3SOF

Ascending wedge...

COMPX has recently formed a WW.  It has successfully hit its target (1-4)

Could be a short term sell off in the COMPX to set up for the holiday rally...  this would be a minor correction. 

Read more about the WolfWave Pattern here: http://www.3stocksonfire.org/trading/index.php?topic=3732.msg34518#msg34518

How big of a drop could it go?

The pattern really doesn't define a target after point 6.  It just states significant resistance exists at point 6. Hence if you bought at point 5, point 6 would be the sell target.

This leads me to believe the COMPX might have temporary weakness...

Here is an old chart I dug up exhibiting the same pattern as COMPX....

After point 6 was hit you can see it dropped quickly.. but eventually recovered...

Quote from: brandyjoco on November 22, 2005, 05:15:07 PM
How big of a drop could it go?

I don't know...but if point #6 is a key resistance area, then this is a breakout:





However, a look at the bigger picture doesn't look too great:



As you can see, we've already established points 1-4. We are now on our way to point 5 which should lie just above the 1-3 line. The implied target is well below 2,000...I dunno, these Wolf waves are new to me, maybe I've got something wrong...

I'm just tryin' to run with what calven showed us in the TA forum...calven, thoughts?

Chart 1

I went back and re-drew my lines as precise as I could....connected the exact lows and highs....


Looks like the COMPX is just slightly above the trendline but according to this new chart it is not breaking out yet. Since point 5 is the entry and 6 is the target sell I suspect the COMPX will have some weakness. If 6 is the target that would imply to me that it is a resistance level. However, there is nothing to say it doesnt ride that blue upsloping resistance line....

Wolfwaves are not "perfect" but give a general idea of where resistance/support levels are present.  Judging by the huge momentum run we have had since point 5 on the chart I would say there is a strong possibility of a temporary correction off that resistance line. It is not out of the question to have the COMPX temporarily break above the 1-4 resistance line...

Chart 2

The problem with chart 2 is the element of "symmetry". Chart 2 is more of a right (ascending) triangle pattern. The support line is far more inclined than the resistance line. This severely takes away from the credibility of the second chart you made.... but you nailed the concept.... According to the second chart you made the COMPX (if it had symmetry) it would be in an "unconfirmed" point 5 (false breakout) as you stated. Glad to see you have the concept but chart 2 is wrong.

thanks for contributing to this thread....

Glad to have a few followers of this thread. Will be interesting to see how this WW plays out! 

-cal

Quote from: calven on November 22, 2005, 09:57:52 PM


Chart 2

The problem with chart 2 is the element of "symmetry". Chart 2 is more of a right (ascending) triangle pattern. The support line is far more inclined than the resistance line. This severely takes away from the credibility of the second chart you made.... but you nailed the concept.... According to the second chart you made the COMPX (if it had symmetry) it would be in an "unconfirmed" point 5 (false breakout) as you stated. Glad to see you have the concept but chart 2 is wrong.

thanks for contributing to this thread....

Glad to have a few followers of this thread. Will be interesting to see how this WW plays out! 

-cal

I see...ok, this is fun! So let's look at this YHOO chart (1 yr weekly), I see that this has better symmetry to it, but look how far above the 1-3 line it's broke, does that invalidate the pattern?

I need your help. I see we might be at the top on Nasdaq - what do you think?  I don't know how to post the chart but here it is below (Three tops...we are at resistance):


If it doesn't come thru than put in COMP in a chart for 3 years and connect all three highs and all three lows to see we are at the top of a channel. Also, here is an editorial from YAHOO :

How overbought is the market? Extremely overbought. The McClellan Oscillator closed on Wednesday at a bloated +160, which marks one of its most overbought readings of the past couple of years. In addition, by historical standards, according to some indicators, the market is pushing extremes.

For example, Peter Eliades of Stock Market Cycles points out that the longer-term Open-30 TRIN closed Tuesday at an overbought 0.87. He explains that this is the most overbought reading in this indicator since March and April of 2000 when the Nasdaq Composite and S&P made their all-time highs. Obviously that wasn't a good time to be buying stocks.

Not only is the market stretched, but sentiment indicators are again warning that too many bulls have embraced this rally.

The chart of the VIX below continues to warn of some trouble ahead. No official sell signal just yet, but we're getting close as it has now taken out the recent Sept. 16 low of 11.07. Now the only numbers of significance ahead are the July 20 lows of 9.88 intraday and 10.23 on a closing basis. I would rate new lows on an intraday and closing basis as an official sell signal in this indicator, and one that warrants considerable attention, given the record of this indicator when it scores new lows.

Stocks: Train Ride Up the Mountain Continues
While the bears keep warning of an impending crash, the train just keeps chugging up the mountain. We suspect that the bears will soon:

be forced to cover their short positions near the next intermediate top;
turn bullish to catch the last few percentage points up;
turn bearish again on the next dip and sell the market short just as the next correction ends.
As long as the market can climb this "Wall of Worry", stocks are in good shape.

Back in early 1995, our OEX Dollar-Weighted Call-Put Ratio registered readings well into the overly-bullish category on several January days. Instead of being a contrary indicator, that was a sign that the crowd had finally recognized just how wrong they had been to be bearish on stocks. The crowd is always right on the market in the middle of the move.

