Stock Market Trends & Observations 09-02-11

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Stock Market Trends & Observations

Stock Market Trends Weekly Update 09/02/11

Posted September 2, 2011 by BobCategories:WEEKLY UPDATE

WEEKLY UPDATE FOLLOWS THE EXPLANATIONS

WAVE COUNTSSIMPLIFIED

There are 3 peaks to a completed wave count. A reversal of trend takes place after a completed

wave count. Often times its as simple as counting 3 bumps on a chart . . . Other times, not so

easy.

In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.

Each step must stay confined to a channel. Laying a pen or pencil on the chart will help you

visualize the channel.

As the trend progresses, all of the steps that make up the overall current trend will also be confined

to a larger channel.

When the market breaks a channel (regardless of theperceivedwave count), the current step has

been terminated.

A single wave may sub-divide into another 3 waves. I will also call this an extension. When this

happens (1) the trend is still intact, (2) the channel has widened and (3) instead of a total of 3

steps, there will be 5 steps. (The charts will help you understand this concept.)

Sometimes I will use the terms step and wave interchangeably, but usually a wave is considered to

be larger than a step.

Wave Counts In Charts Numbers of the same color represent steps within the same wave. For

instance, red 1, red 2 and red 3 are steps within the same wave. Different colored numbers

represent steps in totally separate waves. For instance, a red 1 occurs in one wave while a blue 1

occurs in a totally separate wave (refer to charts for examples).

Reading the glossary helps a great deal in the understanding of this blog.

Glossary Link

If the charts (or links) dont work, please copy & paste the following address into your browser.

http://stockmarketobservations.wordpress.com/

************************************************************************************

CLICK ON CHARTS TO ENLARGE

Short Term

Uptrend

August 9th To Present

ock Market Trends & Observations http://stockmarketobservations.wordpres

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Step 2 Underway

August 19, 2011 To Present

Step 2 Correction Underway

Last Action Status Buy Signal On 8/29/11

Renewed Buy Signal Possible


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09-03-11 SHORT TERM

SHORT TERM COMMENTS

Read the earlier comments from Friday, September 2nd.

Daily Stock Market Update 09/02/11

Dow Industrials since the July 2010 low with the perceived wave counts.

There is also an alternate wave count that shows the market only completing two steps down since the

peak. The alternate is not considered likely as some indexes clearly show three steps down since

February.

Dow Industrials since the Wednesday peak with the perceived wave counts.

Dow Industrials showing todays action with finer detail.

Its possible that we made a low at the close today BUT there is no indication that we got a reversal at

the close. If we have a reversal at the close, we should rally into step 3 counting from the August 19th

low. Well watch for a reversal on Monday afternoon when the futures open. This Monday is labor day

and the market is closed.


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Intermediate Term

Downtrend

February 2011 To Present

Step 3 Down Underway

The rally that began in July 2010 is finished.

The peak of that rally was May 2011 although some indexes peaked in February 2011.

We are likely in step 3 down of the decline that began in February 2011.

On the flip side we could have an extended wave count decline, which means 5 steps down

instead of 3.


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09-03-11 INTERMEDIATE TERM

Long Term

Uptrend

Mar 2009 To Present

Step 2 Up (of 3) Completed

From the bottom in March 2009Large step one up ended in May 2010

Large step two up ended in May 2011. (notice a pattern?)

Large step three up will begin when the decline beginning in February/May is finished.

Large step three may exceed the October 2007 peak. This seems like a possibility when looking

at the Very Long Term megaphone scenario.


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09-03-11 LONG TERM

Very Long Term

Downtrend

Jan 2000 To Present

Step 2 Down (of 3) Completed


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09-03-11 VERY LONG TERM

VERY LONG TERM COMMENTS

We have 3 possibilities for the future.

We have entered a very wide swinging market (megaphone formation) similar to that of 1966 to

1974. During that era we had three bear markets with two intervening bull market rallies. Eachbear market had a lower low than the previous bear. The intervening bull market rallies saw new

all time highs before the next bear market began.

We also have formed a huge head and shoulders formation since 1998. If this formation is valid,

the downside measurement calls for a bottom around Dow Jones Industrials 1,000.

Since 2000 we have had two bear markets, 2000 to 2003 and 2007 to 2009. Like 1966 to 1974, the

recovery from the first bear market saw a new all time high (2007 peak). Its possible that we may

experience another all time high during the present recovery period. This would support the megaphone

formation. A failure to make new highs would support the head and shoulders argument. In both

formations the conclusion of the present recovery would call for a third and final bear market. An

estimated time for the conclusion of the final bear market is approximately 2018.

