11/06/11 - Stock Market Trends & Observations – Weekly Update

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Stock Market Trends Weekly Update 11/06/11Posted November 6, 2011 by Bob

Categories: W E E K LY U P D AT E

WEEKLY UPDAT E FOLLOWS T HE BREAK

INDEX

MY CHART LINK WAVE COUNT S SIMPLIFIED ABBREVIATIONS WEEKLY UPDAT EEDSON GOULD (PDFs)OT HER WORDS OF WISDOM (PDFs)TRANSACTION SIGNALSREAL ESTAT EMISCELANEOUS

Stock Market Trends & Observations

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If you are reading this in a PDF file, click on the following link for better v iewing and formatting .Stock Market T rends & Observations

CHARTS

MY CHART LINK (updated constantly)

Im now getting in excess of 15 ,000 hits per month on the abov echart link.This link is my perso nal chart list and has become my only chartreference.I draw the trend lines and wave co unts on a daily basis (sometimesmore often).

When a market mov e has bee n going in one direc tion for a lengthy period of time, you will only find the trend lines and wave c ountson charts with longer time frames. This gives perspective to thelines and counts. Perspective was a favorite o f Edson Gould.I restrict my trend lines and wave co unts to only a few charts,TSX, DJI, SOX, COMPQ and FTSE. The other chart s on the page areusually for co nfirmation of the trend and wave structure.

Page 1 Index es With 1 Minute BarsPage 2 Index es With 5 Minute BarsPage 3 Index es With 15 Minute BarsPage 4 Index es With 30 Minute BarsPage 5 Index es With 60 Minute BarsPage 6 Index es With Daily Bars (candlestic ks last 13 months)

Recent Posts

Stock Market Trends WeeklyUpdate 11/06/11

One Way Pockets BookWritten In 1917

The 12 Cardinal Mistakes Of Commodity Trading byWalter Bressert

Money Management byWalter Bressert

Jesse LivermoresTrading Rules

Archives

November 2011 (6)

October 2011 (19)

September 2011 (17)

August 2011 (32)

July 2011 (17)

June 2011 (10)

Categories

DAILY UPDATE (63)

EDSON GOULD (11)

GLOSSARY (1)

SELL/BUY ACTION UPDATE(10)

WEEKLY UPDATE (17)
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Page 7 Indexes With Daily Bars (since Nov ember 20 08)Page 8 Index es With Weekly BarsPage 9 Index es With Monthly Bars

Pages 10 through 13 are indicators. The indicators are used tosimply look for some ty pe of leading action before a turn orconfirming action of the wave count. Page 10 is a look every day

page. The other indicator pages are less frequently v isited.Page 14 through 26 are sector ETFs. They represent most of theactive sector ETFs and are always a good bet when looking forsomething that is breaking in a new direction.Page 27 through 39 are growth stocks. These are stocks that haverisen in price since 1 990. One qualification is that they must not

be severely damaged in a bear market so they cant rise tosignificant new highs in the following bull market.The growth stocks show daily market action for the last 3 y earsand weekly prices since 1990. This gives a good perspective of how they have be haved in the immediate past (daily c harts) andhow they behaved during good and bad times (weekly charts).

WAVE COUNT S SIMPLIFIED

My wave counts are not Elliott Wave! Its different, simple and

functions w ithout a maze of exclusions.

T here are 3 peaks (or valleys) to a com pleted wave cou nt . A rev ersal of trend takes place after a completed wave count.Often times its as simple as counting 3 bumps (o r dips) on a chart .. . Other times, not so easy .In a downtrend the same rules apply ex cept y ou are co unting 3dips instead of 3 bumps.

November 2011M T W T F S S

Oct

1 2 3 4 5 6

7 8 9 10 11 12 13

14 15 16 17 18 19 2021 22 23 24 25 26 27

28 29 30

Wall Street Quotes

The essence of investment

management is themanagement of risks, not themanagement of returns. Well managed portfolios start withthis precept. Benjamin Graham

The time of maximumpessimism is the best time tobuy and the time of maximumoptimism is the best time tosell.John Templeton

Buy on the cannons,sell on the trumpets.Old French Proverb

Rule #1: Never lose money.
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Each step must stay c onfined to a channel . Laying a pen orpencil on the c hart will help y ou v isualize the channel.

As the trend progresses, all of the steps that make up the ov erallcurrent trend will also be c onfined to a larger channel.

