Last March 12, 2009 with the TSX at 8011 we discussed “the recognition point”. This is a component of Elliott wave (3) or - a second up-leg advance which is usually the largest and most powerful wave in a trend. The market ignores bad news and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat.
A buying panic can occur when the prices in wave (3) exceed the peak of wave (1) sometimes called wave three's midpoint, "the crowd" will often join the new bullish trend.
The chart below now displays the TSX Comp poised just below the recognition point
So where from here? A big run supported by sideline cash and short covering, or do we hit resistance and correct down to “re-test” those March lows?
Look at the technical evidence in favour of a burst above the recognition point.
The “safe” places such as sovereign debt, telecom, health care, utilities and consumer staples are weak relative to the “risky” places such as the financials, technology, energy and materials. Clearly the market has a renewed appetite for risk
Cash is Trash
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3 comments:
Hi Bill. I'm a subscriber to your Getting Technical newsletter and a follower of your blog. I read all of your stuff. I get your Elliot wave argument. However, I'm concerned about the market's weak price / volume action (i.e. rising on lower volume both here and in the U.S.) and the extremely weak seasonal period we're heading into. In addition, momentum indicators have generated sell signals recently. I notice you reference Don Vialoux often. He's recommending selling into an overbought market. Any comments?
Fantastic call...this rally has fooled a lot of people including Dow Theorist Richard Russell, Gartman etc...congrats I hope you made a lot of money on this. Now for the inevitable question: how much steam does it have left? Does elliott wave give targets? I'm seeing divergences in the sensitive shorter term momentum indicators
Thanks Sean
I think the current advance will continue for serval weeks - but there will be some rotation from high MOM sectors like Energy back into lower MOM sectors like Telecom
On the Elliott target matter - if this is a 3rd wave the recognition point in often half-way into the advance - so in terms of time and magnitude we are half-way through the move
Bill C
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