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Stock Market Trends & Observations

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Stock Market Trends & Observations
BREAKOUT BUY SIGNAL – 08/23/11
Posted August 23, 2011 by Bob Categories: SELL/BUY ACTION UPDATE

If the charts (or links) don’t enlarge when you click on them, please click the link below to view them properly http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term July 2011 To Present Step 3 Down – Finished Current Action Status – Buy Signal Today Today we broke out of the bottom congestion area. The chart below illustrates the breakout.

08-23-11 SP500 FUTURES 10 MINUTE BARS – 2 We closed on the highs today and that bodes well for a continuance of this rally. In the worst case scenario this rally should carry at least above the highs made on August 17th. That is another 350 points for the DJ Industrials. The best case scenario is that this is the beginning of large step 3 up, which would take us above the May 2nd high of 12,876. That is 1700 points higher than today’s close. The only caution is that we should not fall back and close significantly below the upper green lines. These lines, particularly the lower one, should act as support to any correction that might ensue. A significant break below the lower green line would be unanticipated and could negate the prospects of a viable bottom. I always say significant because these levels are not engraved in stone and are rather fuzzy in reality. The kicker in all of this remains the anticipation that the FED will announce something helpful on Friday. If there are leaks regarding a positive Friday address by the FED chairman the market could be
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substantially higher by then. The converse is that the market could be surprised by a lack of good news from the FED chairman. If this were true we would look for the market to sell off. But if we have a significant bottom already in place, the sell off would not be sustained and a rally would continue. We have to wait and see what happens on this front. I have been writing about a possible market bottom since August 19. Very few people will buy near market bottoms because they don’t understand the rationale as to why the market should go up. The overwhelming reasons why the market should go down are so powerful that only a crazy person would buy under these conditions. The following link is a PDF file that every reader should almost commit to memory. This was written by Edson Gould, who was the premier stock market analyst EVER. He made repeated stock market calls that were unbelievably accurate. The following PDF link is titled “My most important discovery”. It addresses the importance that psychology plays in the stock market. When you understand how important psychology is to the stock market, you can become leader in your stock market actions instead of a follower who is always buying (or selling) too late. My Most Important Discovery, By Edson Gould
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Technically Speaking Jan – Feb 2004
Posted August 23, 2011 by Bob Categories: EDSON GOULD - PDF FILES

Technically Speaking Jan – Feb 2004
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BUY SIGNAL (almost) – 08/23/11
Posted August 23, 2011 by Bob Categories: DAILY UPDATE

If the charts don’t enlarge when you click on them, please click the link below to view them properly http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term July 2011 To Present

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Step 3 Down – Finished - Unverified Current Action Status – Buy Signal Soon Although I bought SP Futures yesterday morning and have a very comfortable profit today (almost 20 points), I’m not issuing a formal buy signal until we break above the congestion zone in the chart below. This congestion zone is the only barrier that lies between us and the upside. The first chart shows the congestion zone and the multiple bottoms made over the last 4 trading days. A significant break above the red line will be a buy signal. As I write this (11:00 AM PDT), the market is experiencing a small correction.

08-23-11 SP500 FUTURES 10 MINUTE BARS If you have been following my blog you have realized that I thought that we were in the area of a bottom. I believe this to be more true today than yesterday but I will error on the side on being conservative regarding the actual buy signal. If the buy signal is issued: This will be the end of step 3 of step 3. Even if there is a steps 4 and 5 down, there should be a very good rally at this point. If this is the end of the downward correction that began in February 2011, this could mark the beginning of large step 3 up counting from March 2009. If this is true, the risk reward ratio is tilted very high toward reward. The next chart shows the wave count dating from February 2011. Step 1 and 2 were sideways and step 3 was a definite hair raising plunge. As stated previously the sentiment is grossly overdone and from such extremes arise big rallies.

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08-23-11 NASDAQ 120 MINUTE BARS
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Daily Stock Market Update – 08/22/11
Posted August 22, 2011 by Bob Categories: DAILY UPDATE

If the charts don’t enlarge when you click on them, please click the link below to view them properly http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term July 2011 To Present Step 3 Down – Possible Termination Current Action Status – Buy Signal Possible Soon Presently there is no buy signal. I wouldn’t recommend bottom fishing yet but we “may” be in the neighborhood. Nothing definitive took place today but we are “possibly” trying to make a double bottom. The first chart shows the Nasdaq Composite meandering around trying to make a double bottom (August 9 and today). In the second chart (SP 500 FUTURES 30 MINUTE BARS), the futures are trying to form a higher bottom than August 8. Late today we finished a small intraday 3 step correction. A move up should take place overnight. The question remains as to the degree of the move upward.