When the m arket breaks a channel (regardless of the perceived wave cou nt), the current step has beenterminated. (Make sure yo ur channel was correct b efore callinga termination).The correction following the second step is larger than thecorrec tion that followed the first step. Obv iously the correc tionfollowing the third step will be larger than the preceding twocorrections.

A single wave m ay sub-divide into another 3 waves. I willcall this an ex tension. When this happens (1 ) the trend is stillintact, (2) the channel will widened and (3) instead of a total of 3 steps, there will be 5 steps .Sometimes I will use the terms step and wave interchangeably .

Reading the glossary helps in the understanding of this blog.Glossary Link

ABBREVIATIONS

DJI = Dow Jones Industr ialsDJT = Dow Jones Transportat ionsSPX = SP 50 0ES = SP 500 FuturesCOMPQ = Nasdaq Composite IndexTSX = Toro nto Stock Exchange (Canadian blue chips)SOX = Semico nducto rsXLY = Consumer

Rule #2: Never forget rule #1Warren Buffett

The four most dangerouswords in investing are"This time it's different".John Templeton

"This time it's different" wasprevalent during the bubbleof 2000. In 1929 it was called"New Economics".Bob

History always repeats, onlythe details change.Edson Gould

If you have trouble imagininga 20% loss in the stockmarket, you shouldn't be instocks.John (Jack) Bogle

Stock are bought onexpectations, not facts.Gerald Loeb

Emotions are your worstenemy in the stock market.Don Hays

P/E ratio The percentage of investors wetting their pantsas the market keepscrashing.Anonymous
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FTSE = London Stoc k Exchange (blue c hips)

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WEEKLY UPDAT E

CLI CK ON CHART S TO ENLA RGE

Short T ermOct 4, 2011 T o PresentStep 3 of First Step Up Is Possibly A head (channel break has no t taken place) OR Step 1 Up Complete (ch annel break will determine trut h)

SHORT T ERM COMMENT S

Herd MentalityMen, it has been well said,think in herds; it will be seenthat they go mad in herds,while they only recover theirsenses slowly, and one byone.Extraordinary PopularDelusions and the Madness of Crowds

Herd MentalityCases such as Tulipomania in1624 when Tulip bulbstraded at a higher price thangold sugges t the existenceof what I would dub

"Mackay's Law of MassAction:" when it comes to theeffect of social behavior onthe intelligence of individuals,1+1 is often less than 2, andsometimes considerably lessthan 0.Extraordinary PopularDelusions and the Madness of Crowds

I made money by selling toosoon.Bernard Baruch

If all you have is a hammer,everything looks like a nail.Bernard Baruch
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The main purpose of thestock market is to make foolsof as many people aspossible.Bernard Baruch

The hardest part of a bullmarket is staying on.

A bubble is a bull market inwhich you don't have aposition.

A buy and hold strategy is ashort term trade that wentwrong.

October, this is one of the

peculiarly dangerous monthsto speculate in stocks. Theothers are July, January,September, April, November,May, June, December, Augustand February.Mark Twain

Economists have predicted 14of the last 3 recessions.

Market Correction The dayafter you buy stocks.

In 2008 stocks were a goodbuy . . . . . GoodbyeMercedes, goodbye yacht,goodbye vacation home,goodbye . . .
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Markets can remain irrationallonger than you can remainsolvent.John Maynard Keynes

Money talks, but all mine eversays is "goodbye"

Don't gamble. Take all of yoursavings and buy some goodstock and hold it until it goesup, then sell it. If it don't goup, don't buy it.Will Rogers

Return of principal is moreimportant than the return onprincipal.

Hope is your worst enemy inthe market.

Don't catch a falling knife.

Spend at least as much timeresearching a stock as youwould choosing a refrigerator.Peter Lynch

When you realize that youare riding a dead horse thebest strategy is to dismount.Sioux Indian Proverb

Dont ever make the mistakeof telling the market it iswrong.


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James Dines

Wall Street never changes,the pockets change, thesuckers change, the stockschange, but Wall Street neverchanges, because humannature never changes.

Jesse Livermore

Let Wall Street have anightmare and the wholecountry has to help get themback in bed againWill Rogers

Bulls makes money, bearsmakes money, pigs get

slaughtered.My Grandfather

Never buy a stock that won'tgo up in a bull market. Neversell a stock that won't godown in a bear market.

Wall Street is a street with ariver at one end and agraveyard at the other.

Never check stock prices on aFriday, it could spoil yourweekend.

Nobody is more bearish thana sold out bull.