This market is about to reach that stage at some point in the next month or two. That's the stage where the bears realize just how wrong they have been. At that point, they will be forced buyers of stocks due to the fact that the only way they have of stopping their losses is to buy back stocks sold short. When the bears start buying, sending the market running to new highs, cautious investors who have parked their investment money in money market funds or Treasury instruments will decide that they are missing out on the big bull market and will transfer those funds into the stock market. That's called the Point of Recognition and it will mark the center of the bull market. Since the bull market is just in its third year right now, that will strongly suggest that we have about three more years to go.

If one had bought just one S&P 500 contract at the beginning of the last Point of Recognition in 1995 (margin requirement of about $3,000) and had held it for the next four years (rolling the position over at each quarterly expiration), it would have had an accumulated profit of $4,000,000 over that period of time -- $1,000,000 per year. Compare that to the day-traders who have to claw and fight their way into the market each day to try to make money. We don't know of any of them who made a cool million dollars a year just by putting their position on auto-pilot.

Is stock market history repeating? Probably not, but it seems to be rhyming very well!

Richard I dont think the YHOO chart you made exemplifies a WW. Furthermore, make sure with that YAHOO chart that you have identified WW's in the right trend. It seems to me that the yahoo chart you made would be in the wrong trend even if it was a WW. This would severely diminish the reliability of the chart you made...



COMPX...
Thought I would mention something about the COMPX again. Although the candlestick today doesn't say too much by itself, it could be the start of a bigger correction. I would certainly see a correction back to the 13 day ma and possible the 50 day in the medium term.

Hi Everyone,

I have been trying to post a chart of the Nasdaq (COMP) but I don't know how on the Technical Analysis and Stock Picking board from YESTERDAY.  I think the nasdaq will either break into a flag (bullish continuation) to go higher - or may break down to the lower resistance of just below 21. It is certainly at a resistance point.

Sorry I can't post a chart.  If you draw do a chart for Nasdaq (COMP) for 2 years you will see three perfect tops lined up to 2260.  There are also three perfect bottoms (a wedge I believe).  The bottom is around the 2060 or so. This lines up perfectly with Calvens WW hyposthesis. Can someone take a look at it and see what they think? Take a look at the Technical board and you will see a quote I put there from an analyst that believes the market is overbought according to VIX and TRIN (whatever that is).

WW taking more shape. Point 6 is valid!

The weekly technical resistance we discussed yesterday began to make itself felt on Monday, and despite strong retail sales data over the weekend the retailers were rather severely punished. This was discouraging to some investors considering that oil was down two bucks and the market tends to take heart when oil falls, as it directly impacts the consumer in a positive manner. Much of the leadership for the market however, has come from mid-caps, especially energy names, and when they sell off and other sectors don't benefit from capital rotation, then the market as a whole swoons. That's what happened on Monday, as the profit-taking was broad-based.
Sales of existing homes fell 3.7% in October and there is now a great deal of awareness about the extent to which equity extraction has supported the U.S. consumer and therefore the economy and the stock market. That figure appears to be around $700 billion or 7-8% of annual income for the average homeowner. This is old news to TSR subscribers. Despite the 3.7% drop, the long-term trend in existing home sales is still up, having gone from an annual rate of 5 million to 7 million over the last 4 years.

Meanwhile, the percent of equity for the average homeowner has fallen steadily for the last 30 years, and now sits at 54%. In other words, drawing an analogy to an equity trading account, the average homeowner is operating this investment at full margin. Given that there are more than 20 metropolitan regions in the U.S. that experienced greater than 20% appreciation in home prices in the last year, with some such as Phoenix rising 55% over that period, it is not surprising that the equity percent has fallen. The wealth effect for this amount of equity appreciation remains unquantifiable but it is real. Moreover, we also know that this type of real estate appreciation is not just a U.S. phenomenon; it is happening globally. We are in the midst of a worldwide economic boom. At some point all the good news will be priced in, but we don't think we are there yet. We anticipate more euphoria and more violent price swings the top.

As the market has begun a correction, we have six charts below to give you a sense of the big picture. Briefly, both the large caps and the small caps are undergoing tests at important resistance. Some of this resistance is due to trading patterns over the last two years but for the Nasdaq and Nasdaq 100 there is even a resistance element from the two tops made in May and December of 2001.

This is an important test and there are two ways to analyze it: price/volume behavior and market internals (the A/D and new 52-wk highs and lows). In terms of price, the key number to watch on the S&P 500 is 1247. We don't want to see that price support taken out on a closing basis, especially with any virulence. On the Nasdaq, ideally we want 2232 to hold on a closing basis, which is just 7 points lower than Monday's close. That is not much wiggle room for the 4-letter crowd. Watch the semiconductors, which will tell the tale for the Naz. If the SMH can stay above $37 on a closing basis we are locked and loaded for a continuation of the 4-letter rally.

We also use market internals to gauge the underlying health of the market and so far the bull is doing just fine. These indicators are telling us that we are in a pullback similar to the one we had in late June. At that time the market had advanced fairly steadily for 27 days from the May 16 reversal and experienced two days of rather intense selling. That selling led to a two-week base that resolved positively on 7/7. As of Monday, we had rallied for 27 days from the 10/19 reversal day, so we are due for a similar shakeout. The fact that this test comes when the S&P 500 is at weekly resistance makes it more significant, however.

COMPX needs to hold the upsloping momentum channel support line...