The lesser downside target of both formations is the megaphone formation as it likely calls for a bottom

1,000 to 2,000 points below the 2009 low, which would be around Dow 5,000.

In the head and shoulders formation the measurement calls for a bottom around Dow Jones Industrials

1,000. This is almost an unimaginable event as I try to visualize the fundamentals involved. If this did

happen, everything that could go wrong would have to go wrong. The reasons range from the absurd to

the absurd. This scenario is so dark that it doesnt seem possible but nevertheless, the head and


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shoulders formation is there and will be waiting until we pierce the all-time highs of October 2007.

Remember these are simply possible scenarios and are not embedded in fact. Whatever the outcome, it

never hurts to be a little cautious with some of your money. But in the worst case scenario, everything

that we take for granted as being safe . . . . would not be safe. This is something to never forget in the

event things go very badly.

Hopefully we will never have to think about worst case scenarios other than to have a good laugh atthem presently.

************************************************************************************

EDSON GOULD

Edson Gould, Premier Stock Market Strategist I have posted some of his ideas and writing

on this blog. He had a profound influence on the development of my techniques and proprietary

indicators. I will post more of his writing at a later date. After 40 years I still have many of the

publications from his advisory service, Findings & Forecasts.

Edson Gould Link

************************************************************************************

TRANSACTION SIGNALS

ALL ACTIONABLE SIGNALS (buy or sell) ARE ONLY FOR SHORT TERM TIME FRAMES.

These signals are not designed for intermediate or long term time frames BUT . . . . .

After a short term buy signal, long term tax status can be achieved by a continuation of the

upward trend, which causes short term actions to morph into long term holdings.

See more details in the glossary under Taxes, Futures Contracts and Money Management.

Glossary Link

TRANSACTION RECORD

In this blog a warning of an impending bottom (or top) is often issued well in advance of the

formal buy or sell date. This allows thoughtful consideration prior to a formal action signal. To

get a sense of how this works, you should read a few days prior to a formal buy/sell signal. I often

buy/sell in my personal account based on the early warnings.

The transaction record near stock market bottoms will show that I am very skittish and usuallyremain so until the new direction is well underway.

BUY AUGUST 30, 2011

SELL AUGUST 30, 2011 Stopped out

BUY AUGUST 29, 2011

SELL AUGUST 25, 2011

BUY AUGUST 23, 2011

SELL AUGUST 1, 2011


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BUY JUNE 23, 2011

************************************************************************************

MY CHART LINK (updated constantly)

This link has my charts, which are always current and constantly updated during market trading.

They dont lag market trading by 15 minutes which is true of many charts.There are 9 pages of index charts. Each page consists of (1) the same stock market indexes, and

(2) the same time frame. The time represented by each vertical bar is the same on each page but

increases in length on each succeeding page. The vertical bars on the 9 pages ranges from 1

minute to 1 month.

The final pages of these charts consists of growth stocks. These are stocks that have constantly

risen in price since 1990. One qualification is that they must not be severely damaged in a bear

market so they cant rise to significant new highs in the following bull market.

The growth stocks show daily market action for the last 3 years and weekly prices since 1990.

This gives a good perspective to how they have behaved in the immediate past (daily charts) and

how they behaved during good and bad times (weekly charts).

INDEX

Page 1 Indicators (shorter time frames)

Page 2 Indexes With 1 Minute Bars





Page 7 Indexes With Daily Bars (shorter)

Page 8 Indexes With Daily Bars (longer)

Page 9 Indexes With Weekly Bars

Page 10 Indexes With Monthly Bars

Page 11 to Page 12 Indicators (longer time frames)

Page 13 to End Growth Stocks (daily and weekly time frames)

Comments:Be the first to commentEdit


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Daily Stock Market Update One 09/02/11

Posted September 2, 2011 by BobCategories:DAILY UPDATE

DAILY UPDATE FOLLOWS THE EXPLANATIONS



wave count of 3 peaks. Often times its as simple as counting 3 bumps on a chart . . . Other times,

not so easy.

In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.




to a channel.


been terminated.A single wave may sub-divide into another 3 waves. I will also call this an extension. When this


steps, there will have 5 steps. (The charts will help you understand this concept.)








Glossary Link



************************************************************************************


Short Term

Up trend Since August 9th

Step 2 Underway


Step 2 Correction Underway


Renewed Buy Signal Possible


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The first chart shows the presumed wave count on the downside beginning at a peak on Wednesday. If

this count is correct we should rally a little bit and then decline later today into a 5th wave bottom. This

could work exactly as I said yesterday: I might look for a bottom late in the day on Friday but it all

depends on the count. So look for a bottom just before the close today.