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The public is right during thetrends but wrong at bothends.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 buypanic. The way he determines thatis to wait until prices startgapping in the charts.Gapping on the upside is

euphoria, while gapping onthe downside is panic.Jimmy Rogers courtesy of Jeff Saut

"Cut your losses and let yourprofits run."

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

Often times WHEN you take aposition can be moreimportant than WHAT youtake a position in.Bob

About This Blog


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SHORT TERM

The above c hart (with trend lines and wave c ounts) can be found at page4 on my c hart link. Most of the pages before page 6 are updatedfrequently with lines and wave c ounts. Page 6 to page 9 are longer termand change slowly.

The short term correc tion began a day early , October 31 . Last week Ihad thought that institutional window dressing would keep the marketafloat until Nov ember 1st. That didnt turn out to be the c ase.

Observations of Stock MarketTrends uses severalproprietary technicalindicators discovered by theauthor. The object of this blogis to notify you (preferably inadvance) of the importanttops and bottoms in the stock

market. We know that'simpossible, but nevertheless,it's attempted in this blog.

"Observations of StockMarket Trends" is publishedon an irregular schedule but adaily update is likely when weare near a stock marketinflection point.

If you find the bloginteresting, please become afollower by entering youremail address in the section"Email Subscription" (top of this column). You must alsoconfirm your emailsubscription by clicking on a

link in the confirmation email,otherwise you ain'tsubscribed.

Disclosure

The content on this blog ismeant to be entertaininginformation and should not be


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Like last week the wave count is still fuzzy. I c an make a case for severaldifferent counts. Best case scenario is that we co uld rally into the thirdstep up (short term) of a larger step one up (intermediate term). Worstcase scenario is the co rrection following intermediate term step 1 up isunderway.

The depth of the nex t corre ction co uld determine whether we willestablish new highs this year, deep correc tion no new highs this ye ar,shallow correc tion possible new highs this year. Tim Haye s of NedDavis Research thought we were going to have new highs this year, that

would fit in nicely with a Santa Claus rally .

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Interm ediate Term3 Steps Down Are Com plete (February 20 11 T o October 4,2011)October 4, 2011 to PresentStep 1 Up Is Possibly Still Underway

construed as investmentadvice.

No statement by the blog'sauthor should be interpretedas a recommendation to buyor sell any security, financialinstrument, or to participate

in a trading or investmentstrategy.

Any investment decision byanyone that results in lossesor gains based on informationfrom this blog is not theresponsibility of the blog'sauthor.

The blog's author will makestatements about certaininvestment vehicles andstrategies, but It's simply theauthor expressing hisopinion, or action, regarding
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INTERMEDIATE TERM

.opinions are never to beconstrued as investmentadvice.

About Me

With 55 years of studying andinvesting in the stock market,I am sharing theseexperiences and knowledgeby writing a stock marketblog. This blog relies onseveral unique andproprietary indicators.

I have been correct at someof the biggest market turns in

the last 40 years. I was shortfor most of 1973 1974,reversed course and becamea buyer during the weekbefore Christmas 1974. I wasalso short for most of the firsthalf of 1982 but became abuyer on August 4, 1982. Thiswas five days before theAugust 9, 1982 blast off on

h hi i b ll k f
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INTERMEDIATE TERM 2

Its my belief that a significant low was made on October 4th and the rally since that low is not complete. After an intermediate term 3 step decline

has taken place, the ex pectation is that the rally must break the look of the downtrend. Presently , this rally still looks like it could be part of theprior bear market. Hence it still has the look of the prior bear market.That will change before this rally is finished (notwithstandinginterruptions).

Any change in my o utlook would mean a significant and unexpec tedchange has taken place to o ur eco nomic outloo k (Europe is a wildcard).

If this were to take place, we would ex perience steps 4 and 5 do wn,dating from February 20 11 .

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Long T ermUptrendMar 2009 To Present

the historic bull market run of the 1980s and 1990s. In1999 I began tolling the bellon the stock market knowingthat the end was near (noone listened). In March 2003,prior to the beginning of theIraq war I became very

bullish when it was obviousthat there was no reason toown stocks and we had alsoachieved a double bottom.Shortly after the October2007 peak I became a sellerand bear. Days prior to theMarch 2009 bottom, I boughtstocks in anticipation of avery good rally that turnedinto a big bull run. In the laterstages of the February May2011 topping process, Ibegan warning of animportant market correction.

One man was responsible formy education, Edson Gould,the greatest technician that

ever lived.

