Fibonacci Confluence and Projection on NIFTY Index

Mar 15, 2009: 8:52 PM CST

I thought I’d do something a little different in my weekly take of India’s “Nifty” Stock Index ($CNXN) and describe a Fibonacci Confluence Resistance Zone and also run a Fibonacci Price Projection Point as well.

“Nifty” Confluence Fibonacci Grid:

Without giving away too many of my secrets, or the method behind the madness, we see key Confluence Fibonacci overhead resistance at the 3,580 level which also corresponds currently with the falling 50 week EMA. Should price break-out above the current range and 20 week EMA (both of which could be extremely difficult), we would expect significant supply coming in at that level.

I was going to write another daily update, but the analysis is the same as last week, as price still remains in a consolidation.

Now let’s really do something interesting and try to make a Fibonacci Price Projection low using advanced Fibonacci methods.

“Nifty” Fibonacci Price Projection:

Fibonacci grids are drawn off the 6,300 truncated high down to key support levels in the past.  A confluence zone was identified and then the vertical distance was measured from the peak down to this confluence level, and then I came forward and projected this same vertical distance (the size of the rectangle is irrelevant) down (subtracted) from the confluence zone (at 4,100) to get a final price projection target of 1,970.

I’m not necessarily saying we’ll go down to that target, but if price begins to fall from here, the 1,970 level would be an excellent area to watch for advanced Fibonacci support.

In summary, we have Confluence Fibonacci Resistance at 3,580, and a Fibonacci Price Projection possible Low at 1,970.  It’s up to the market to determine which area it will test next, but – unless the trend and structure (via moving averages and swing lows and highs) changes, odds as I seem them are slightly more favorable that we break-down to test the 2,000 level.

As always, your comments and thoughts (and links to other sites) are welcome.

Corey Rosenbloom
Afraid to Trade.com

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Which Sectors Outperformed Last Week?

Mar 15, 2009: 2:34 PM CST

Let’s take a quick look at which key sectors outperformed all others last week – during a rally week where we saw all major sectors advance.

First, from StockCharts.com:

I separated the AMEX Sectors into traditionally “Offensive” or sectors that reflect market confidence and “Defensive” or sectors that generally hold their own during market pessimism and downturns.

The Financials should be grouped with the “Offensive Sectors” because strength there – and in Retail, Consumer Discretionary, Technology – show that investors and funds might be more confident in trying to put their money to work where they expect to get the biggest ‘bang for the buck.’

On the flip-side, investors try to ‘hide’ in Defensive Sectors like Health Care and Consumer Staples that should hold their own (though still decline slightly) during downturns.  Strength here reflects investor pessimism.

Seeing the strongest advance – 30% – in the Financials is a wonderful and welcome sign for belagured investors.  To envision any sort of Market Bottom, we would need to see continued strength in the Financial and “Offensive” (Discretionary/Retail) Sectors that have been punished the most.  For now, investors can be encouraged.

Let’s take a look at a similar chart on FinViz.com (Groups):

I also separated these by “Offensive” (green) and “Defensive” (red) Sectors (they classify things a little different than StockCharts.com).

Financials and (Large) Conglomerates were strongest, with Industrial goods advancing strongly as well.  The broader S&P 500 Index rose 10% last week (for comparison).

Utilities and Consumer Goods/Staples underperformed the market and all other sectors – that’s what you’d want to see if the market has any hopes of a sustained recovery.

Keep checking ‘under the market hood’ for additional clues.

Oh, and Adam Hewison released a video update on the current rally entitled:   “Bear Market Rally… or Serious Reversal” that goes into much more detail.

Corey Rosenbloom
Afraid to Trade.com

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Update on the Two Competing SP500 Elliott Wave Interpretations

Mar 14, 2009: 4:38 PM CST

In a much anticipated post, I wanted to revisit the “Which Elliott Fourth Wave are we in Currently?” debate that I mentioned last December.  I followed that post up with a mid-January update, “Two Competing Elliott Wave Counts on the S&P 500“.  This post reflects the mid-March update of the two interpretations and how they have both played out in the markets.

Let me summarize the interpretations.

1.  The Bullish Interpretation

States that We are Ending the 5-Wave decline that Began in 2007 (that we are in a Primary Wave 5 down… technically Wave (4) of circled 5.

I call this “bullish” because it means we just need one more swing down (in the Elliott Structure) to complete the 5-wave decline.

2.  The … Bearish Interpretation

States that We are Still in an Extended Third Wave off the 2007 High (that we are an a Primary Wave 3).

I call this bearish because it implies that we are close to finishing the Primary 3rd Wave before embarking on a large ABC up… then we will begin a 5-wave decline to take us to lower lows than we’re seeing now.  It’s also likely to trick so many people because the Primary 4th Wave rally is expected to be sharp (violent) and will lead so many people to believe we’ve put in a bottom… only to see price rip to new lows once the 4th Wave completes.

1.  The “Bullish” Scenario:

Summary: The circled waves reflect a Primary Degree and that we are just one more swing away from completing this 5-Wave sequence of a Major C Wave (reference monthly charts).

It states that we’re currently in (4) of circled 5 of Cycle C.

Ending target:  600 – 650 within two/three months.

2.  The “Bearish” Scenario

Summary:  We are STILL within Primary Wave 3, and need Primary Wave 4 (perhaps up to 1,000 or 1,100) and then will need to complete Primary Wave 5 (to take us down to 500… or less. I shudder to write those words).