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08-22-11 NASDAQ 9 MINUTE BARS

08-22-11 SP500 FUTURES 30 MINUTE BARS The market “could” be sold out and if that’s true any bad news should be greeted with a yawn. That would be a good signal that a reversal has or is taking place. The sentiment in the market is very dark and that is the stuff from which bottoms are created. As the market rallies from a bottom it climbs “the wall of worry”. At first there is no discernible reason for the rally and some investors will sell into the teeth of the rally only to discover much later that they have made a mistake. After the rally has covered a lot of ground will believers begin to get on board. Such is the way of sentiment and the marketplace called Wall Street. I am anticipating a possible bottom but at the same time, I am ready to abandon the bottom scenario with a sudden sustained dive into weakness. And that’s why you ALWAY use stops. If we are presently making a bottom there should be no sustained weakness at this point. One must be careful to not force their opinions onto the market. Jeff Saut (one of the best) and I have been out of sync recently (I was bearish and he wasn’t) but we are in agreement presently. Jeff usually looks more to the longer scenario than I do and that causes some deviations in our opinions. Today Jeff Saut said in his comments: The call for this week: Investors’ worries have leaped to levels last seen in November 2008 as the stock market’s bottoming process began when 92.6% of all the stocks traded on the NYSE made new annual

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price lows. Before that, the Global Risk Appetite Indicator I use shows “panic levels” equal to their current reading occurred at the “lows” of October 2002 and August 1982. Surprisingly, I was actually bullish at those “lows!” Regrettably, I am not as unabashedly bullish here; I wish I was! I would, however, observe that with the trade-weighted dollar at a record “low” U.S. trade should provide a boost to export growth, crude’s crash should also help, low interest rates are a plus, the yield curve’s shape is noticeably steep (read: bullish), inflation is low, auto production is slated to ramp in the months ahead, Japan’s economy has bounced back, emerging markets’ economic growth is percolating, the inventory to sales resides at levels around the recession lows, suggesting a economic “lift” from an inventory rebuild, capex projects are picking up, the global central bank interest rate “tightening” process is winding down, corporate profitability is exceptional, and banks/businesses have much larger cash buffers now than they have ever had. All of this leaves me in the NO recession camp and with the belief that select stocks are cheap. If that view is correct, we should see a “bottom” this week …
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BUY POINT ??? – 08/22/11
Posted August 22, 2011 by Bob Categories: DAILY UPDATE

If the charts don’t enlarge when you click on them, please click the link below to view them properly http://stockmarketobservations.wordpress.com/ ************************************************************************************ Short Term July 2011 To Present Step 3 Down – Possible Termination Current Action Status – Buy Signal Possible Soon In the current decline I can count 5 steps down from August 17. The decline from August 17 is the step 3 that I have been anticipating. The step 3 decline MAY have terminated at a double bottom. See charts below. Is this the end of step 3, or is this the end of step 1 in step 3??? I don’t know the answer but any rally with heavy volume that begins from this point will answer the question in a positive manner. A heavy volume price surge at this point will trigger a buy point. Any buy point MUST be accompanied by stops just below the lows of the day. As I write this at 10:46 AM PDT, the market is going through a small correction that is providing another buy point for the venturous soul. Worst case scenario is probably a decent rally that will provide very short term profits from this point.

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08-22-11 DJ INDUSTRIALS 1 MINUTE BARS

08-22-11 DJ INDUSTRIALS 5 MINUTE BARS

08-22-11 DJ INDUSTRIALS 15 MINUTE BARS
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Wall Street Quotes
“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

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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 1999 to 2000 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 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 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 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.

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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. 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 Don’t 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 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.

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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 can’t, teach. Those who can’t 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 & Jeff Saut "Cut your losses and let your profits run."

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 being done in this blog. With 55 years of experience trading in the market, I have learned when to bark and when to be quiet. 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 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 other than the blog's author 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.

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About Me
With 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'm not infallible having made some very bad tactical mistakes but also I have been correct at some of the biggest market turns in the last 35 years. I was short for most of 1974 and 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, five days before the August 9, 1982 blast off on the bull run of the 80s and 90s. In 1999 I began tolling the bell on the stock market knowing that the end was near. 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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