After reading many of thebooks on stock markettechnical analysis, I foundthat all of these methods hadhigh failure rates. I searchedfor a formula that workedconsistently and in 1973 I
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Step 2 Up (of 3) Com pletedHas Step 3 Up Begun ???

From the bottom in March 200 9Large step one up ended in May 2010Large step two up ended in May 2011.Significant break abov e the May 20 11 highs should signal that Step

3 up is o fficial

subscribed to Edson Gould's"Findings & Forecasts". Here Istruck gold with the mastertechnician of the 20thcentury. Extending hismethods I discovered severalproprietary indicators that Iuse today.

If you find my observations of interest please add youremail address to the section,"Email Subscription".

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LONG T ERM

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Very Lon g Term

DowntrendJan 2000 T o PresentStep 2 Down (of 3) Com pletedCurrently In Rally Phase From Step 2 Down
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VERY LONG T ERM

VERY LONG T ERM COMMENT S

We have 3 possibilities for the future.

We have en tered a very wide swinging m arket(megapho ne formation) sim ilar to th at of 1966 to 1974.During that era we had three bear markets with two intervening

bull market rallies Each bear market had a lower low than the
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bull market rallies. Each bear market had a lower low than theprevious b ear. The interve ning bull market rallies saw new alltime highs before the nex t bear market began.

We also have formed a huge head and shoulders formation since1998. If this formation is valid, the downside measurement callsfor a bottom around Dow Jones Industrials 1,0 00.

We began a long term bull market in March 20 09. Each

subsequent min-bear market will result in higher lows than theprior major low.

I favor the m egaphone formation as the m ost likely scenario.

Since 2000 we have had two bear markets, 2000 to 200 3 and 2007 to2009. Like 1966 to 197 4, the recov ery from the first bear market saw a

new all time high (2007 peak). Its possible that we may ex perienceanother all time high during the present recov ery period. This wouldsupport the megaphone formation. A failure to make new highs wouldsupport the head and shoulders argument. In both formations theconclusion of the present recov ery would call for a third and final bearmarket. An estimated time for the conclusion o f the final bear market isapproximately 20 18.

The lesser downside target of both formations is the megaphoneformation as it likely calls for a bottom 1,0 00 to 2,000 points below the2009 low, which would be around Dow 5,00 0.

In the head and shoulders formation the measurement calls for a bottomaround Dow Jones Industrials 1,0 00. This is almost an unimaginableeve nt regarding the possible fundamentals to c reate this scenario. If thisdid happen, ev ery thing that could go wrong would have to go wrong.

The reasons range from the absurd to the absurdly absurd This scenario


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The reasons range from the absurd to the absurdly absurd. This scenariois so dark that it doesnt seem possible but nev ertheless, the head andshoulders formation is there and will be waiting until we pierce the all-time highs of October 2 007 .

Remember these are simply possible scenarios and are not embedded infact. Whatever the outc ome, it never hurts to be a little cautious with

some of your money . But in the worst case scenario, every thing that wetake for granted as being safe . . . . would not be safe. This is somethingto never forget in the event things go v ery badly.

Hopefully we will never have to think about worst case sc enarios otherthan to have a go od laugh at them presently.

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EDSON GOULD

Edson Go uld, Premier Stock Market Strategist EdsonGould had a profound influence o n the dev elopment of my techniques and proprietary indicators. Prior to my subscr ibing tohis advisory service, I was just one of the crowd.

After 40 y ears I still have many of the publications from hisadvisory servic e, Findings & Forecasts. Fearing the loss of these

hard copy reports I hav e recently created pdf files of thesereports. Now I have hard copies and computerized versions of thereports.I hav e used a technique of his that I found in an obscure referencein one of his reports. It was only mentioned once and neveragain. I believ e that he used this tool and never told the world itsimportance. Prior to my finding this Edson Gould tool, I had been

try ing unsuccessfully to find a different way to c hart the market


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try ing unsuccessfully to find a different way to c hart the market. When I read about his technique I knew instantly that this wasexac tly what I had been seeking. I have charted this method back to 193 9 and found it to be very useful. On occasion I may post onethese charts.This man was truly a legend in his own time. Its too bad thattoday most people have forgotten or nev er heard of his

discov eries. Because of this I have posted some of his advice fromthe 197 0s. Its my small contribution to memorializing a giant of technical analysis.

