Thursday, June 18, 2009

Shanky's State Of the Charts Post

OK, here it is the long awaited, oft requested, fearless market prediction.

First -

This post prescribes to SPX only. I know others exist, but not right now. I do not prescribe to the '38 market did this and in '02 it did that, so please (S135) don't bring it up. This is a financial crisis of enormous proportions that will cause great pain and is far different than anything else we will ever experience again. IMHO this will end with us as a socialist state or being so over regulated we won't be able to take a crap without a "load" tax being applied IMHO. I am a EWT prescriber, but do not count, nor do I pretend to count. I am not a TA purist either. I'm sure as hell not an economist (MBA Finance). I prefer to take in and digest all the data and attempt to use TA to form a convoluted best judgement call (for lack of a better description).

The market -

This is not just a bubble burst. It is a giant credit bubble that they are trying to pump back up that will explode like Mongo in Blazing Saddles. Consumption will not return and global depression is possibly in order. States are soon to be falling apart, employment is pathetic and China and Japan have us by the balls as far as the value of our currency is concerned. And the fearless leaders have put us thru a barrage of lies and misrepresentations that are nicely chronicled in TD's ZH post here The Confidence Game In Quotes.

On to the chart -

There are three scenarios 1) Down bounce down 2) Straight down from here or 3)Trade in a range. I have deducted to prefer option 1 very slightly over 2. 3 would be OK if we can keep the volatility (from a trading and overall economic perspective).

Why do I like 1 the best?

I believe the upper trendline (red) will be tested on a pop-off overthrow E move. I have gone as far a placing Shanky's Blue Box(TM) (obvious knock off of the infamous Kenny dot (TM)) as a target zone. I do not believe the CNBS parade of crap, nor the GS/JPM/MS manipulation of the SPX, nor the bank's accounting fraud, nor the earnings manipulation scheme, nor the constant manipulation of the Treasuries has come to a halt just yet. See Who Are They Trying To Fool? (TNX) or We Have Mortgage Lift Off for a couple of good reasons for a move down very soon.

I do believe this P2 (bounce/correction) will complete a minimum 38% retracement from the 1576 top. I do not believe the weekly indicators are showing the necessary divergences for a significant turn just yet, but they have topped and this next pop will set the table and the proper divergences. The daily indicators are IMO in a place where they have been overbought since the market should have topped on April 20th and have the necessary momo for a decent push south here to the SPX 846 level.

IMO RSI on the weekly will be the key to the reversal just like it was at the low. A longer trend must be set and when that breaks launch your missiles. Dan, K and I will all have this under a microscope. Finally, when they start heading for the gates you'll know it. I will also throw out the monthly indicators are headed north right now.

One more short squeeze is in order. I believe we will see deflation before inflation and inflation will be the killer. Bond yields are not, and will not be a viable alternative to equities till later. The dollar is just not ready to crash just yet. Falsified Q1 bank earnings will show up in Q3 or Q4 earnings reports. I do believe there will be at least one instance of a market shutdown during trading hours. We have not had capitulation. Thus, I (of all people, can't believe this, no I'm not on drugs but should be) think we have more upside.

Option two and three-

Yes, I am pulling a Danerik "time will tell if its P2 peak or not" and prescribing soundly to multiple scenarios. IMO one, rightfully so, leads straight down from here. Not actually straight down, but you know what I mean. Option three prescribes to a possible extended trading range (the L or WW shape some are calling for). Enough said.

Bottom line -

I have kept my fall to 850 and then up scenario in tact, yet I have upped my P2 top by roughly 100 points (ouch) from 1021 to 1121ish. Am I nuts? Well, that's obvious and I'm sure I'll hear it from most of you. I'm even questioning my own call, but that is where I am. I am a permabear and do believe in the ultimate crash, just not yet. I am playing the manipulation card.

All of the numbers are on the chart. The pink dashed 5 wave move up to P2 is not exact although I tried to put it to proper scale. I do believe that a larger rising wedge will form and I placed the pink 5 wave move into that potential wedge. Time elements may be close, but are NOT specific. I do think P2 ends at or near EOY though. Interestingly enough (I'm NOT calling it) but my scenario looks like an inverse H&S play out to about my same target. I have not picked an ultimate bottom, but if pressed the options would be 651, 575, 475 and 432. These are not set in stone and are too far off to be really discussed (but I know someone will ask).

