long term median group from the 2007 breakout point and you can see how the Feb 09 high respected it. Will it respect it AGAIN? The one reason that it might is my next target which is the 2.618 triangle extension (chapter 8 in my book). Then you have the EXTREMELY AGGRESSIVE view. That takes the bear correction low and draw the lines OFF THE TRIANGLE. You will see how THIS MOVE has respected THOSE LINES. So the question now is whether the 1144 area with its technical cluster is going to stop this move. If not, it rides that blue line up. That would be the bubble. Helicopter Ben said there is no misalignment in the US financial system. Excuse me, Mr. Ben but this would be it. I don t care, we just trade them here. But the truth of the matter is how you can you possibly have an inflation problem in the way our generation has known it with a U rate of 29% in Michigan? You look at inflation in our lifetime in the late 60 s and early 70 s and that came after what the Elliott people call a primary 3 rd wave from 1949-66. That was a once in a lifetime spurt for the American economy because we were the only country who did not have cities destroyed by the war. Along with the demand created by the baby boomers that will never happen again in our lifetime. What did we just have? A smoke and mirrors period of growth after an Internet bubble burst. While we are at it, the next divergence healed itself as well on the Silver chart. That one had a mild chance of topping out but with the new high we confirm the smaller degree pullback which came as a result of the 45% move from July. 24
But with the new high we do have a 3.60 reading off the BOTTOM. One interpretation has weak price action even though it s been higher and now struggling to get back to the lower rising median line. So to compare this to the Gold chart, it has another chance to fail this week but I think this is the LAST CHANCE IT HAS TO FAIL before it could turn into a bubble. US DOLLAR For the second time in a week there was a failure at the test of the channel line. I see a tough market here on the hourly chart where there were numerous chances to reverse back up and now is riding a very narrow channel. If a picture told a thousand words you would need to see this steep channel broken and have it get back in that modest channel going to the upside. Short of that, there is really isn t anything to talk about. Keep in mind, this is just for today. We have a whole week to go before we get to the 261 day window off an important pivot and the 3 days to go to the one year anniversary. From where we were last week, a whole week s worth of price action can be a very long time. What I will say is from last week where it looked like this chart COULD CRASH we ve bought a lot of time to get us close to the next window. This bounce did materialize on day 179 off March so what it did was waste a week where it could have been accelerating down. Finally, the best that can be said is there isn t likely to be an inversion this time. 25
As far as the Yen goes, what looked like an unconfirmed top turned out to be interrupted by that.00045 reading. You can see from the daily median lines going back to July how close we came to breaking down. The other set of lines that seem to be respected by the action is of much smaller degree. That one has this chart potentially going to the mid 113 s at this stage of the game. There is a smaller degree reading at today s high and now holding the mid line. 26
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Against the Dollar, a great looking start totally fell apart. Now we are getting a test of the October low. The hourly lines look like this is a logical place for a bounce but even if it does, it s likely to be retested. Just like the Dollar chart, some promising setups failed. When that happens, there is a payoff to it as it s not always what happens but what doesn t. I wasn t exactly sure how the Euro situation would play out but it s been mildly bullish. If this is also the inverse Dollar play you still have a bearish intermarket divergence to the metals. The downtrend from last week has been broken but it s having trouble staying bullish. This may still end up as a larger sideways pattern. As the day wore on, price action had trouble holding on to the rising line as it hit a.000423 reading. Finally, the EUR-JPY stays at the lower end of the range and is trying to find a low right here. This still looks like a sideways pattern. 28
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BONDS However, you slice it, lower rates means a lower Dollar. Today s bullish action once again breaks the down trend. Considering the early November low as the low, the price action has now violated the mid line which means it is likely to be retested but now prices look higher again. But they are parabolic and not likely to be sustained at this rate. When we combine the violation of the down trend and surge above the mid trend line what we are now looking for is a continuation of the trend on either side of that mid line. CRUDE OIL We knew we couldn t possibly get to a new high today. But this is more of the same. We have what looks like a consolidation in a potential new bull market. Next up we have to see what kind of power the move has when it hits the mid line. It certainly has a shot at going higher. That s bullish on 2 accounts. First of all, the readings for this entire congestion are now 7.84% and.0159 for each hour. But according to Andrews, when the action fails to hit the median line (leaving a space as he put it) prices will go up faster than when they went down. 30
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