My Most Im portant Discovery by Edson Gould.pdf

Edson Gould Profile by MT A.pdf Edson Gould Conc epts In formation T ime & Risk by

William Scheinm an.pdf

Decade Cy cle by Edson Gou ld.pdf Decade Cyc le Update by Ned Davis.pdf

Swing Principle by Edson Gou ld.pdf Utilities by Edson Gou ld.pdf Dividends by Edson Go uld.pdf Bonds by Edson Gou ld.pdf

Speed Lines by Edson Gou ld.pdf Sentimeter by Edson Go uld.pdf

OT HER WORDS OF WISDOM

One Way Pockets Book Written I n 1917.pdf T he 12 Cardinal Mistakes Of Comm odity T rading by

Walter Bressert.pdf

Money Managemen t by Walter Bressert pdf
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Money Managemen t by Walter Bressert.pdf Jesse L iverm ores T rading Rules.pdf Ident ifying Bear Market Bottom s & New Bull Markets by Paul Desmon d.pdf Robert Farrells 10 Rules For In vesting .pdf Decade Cyc le Updated by Ned Dav is.pdf

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TRANSACTION SIGNALS

ALL A CTIONABLE SIGNALS (buy or sell) A RE ONLY FOR SHORTTERM TIME FRAMES. These signals are not designed forintermediate or long te rm time frames BUT . . . . .

After a short term buy signal, long term tax status can be

achieved by a continuation of the upward trend, which causesshort term actions to morph into long term holdings.

See more details in the glossary under Tax es, Futures Contractsand Money Management.

Glossary Link

T RANSACT ION RECORD

In this blog a warning of an impending botto m (or top ) is oftenissued well in advance o f the formal buy or sell date. This allowsthoughtful consideration prior to a formal action signal. To get asense of how this works, you should read a few days prior to aformal 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
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am ve ry skittish and usually remain so until the new direction is well underway .

Buy signal in October was aborted by a family illn essSELL SEPTEMBER 9, 2011BUY AUGUST 30, 2011

SELL AUGUST 30, 2011 Stopped out, re-bought quic kly BUY AUGUST 29, 2011SELL AUGUST 25, 2011BUY AUGUST 23, 2011SELL AUGUST 1, 2011BUY JUNE 23, 20 11

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

REAL ESTAT E

Here is a PDF report on the cy clic nature of real estate prices. Any oneinterested in cy cles and real estate should find it of interest.

Real Estate Cyc les

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

MISCELANEOUS

There are useful items throughout this blog. For instance, theWall Street Quotes can be v ery instructive. So make sure andlook all through the blog.

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One Way Pockets Book Written In 1917

Posted November 2, 2011 by BobCategories: WO R D S O F W I S D O M

One Way Pocke ts Book Written I n 1917.pdf


The 12 Cardinal Mistakes Of Commodity Trading byWalter BressertPosted November 2, 2011 by Bob

Categories: WO R D S O F W I S D O M

T he 12 Cardinal Mistakes Of Comm odity T rading by WalterBressert.pdf

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Money Management by Walter BressertPosted November 2, 2011 by Bob


Money Managem ent by Walter Bressert.pdf


Jesse Livermores Trading RulesPosted November 2, 2011 by Bob


Jesse L iverm ores T rading Rules.pdf



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Robert Farrells 10 Rules For Investing
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Robert Farrell s 10 Rules For InvestingPosted November 2, 2011 by Bob


Robert Farrells 10 Rules For I nvesting.pdf


Stock Market Update 10/31/11Posted October 31, 2011 by Bob

Categories: D A I LY U P D AT E

DAIL Y UPDAT E FOLLOWS T HE BREAK

CHARTS

MY CHART LINK (updated constantly)

Im now getting in excess of 15 ,000 hits per month on the abov echart link.This link is my perso nal chart list and has become my only chartreference.I draw the trend lines and wave co unts on a daily basis (sometimesmore often).

When a market mov e has bee n going in one direc tion for a lengthy

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period of time, you will only find the trend lines and wave c ounts
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on charts with longer time frames. This gives perspective to thelines and counts. Perspective was a favorite o f Edson Gould.I restrict my trend lines and wave co unts to only a few charts,TSX, DJI, SOX and COMPQ. The othe r charts on the page areusually for co nfirmation of the trend and wave structure.