Today is a 90% down day and thats not good because it shows intense selling. The channel is at its

most extreme width but it is still in effect. It is not unusual for a last low to widen the channel a little bit

so that would not overly concern me. More free fall is something that would concern me and that couldcreate a sell signal. A probing of todays lows in the 5th step could create a renewed buy signal.

In the second chart is a less than favorable wave count that could produce a lower low than August 9th.

This is a possibility that one must be aware of but at the moment I favor a rally back to the step 2 highs.

A free fall would mean this wave count is valid. Free fall could also have severe implications for the

longer term picture. We will wait and see about that.

Worst case scenario is that we have begun another probe (or penetration) of the bottom area on August

9th. Best case scenario is that the bottom of the correction following step 2 up is almost finished and we

will begin step 3 up either very late today or Monday.

I may be a renewed buyer late in the day today. May is the operative word here.

SP 500 Futures, 5 Minute Bars

09-02-11 SP500 FUTURES 5 MIN BARS

DJ Industrials, 5 Minute Bars Also showing a less favorable wave count.


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09-02-11 DJI 5 MIN BARS



Posted September 1, 2011 by BobCategories:DAILY UPDATE

DAILY UPDATE FOLLOWS THE EXPLANATIONS




not so easy.In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.




to a channel.


been terminated.

A single wave may sub-divide into another 3 waves. I will also call this an extension. When this


steps, there will have 5 steps. (The charts will help you understand this concept.)

Sometimes I will use the terms step and wave interchangeably, but usually a wave is considered tobe larger than a step.






Glossary Link

If the charts (or links) dont work, please copy & paste the following address into your browser.http://stockmarketobservations.wordpress.com/

************************************************************************************


Short Term

Uptrend



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Step 2 Is Finished



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09-01-11 INDEXES 30 MIN BARS

We finished step 2 up and are still correcting. The monthly employment data comes out early tomorrow

and the expectation is that it will not be good. With the bad news the futures will probably sink further

before the open. I might look for a bottom late in the day on Friday but it all depends on the count.

Usually the correction following step 2 is larger and longer than the correction following step 1.

Presently it looks about the same size as the step 1 correction.

In the first chart are lines outlining the expected channel with the dotted line representing an

approximate extreme. The dotted line is about 200 Dow points below todays close. The dotted line

also marks the approximate highs of step 1 around the 11,250 level.

Best case scenario is that we will begin step 3 up soon. Worst case scenario is that we are about to retest

the bottom again.

I had expressed thoughts yesterday that a retest seemed a possibility. A few other people that I follow

are thinking along the same lines.

Terry Laundry has a small T (uptrend) thats good until September 14. After that he thinks we will retestthe bottom. Although its not engraved in stone, I have no problems with this scenario.

Jeff Saut also believes that we will retest the bottom. He also believes the high and low for the year are

in, May 2nd high and August 9th low. He expects to finish the year near the top of the range.



Posted August 31, 2011 by BobCategories:DAILY UPDATE

Daily update follows the explanations.




not so easy.In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.




to a relatively larger channel.

When the market breaks a channel (regardless of theperceivedwave count), that step has been (1)

terminated and the market has begun a counter-trend move, or (2) the step has sub-divided.

A sub-divided wave means the trend is still intact but the channel has widened and instead of 3

steps, you will have 5 steps. (The charts will help you understand this concept.)


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Charts (wave counts) Numbers of the same color represent the same wave. For instance, red 1,

2 and 3 are steps in the same wave. Different colored numbers represent totally separate waves.

For instance, a red 1 occurs in one wave while a blue 1 occurs in totally separate wave (refer to

charts for examples).

If you believe that wave counting is voodoo, please read along for awhile and reserve judgment

until later. Decades ago I had thought wave counting was too complex and had too many

exceptions to be useful. But through the years I originated my own easy version of the wave

count.


Glossary Link



************************************************************************************

Short Term

Uptrend


Step 2 . . . of Step 2 Is Underway (see chart)

Action Status Buy Signal On 8/29/11

The first chart shows my best estimate for the present wave count. If this count is correct, I would

expect the correction that began today to run a bit longer and then rally into the 3rd step up. A larger

correction would then follow similar to that following the peak on August 24th.

The lower line of the channel has an assumed placement. Lowest positioning of this line could emanate

from the low on August 26th.