It implies that we’re currently in Minor 4 of Intermediate (5) of Primary circled 3.  Of course, of Cycle C.

Ending Target:  500 or less by the end of 2009/beginning of 2010.

So which one is it?

It’s certainly open to debate, but we’ll know soon enough.  Rather than get caught up in the long-term forecast, I think it’s important to focus on the following:

Both call for a test of the 666 low on the S&P for the next likely swing.

After that… things get murky.  Both call for an up-move of potentially powerful duration… so much so that Elliott Wave International founder Robert Prechter has made the rounds on Financial TV recommending that all short-sellers ‘cover their shorts’ in anticipation of a potentially large rally-up in the Stock market.

My stance is that it doesn’t matter right now – both counts are in alignment for the time being.  This will change as the strength/duration of the next up-move comes.  Start looking then at the internals and structure to assess the next likely path for prices *once we get there*.

Accuracy in financial forecasting isn’t what’s important – it’s trading properly and managing risk within your expected views.  Elliott Wave is one of many tools to help guide our analysis – we all know it’s never 100%.

I’ll do my best to keep you updated as more data comes in and the price structure forms itself clearer.

Until then, do the best you can with the information you have at your fingertips.

Corey Rosenbloom
Afraid to Trade.com

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3x Bullish Fund Volume Surges

Mar 13, 2009: 4:24 PM CST

A few readers have brought this to my attention so I wanted to share with you all the relative volume comparisons in FAS (3x Financials Bull), BGU (3x Large Cap Bull), and the – now seemingly puny – 1x DIA (you know, actual Dow Jones ETF).  Let’s see these three on the daily chart.

FAS (3x Financial Bullish):

I won’t give comments on the technical structure, but want you to focus on the volume in each of the three funds I’m displaying here.

Let’s start big – the FAS is the 3 times leveraged Financials Bullish vehicle traded 350 million shares today. Yes, you read that right.

What’s more, look at the trend of volume as more traders have caught wind and are sticking their toes into this highly leveraged product.  We saw 50 million shares average in late January which quickly stepped up to 100M later, then 200M in early March and now 350M a week later.  This is phenomenally amazing to me how quickly this product has caught on to the general trading community.

And I can see why – it’s a relatively cheap priced ETF that recently doubled in value this week.  Price moved from $2.50 to $5.00 in a week (the XLF Financial 1x ETF moved up roughly 33% on the week).  A 33% move up in the XLF translates to a 100% move up in the FAS.

What traders need to be aware – lest they get drunken with greed – is that a 10% decline in the XLF would wipe out 30% of the profits, and it gets worse as the XLF decline increases.  But that’s for another day.

Let’s move on to the BGU or 3x Large-Cap (roughly the Dow Jones) Bullish

BGU (3x Large-Cap Bullish)

Volume slightly trailed off after peaking Wednesday above 35M shares.  We traded just over 31 Million shares today – which may or may not seem like a large number to you.  The SPY (S&P 500) ETF traded just over 330 Million shares today.  That’s what you’d expect from a major market ETF.

Notice the trend in volume is clearly up on BGU as more and more funds/traders discover its utility – but hopefully they are also considering the risk, particularly as we are forming a countertrend retracement swing into EMA resistance… but I promised to keep the discussion here focused only on volume.

Finally, let’s compare both of these 3x funds to the DIA, which is the Dow Jones (proxy) ETF.

DIA (Dow Jones 1x ETF):

The DIA traded 20 Million shares today.  That is paltry when compared to the SPY (300M), QQQQ (150M), and of course FAS (shown above at 350M).

It’s possible there’s an industry trend of volume rotating away from the DIA (and Dow Jones in general) towards the S&P 500 and particularly leveraged and triple-leveraged funds.  Notice the trend of volume in the DIA is clearly down since peaking around February 10.

This is one of the reasons I’ll be shifting all my trading operations away from the DIA and towards – for now – the SPY.

Keep looking for volume clues in other index and leveraged funds.

For comparison of 3x bearish counterpart funds:

FAZ (3x Inverse/Short Financial) traded 30 million shares
BGZ (3x Inverse/Short Large Cap) traded 10 million shares

Corey Rosenbloom
Afraid to Trade.com

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NewsFlashr Editor Picks for March 13

Mar 13, 2009: 12:00 PM CST

Each week I do an update on the “Editor’s Picks” Links from NewsFlashr’s Business Blog section and here are this week’s selections:

Mish takes a look at the changing attitudes of Baby Boomers as they face retirement with portfolios that have now declined 50% or more from their peaks. “Boomer’s Futures Went Down the Drain

Stock Trading to Go takes a look at the 1929 Crash and notes similarities to today’s bear market.

Andrew Horowitz of the Disciplined Investor asks “Was THAT the Bottom?” in a post and also tackles the question “Is the Market (S&P) Racing to 500 or 1,000 Next?” in his most recent Podcast.

Bill Luby of VIX and More shares some insights into the ’strange’ development where the higher volatility has actually resulted in a lower (than recent average) VIX. More Volatility + Less Fear = Lower VIX

Rob Hanna of Quantifiable Edges takes a historical look at prior 90% Up days and puts them in context and asks “Why Tuesday’s 90% Up Day Might NOT Be Bullish

Correct Call shares insights into Seven Ways to Protect Your Portfolio Right Now.

News to Use shares some behind the scenes fundamental valuation models to show that stocks may be near a bottom.

Bob shares some thoughts on the importance of choosing the right philosophy when starting an investment club during a bear market.

    Corey Rosenbloom

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