Page 1 Index es With 1 Minute BarsPage 2 Index es With 5 Minute BarsPage 3 Index es With 15 Minute BarsPage 4 Index es With 30 Minute BarsPage 5 Index es With 60 Minute BarsPage 6 Index es With Daily Bars (candlestic ks last 13 months)Page 7 Indexes With Daily Bars (since Nov ember 20 08)Page 8 Index es With Weekly Bars

Page 9 Index es With Monthly Bars

Pages 10 through 13 are indicators. The indicators are used tosimply look for some ty pe of leading action before a turn orconfirming action of the wave count. Page 10 is a look every day page. The other indicator pages are less frequently v isited.Page 14 through 26 are sector ETFs. They represent most of theactive sector ETFs and are always a good bet when looking for

something that is breaking in a new direction.Page 27 through 39 are growth stocks. These are stocks that haverisen in price since 1 990. One qualification is that they must not

be severely damaged in a bear market so they cant rise tosignificant new highs in the following bull market.The growth stocks show daily market action for the last 3 y earsand weekly prices since 1990. This gives a good perspective of

how they have be haved in the immediate past (daily c harts) and


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

WAVE COUNT S SIMPLIFIED

My wave counts are not Elliott Wave! Its different, simple and functions w ithout a maze of exclusions.

T here are 3 peaks (or valleys) to a com pleted wave cou nt . A rev ersal of trend takes place after a completed wave count.Often times its as simple as counting 3 bumps (o r dips) on a chart .. . Other times, not so easy .In a downtrend the same rules apply ex cept y ou are co unting 3dips instead of 3 bumps.Each step must stay c onfined to a channel . Laying a pen orpencil on the c hart will help y ou v isualize the channel.

As the trend progresses, all of the steps that make up the ov erallcurrent trend will also be c onfined to a larger channel.

When the m arket breaks a channel (regardless of the perceived wave cou nt), the current step has beenterminated. (Make sure yo ur channel was correct b efore callinga termination).The correction following the second step is larger than thecorrec tion that followed the first step. Obv iously the correc tionfollowing the third step will be larger than the preceding twocorrections.

A single wave m ay sub-divide into another 3 waves. I willcall this an ex tension. When this happens (1 ) the trend is stillintact, (2) the channel will widened and (3) instead of a total of 3 steps, there will be 5 steps .Sometimes I will use the terms step and wave interchangeably .

Reading the glossary helps in the understanding of this blog


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Reading the glossary helps in the understanding of this blog.Glossary Link

ABBREVIATIONS

DJI = Dow Jones Industr ialsDJT = Dow Jones Transportat ions

SPX = SP 50 0ES = SP 500 FuturesCOMPQ = Nasdaq Composite IndexTSX = Toro nto Stock Exchange (Canadian blue chips)SOX = Semico nducto rsXLY = Consumer

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

DAILY UPDAT E

CLI CK ON CHART S TO ENLA RGE

Short T ermOct 4, 2011 T o Present

Wave Cou nt Fu zzy But Sm all Step 3 Up Appears Likely Resistance Was Encou ntered At Friday Highs

Possible Short T erm Co rrection Ah ead

As I have said before, follow my trend lines and wave co unts on my chartlink (above) to keep up to date on my current thinking. There are noexplanations on the charts other than lines and numbers, but if yo ufollow my wav e count strategy (abov e), youll understand my v iewpoint.

Jeff Saut and I seldom disagree and the following quote from his weekly t fi d i t t l t
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comments finds us in total agreement.

Investment Strategy by Jeffrey Saut

Crescendo? October 31, 2011

Websters defines the w ord cresce ndo as, The peak of a gradual increase; or a climax. And, thats the climatic feeling I got last Thursday w hen the D-J Industrials (INDU/1223 1.1 1) sprinted some 340

points on the European euphoria to close abo ve 1 2000 for the first timesince August 2, 201 1. Such action caused o ne old Wall Street wag toexclaim, Buy on the cannons and sell on the trumpets! Clearly w ebought on the cannons back on October 4th when the indexes broke

below their respective August 8th and 9th selling-climax lows. That call was driven by the belief the October 1978/1979 analogues would continue to play. Recall those late 1970s patterns saw the averagesslightly undercut the ir selling climax low s before the b ottoming

process was complete. Accordingly, we termed this years October peek-a-boo look below the early August lows as an undercut low and advised participants to buy the index of their choice .