08-31-11 DJ INDUSTRIALS 5 MINUTE BARS

Referring to the second chart. If we make a significantbreak about the July peak, that would signify a

move away from the bottoming area. The July peak is still much higher and the market remains


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skittish. But if all is well I would expect the market to break away from the bottom area before the

termination of the third step up.

Not wanting to worry anybody, but things like the next paragraph always bother me. This possibility

of unfinished business makes me edgy around market bottoms. If the possibility is true, I should be able

to sniff out the situation before things turn radical. And if unfinished business does take place, there can

be the satisfaction that the horror show is really over.

The labeling of the wave count in the following chart appears simple. The only mistake possible would

be; Did the top occur in early March or early April? If the peak occurred in early April, we would have

completed two steps down. The remaining step, step three would be the termination of the 2011

min-bear. If this is true we could be setting up a late September or the classic October conclusion.

More bear markets have ended in October than any other month.

08-31-11 TSX 60 MINUTE BARS



Posted August 30, 2011 by BobCategories:DAILY UPDATE


There are 3 peaks (or valleys) to a completed wave count. A significant reversal takes place after acompleted wave count of 3 peaks (or valleys). Often times its as simple as counting 3 bumps on

a chart . . . Other times, not so easy.



The 3 steps that make up a completed wave count will also be confined to a relatively larger

channel.

When the market breaks a channel (regardless of size), that step (or wave) has been terminated

and the market has begun a counter-trend move.


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If you believe that wave counting is voodoo, please read along for awhile and reserve judgment

until later.


Glossary Link



************************************************************************************

Short Term

Uptrend


Step 2 Up Is Underway

Action Status Buy Signal On 8/29/11

Today was a consolidation day after yesterdays surge in prices. It was disappointing in that it wasnt a

solid follow-through from yesterday but its not unusual after a 90% up day to consolidate.

Heres a chart that shows an upward diagonal forming. I would like to see prices breakout of this

formation on the upside, otherwise it could mean lower prices and possibly another stab at the bottom

area. Dropping back into the prior lows and holding could also be a renewed signal for higher prices.

Another correction scenario is a decline back into the area of last Fridays low. The best alternative is

higher prices.

Im not a seller here but Im watching carefully for a break of the lower line. Well see what Wednesday

brings us.

08-30-11 SP 500 5 MINUTE BARS


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ArchivesSeptember 2011 (3)

August 2011 (33)

July 2011 (17)

June 2011 (10)

Categories

DAILY UPDATE (47)

EDSON GOULD (1)

GLOSSARY (1)

SELL/BUY ACTION UPDATE (8)

WEEKLY UPDATE (12)

September 2011

M T W T F S S

Aug

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5 6 7 8 9 10 1112 13 14 15 16 17 18

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26 27 28 29 30

Wall Street Quotes


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The essence of investment management is the management of risks, not the management of returns.

Well-managed portfolios start with this precept.

Benjamin Graham

The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best

time to sell.

John Templeton

Buy on the cannons,

sell on the trumpets.

Old French Proverb

Rule #1: Never lose money.

Rule #2: Never forget rule #1

Warren Buffett

The four most dangerous words in investing are

"This time it's different".

John Templeton

"This time it's different" was prevalent during the bubble of 2000. In 1929 it was called "New

Economics".

Bob

History always repeats, only the details change.

Edson Gould

If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks.

John (Jack) Bogle

Stock are bought on expectations, not facts.

Gerald Loeb

Emotions are your worst enemy in the stock market.

Don Hays

P/E ratio - The percentage of investors wetting their pants as the market keeps crashing.

Anonymous

Herd Mentality

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only

recover their senses slowly, and one by one.

Extraordinary Popular Delusions and the Madness of Crowds

Herd Mentality

Cases such as Tulipomania in 1624--when Tulip bulbs traded at a higher price than gold--suggest the

existence of what I would dub "Mackay's Law of Mass Action:" when it comes to the effect of social

behavior on the intelligence of individuals, 1+1 is often less than 2, and sometimes considerably less

than 0.

Extraordinary Popular Delusions and the Madness of Crowds


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I made money by selling too soon.

Bernard Baruch

If all you have is a hammer, everything looks like a nail.

Bernard Baruch

The main purpose of the stock market is to make fools of as many people as possible.

Bernard Baruch

The hardest part of a bull market is staying on.

A bubble is a bull market in which you don't have a position.

A buy and hold strategy is a short term trade that went wrong.

October, this is one of the peculiarly dangerous months to speculate in stocks. The others are July,

January, September, April, November, May, June, December, August and February.

