Thursday Pre Open (Wednesday Eve)

Long Term Optimism at ExtremeThe dam has cracked in O'care, and there's talk of a 6 week delay.  Can you say disaster?

This first chart shows how long-term sentiment (reflecting newletter writers) is back at optimistic extremes historically associated with at least multi-month declines of at least 13%, as seen at the May '11, and March '10 peaks.  When this happened in '87, the decline was 29%!  There have been other times when declines didn't follow the current 70% optimistic extreme, but each since the '09 low has.

Chart two looks at trader's sentiment, instead of newsletter writers, using the DSI (Daily Sentiment Index, courtesy of trade-futures.com).  Here at 84% bulls, conditions could become even more loony, Dows DSIbut they don't have to.  Notice that dotted green line the Dow is touching now is the significant resistance that stopped rallies in wave 3, wave B of 4, and wave 5 as currently labeled.

Chart three looks at investors intelligence of advisors, a slightly different group than newsletter writers as these guys actually deploy assets.  It shows the same lack of bears as it historically has just before the market falls.  Sometimes, the decline is marginal, but others, like the 17% loss from April to July '10, and 22% loss from May to Oct. '11 became painful to those not paying attention to this harbinger.  These last two pictures are courtesy of our friends at Elliott Wave International, and we thank them for such great work.  

Spx sentiment extremeThe bottom line is that these three charts don't mean the market can't push a bit higher, but they certainly remind us what happens when objectivity leaves the building.  After one day above 1749, Spx closed back below it today.  More importantly, Spx, Ndx, and Rut all closed back below their upper BB's, "triggering" sell signals of at least short term duration.  The McClellans fell further, as buying energy is waning too.  What news is surfacing to justify a market peak, as Elliott teaches us to expect?   Whatever is will be, we should be looking for the UNexpected (like perhaps O'care to implode under its own weight, rather than because of the GOP).

Euro is more overbought, via sdb extremes, than any time since March '08.  If 1.3925 is tested, it'll reach the upper 3 sdb, like back then.  Regardless, this is the end of a corrective bounce that DSE identified near the 1.2000 low in '12, pointing to 1.40 as the relief-bounce target.  It's so close, and can be concluded any time.  A MEGA-short trade is presenting itself between 1.3700 and 1.4000.  The inverse is the long dollar play.  Our UUP ladder will take advantage of the multi month rise that the dollar is scheduled to begin once the final wiggles of its decline play out.

Crude has met the DSE's target of 98 +/-1, and then some, which is gave us when crude peaked in the 110-112 zone this summer.  Now, DSE warns NOT to be short as a bounce should begin this week, targeting 104 +/-1.

Here's a little reading that is worth a few minutes.

More around the bell...

Thursday Pre Open (Wednesday Eve) by

About twwadmin

Ken Goldberg is a Registered Investment Adviser, and is the president and chief market strategist at Trading With Waves. Connect with me on Google+
Bookmark the permalink.

2 Responses to Thursday Pre Open (Wednesday Eve)

  1. Pingback: Monday Pre Open (Sun. Eve) | Trading with Waves

  2. Pingback: Thursday Pre Open (Wednesday Eve. ) | Trading With Waves