Gotcha Nouriel Roubini Gotcha Harry Dent Gotcha Robert Prechter, for while such pundits were co ntemplating the e nd of financial life as w e know it, the S&P 500 (SPX/1 285.09) looks to have posted its biggest monthly gain since October 197 4 (~16% ); and likelythe tenth be st month since 1 928. Verily, from the October 4th intradaylow (1 07 4.77 ) into last Thursdays intraday high (12 92.66) the SPX hasgained ~20.3% with many investment vehicles doing much b etter than

that. The culprits for the massive mov e have been be tter than estimated eco nomic reports (which have taken recession fears off of the table) a


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eco nomic reports (which have taken recession fears off of the table), akiss and makeup from Merkel and Sarkozy, and great 3Q11 earningsreports. In fact, as of this morning, the 32 3 co mpanies in the S&P 500that have reported thus far have sho we d year-over-year earnings up

24.3% w ith revenues better by 1 2.8%. Thats a company earnings beat rate of 64.7% combined with a revenue beat rate of 63%. The result

has left the SPXs co nsensus 201 2 e arnings estimate nestled around $1 09, implying a forward P/E ratio of 11 .7x. Given such me trics I ll sayit again, To an underinvested portfolio manager (PM) the current newsenvironment is a nightmare. Y et surprisingly, the wo rld remains

profoundly underinvested in U.S. stocks.

Underinvested indeed, for as repeatedly stated, I could not find one European PM that had more than a 15 % we ighting in U.S. equities

despite the fact the ir benchmark index has a ~43% we ighting. Even herein this country most endow ment funds have less than a 10 % w eightingin U.S. stocks. Ladies and gentlemen, there is no way an endowme nt

fund can ac hieve its mandated return of 6% 9% per ye ar using 2.3% -yielding 10-year Treasuries. Manifestly, all we need is for PMs to realizethis, and decide its time to reallocate money by switching out of fixed income and into e quities, for the SPX to do better than most expec t. Tobe sure, thats what we expect, which should cause professional money

to c hase stoc ks higher driven by performance anxiety. Therefore, wecontinue to favor the strategy of buying dips.

That said, the upside skein has left the markets ov erbought in the short-term with 93.6% of the SPXs stocks abov e their 50-day mo vingaverages (DMAs). Back at the market low s that figure w as only 4% .

Additionally, the McClellan Oscillator remains about as ov erbought as

it ever gets. Moreove r, the buying stampede now stands at session 19.Readers of these missives know such stampede s tend to run 17 25


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Readers of these missives know such stampede s tend to run 17 25 sessions, with only one- to three-session pauses and/o r pullbacks,before they exhaust themselve s on the upside. Therefore, with the major averages up against ove rhead resistance lev els, as we ll as tradingaround their 200-DMAs, it would no t be surprising to see a longer

pause (or pullback) than the one- to three-session pattern we hav e bee n

experiencing since the 1 0/4/1 1 low s. To us, the real question is will the SPX get a pullback to the often mentioned pivot point of 121 7, o r will any pullback be short and shallow? Well, by our wo rk the equitymarkets still have a lot of internal energy to powe r their way higher, soour sense is the SPX will keep pushing higher in the mo nths ahead w ithonly shallow pullbacks and sidew ays pauses along the way.

As for the plethora of emails I rec eived abo ut, Did w e finally get a Dow

Theory buy signal? It does appear that a buy signal has beenregistered with both the D-J Industrials and the D-J Transports risingabove their respective rec ent reaction highs, as can be seen in the chart on page 3. That upside breakout came after both indices made newclosing reaction lows on October 3, 2011; hence, the buy signal seemsvalid. This means the Dow Theory sell signal of August 4, 201 1 should

prove to be a false signal, as we have repeatedly opined for nearly twomonths. Of course, the longest keeper of Dow Theory, namely Richard

Russell, has stated that there neve r was a sell-signal since he is usingthe July 201 0 reaction low s of 9686.48 and 3906.23 to get a sell-signal,while I used this years closing lows of March 1 6th. If one follows

Richards method it implies that he probably didnt get a Dow Theorybuy signal either since he likely would need bo th averages to travel above their respective 2011 reaction highs of 12810.54 and 5618.25.

Recall, it was an upside non-confirmation from the Industrials, which


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1 0-31 -1 1 DOW THEORY

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

EDSON GOULD

Edson Go uld, Premier Stock Market Strategist EdsonGould had a profound influence o n the dev elopment of my techniques and proprietary indicators. Prior to my subscr ibing tohis advisory service, I was just one of the crowd.

After 40 y ears I still have many of the publications from hisadvisory servic e, Findings & Forecasts. Fearing the loss of thesehard copy reports I hav e recently created pdf files of thesereports. Now I have hard copies and computerized versions of thereports.I hav e used a technique of his that I found in an obscure referencein one of his reports. It was only mentioned once and neveragain. I believ e that he used this tool and never told the world its

importance. Prior to my finding this Edson Gould tool, I had beentry ing unsuccessfully to find a different way to c hart the market.