Mark Twain

Economists have predicted 14 of the last 3 recessions.

Market Correction - The day after you buy stocks.

In 2008 stocks were a good buy . . . . . Goodbye Mercedes, goodbye yacht, goodbye vacation home,

goodbye . . .

Markets can remain irrational longer than you can remain solvent.

John Maynard Keynes

Money talks, but all mine ever says is "goodbye"

Don't gamble. Take all of your savings and buy some good stock and hold it until it goes up, then sell it.

If it don't go up, don't buy it.

Will Rogers

Return of principal is more important than the return on principal.

Hope is your worst enemy in the market.

Don't catch a falling knife.

Spend at least as much time researching a stock as you would choosing a refrigerator.Peter Lynch

When you realize that you are riding a dead horse the best strategy is to dismount.

Sioux Indian Proverb

Dont ever make the mistake of telling the market it is wrong.

James Dines

Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street


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never changes, because human nature never changes.

Jesse Livermore

Let Wall Street have a nightmare and the whole country has to help get them back in bed again

Will Rogers

Bulls makes money, bears makes money, pigs get slaughtered.

My Grandfather

Never buy a stock that won't go up in a bull market. Never sell a stock that won't go down in a bear

market.

Wall Street is a street with a river at one end and a graveyard at the other.

Never check stock prices on a Friday, it could spoil your weekend.

Nobody is more bearish than a sold-out bull.

The public is right during the trends but wrong at both ends.

Humphrey Neill

Those who can, do.

Those who cant, teach.

Those who cant teach, work for the government.

Never sell a dull market short.

I sell euphoria and buy panic.

The way he determines that is to wait until prices start gapping in the charts. Gapping on the upside is

euphoria, while gapping on the downside is panic.

Jimmy Rogers courtesy of Jeff Saut

"Cut your losses and let your profits run."

Don't marry a stock. Every stock must be sold.

Often times WHEN you take a position can be more important than WHAT you take a position in.

Bob

About This Blog

Observations of Stock Market Trends uses several proprietary technical indicators discovered by the

author. The object of this blog is to notify you (preferably in advance) of the important tops and bottoms

in the stock market. We know that's impossible, but nevertheless, it's attempted in this blog.

The weekly overview of "Observations of Stock Market Trends" is published each weekend. A daily

update is likely when I have something to say or we are near a stock market inflection point.

If you find the blog interesting, please become a follower by entering your email address in the section

"Email Subscription" (top of this column). You must also confirm your email subscription by clicking on


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a link in the confirmation email, otherwise you ain't subscribed.

Disclosure

The content on this blog is meant to be entertaining information and should not be construed as

investment advice.

No statement by the blog's author should be interpreted as a recommendation to buy or sell any security,

financial instrument, or to participate in a trading or investment strategy.

Any investment decision by anyone that results in losses or gains based on information from this blog is

not the responsibility of the blog's author.

The blog's author will make statements about certain investment vehicles and strategies, but It's simply

the author expressing his opinion, or action, regarding his own investments. These opinions are never to

be construed as investment advice.

About MeWith 55 years of studying and investing in the stock market, I am sharing these experiences and

knowledge by writing a stock market blog. This blog relies on several unique and proprietary indicators.

I have been correct at some of the biggest market turns in the last 40 years. I was short for most of

1973-1974, reversed course and became a buyer during the week before Christmas 1974. I was also

short for most of the first half of 1982 but became a buyer on August 4, 1982. This was five days before

the August 9, 1982 blast off on the historic bull market run of the 1980s and 1990s. In 1999 I began

tolling the bell on the stock market knowing that the end was near (no one listened). In March 2003,

prior to the beginning of the Iraq war I turned into a bull because I couldn't see one reason why I should

buy stocks. Shortly after the October 2007 peak I became a seller and bear. Days prior to the March2009 bottom, I bought stocks in anticipation of a very good rally that turned into a big bull run. In the

later stages of the February-May 2011 topping process, I began warning of an important market

correction.

One man was responsible for my education, Edson Gould, the greatest technician that ever lived.

After reading many of the books on stock market technical analysis, I found that all of these methods

had high failure rates. I searched for a formula that worked consistently and in 1973 I subscribed to

Edson Gould's "Findings & Forecasts". Here I struck gold with the master technician of the 20th century.

Extending his methods I discovered several proprietary indicators that I use today.

If you find my observations of interest please add your email address to the section, "Email

Subscription".

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Stock Market Trends & Observations 09-02-11

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