GL trading. I look forward to your comments on this one.


  1. Log chart? ... that's like not using a #2 pencil young man! I can't grade your work!

  2. @ S135 - That's it? I thought you would throw me under the bus. Guess you were really disappointed in the post?

  3. OK fine. First, trend channels/trendlines need 3+ points. This bear only has one legit channel. .

    Price will stay in this channel until a base is built and then it will be given permission to break right. The channel is 11 months wide.

    Likely, price will slide along the underside of the upper channel on my chart this summer until fall, then drop hard - like last year and like prior bear patterns. A lower low will be set this year and price will continue to the other side of the channel in 2010. We may see a repeat of 2009 in 2010 and an even lower low in 2011, where a base will be built - likely under 400 imo. GAAP PE needs to settle under 10 and SP500 dividend yield above 5%. Currently these are 63 and 3% on the SPX. A lot of carnage coming. The Spring 2009 rally is over. Add up the fibs and do your counts all you want. It's over. No one is going to buy this market for a good while. There is not money out there, and what money there is, is being held in cash. Price will sag to reflect the lack of buyers.

    The channel trumps all, so 950+ is gone.

    The $INDU 200-month MA at 8669 was lost and successfully back tested, adding confidence that the upside is CAPPED and 956 was the SP500 top.

    Other than that, your shit is good.

  4. @ S135 - NICE! That's what I want to hear. I left PE out of my argument. Thanks for reminding me. I do have price making two more touches of the lower channel line if that counts before breaking up. I just believe there will be more maipulation and one more short squeeze before the ultimate dump. Not enough of the public skin is back in the game. They want and need more IMO. Thanks for your thoughts.

  5. Schweizer/Shanky: Good arguments for both. I like your option 2 much better shanky as I agree with Schweizer that money to be thrown into this market has been squeezed out not thrown in. Hell the last 500 pts has been a big ass squeeze play and now one wants to risk their cash. You have CNBS calling a top (except for Cramer!) and to go short. Today was a mirror of yesterday. Nasdaq red vs DOW/S&P Green. Rimm's Earnings beat expectations but revenue blew. This is a harbinger for upcoming 2nd qtr earnings and no more fat is to be cut to pad those EPS's. However, I agree with Shanky that we WILL see JPM, GS, and other tarp banks trying to pump the market up but it WILL GET SLAPPED DOWN. Today the market made a run for it and damn near closed red. Tomorrow will be UGLY as their is no news to pump up the market. If it goes will do so on stunningly low volume to crash after lunch. Tomorrow will be fun....good luck to all!


  6. Thanks Shanky.

    The North Korean situation may make Schweizer correct in a hurry big time. the NKs put the bait ship out there. if the chinese do not intervene immediately, the US may have no choice but a preemptive strike on NK. i know it sounds far fetched and in some ways i can't believe i'm saying it, but, i will NOT be surprised if it happens.

  7. Shank: Thanks for the good work! I'm finally in the green at the end of the day with a small SDS position. I have a tight stop on it though. With Asia and the futures up, would it be better to remove the stop, and pick up more if the market spikes to your 928ish target. I am so tired of being stopped out with these gaps.

    Thank You,

  8. Nah, I don't think you're nuts. You simply realize, as do many others, that the trillions in worthless green cotton toilet paper has to go somewhere and that there is no political will to do anything proximate responsible fiscal policy. That's hard-boiled realism.

    Fairy tale unicorns riding in to prop CRE, banks, and the rest of the economy--the myth promulgated nightly on the business news--that's NUTS!

  9. Here's the S135 view. Simple and sound:

    Why make the obvious so complicated !!!

  10. Hi Shank...another great post. what level would SPX have to break through in order for you to say we are at Option 2 instead of Option 1?
    Thanks for you input!


  11. the neg divergance weekly's basically GOING to come on the next push up pretty much....shall see...

  12. Nice chart. i have a similar view... if you nail this.. gonna be legendary!

  13. Count looks to weird to me. Targets are way too high. The manipulators have to keep the prices "down" to feed all the dough back into the market they took from the public in Oct 2007. After big run ups, they need "lots of time" re-feed before taking us back up again. That was my very first stock market lesson years ago...


Keep it civil and respectful to others.