When I read about his technique I knew instantly that this wasexac tly what I had been seeking. I have charted this method back to 193 9 and found it to be very useful. On occasion I may post onethese charts.This man was truly a legend in his own time. Its too bad that

today most people have forgotten or nev er heard of hisdiscov eries. Because of this I have posted some of his advice from


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pthe 197 0s. Its my small contribution to memorializing a giant of technical analysis.

My Most Im portant Discov ery by Edson Gould

Edson Gould Profile by MT A

Edson Gould Conc epts by William Scheinm an

Decade Cycle by Edson GouldDecade Cyc le Update by Ned Davis

Swing Principle by Edson GouldUtilities by Edson Go uldDividends by Edson Gould

Bonds by Edson GouldSpeed Lines by Edson Gou ldSentimeter by Edson Gould

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

TRANSACTION SIGNALS

ALL A CTIONABLE SIGNALS (buy or sell) A RE ONLY FOR SHORT

TERM TIME FRAMES. These signals are not designed forintermediate or long te rm time frames BUT . . . . .

After a short term buy signal, long term tax status can beachieved by a continuation of the upward trend, which causesshort term actions to morph into long term holdings.

See more details in the glossary under Tax es, Futures Contracts
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When a market mov e has bee n going in one direc tion for a lengthy period of time, you will only find the trend lines and wave c ounts


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on charts with longer time frames. This gives perspective to thelines and counts. Perspective was a favorite o f Edson Gould.I restrict my trend lines and wave co unts to only a few charts,TSX, DJI, SOX and COMPQ. The othe r charts on the page areusually for co nfirmation of the trend and wave structure.

Page 1 Index es With 1 Minute BarsPage 2 Index es With 5 Minute BarsPage 3 Index es With 15 Minute BarsPage 4 Index es With 30 Minute BarsPage 5 Index es With 60 Minute BarsPage 6 Index es With Daily Bars (candlestic ks last 13 months)Page 7 Indexes With Daily Bars (since Nov ember 20 08)Page 8 Index es With Weekly BarsPage 9 Index es With Monthly Bars

Pages 10 through 13 are indicators. The indicators are used tosimply look for some ty pe of leading action before a turn orconfirming action of the wave count. Page 10 is a look every day page. The other indicator pages are less frequently v isited.Page 14 through 26 are sector ETFs. They represent most of theactive sector ETFs and are always a good bet when looking forsomething that is breaking in a new direction.Page 27 through 39 are growth stocks. These are stocks that haverisen in price since 1 990. One qualification is that they must not

be severely damaged in a bear market so they cant rise tosignificant new highs in the following bull market.The growth stocks show daily market action for the last 3 y ears


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1 0-29-11 DJI - 60 Min
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1 0-29 -1 1 Trend Lines & Wav e Counts

The above charts (with trend lines and wave counts) can be found at page

4 and 5 on my chart link.

I labeled step 3 down (February to October) as completed in my charts well before I commented on that ev ent in this blog. Thats a good reasonto chec k the charts frequently.

Make sure and stay up to date by watching the current c ounts andtrend lines in my c hart link. I am constantly fiddling with the lines andcounts try ing to find the best fit. This blog requires work while a chartupdate only take a minute or two. Interpretation of the charts can takethe longest.

Tim Haye s, chief investment strategist of the widely ready institutionalservice , Ned Davis Research, said last week that he thought the marketcould surpass the 2007 all-time market highs. This has been acontention of mine for almost 1 0 y ears, wide swinging markets. Seemegaphone formation under Very Long Term Comments below. Otherthan my own, I hav e not heard a meaningful prediction o f bettering the2007 highs until this week. Tim Hay es also said that he thought we werein an ongoing bear market that began in 2000. This corresponds ex actly

with my long term thoughts. As I hav e said in Very Long TermComments, I believe the eventual bottom will occur in 2018 (cy clicalprojection) but anytime after 2015 seems possible.

Tim Haye s also thought we could ex ceed the May 20 11 highs before yearend. That would be nice and if it happens, it would certainly mark the

bottom on October 4th as the b eginning of large step 3 (counting from


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g g g p ( gMarch 2009). Large step 3 could match or exceed the 2007 highs.Lotsa profits to be made if that happens. Will you be on board????

Currently we c ould be faced with a short term correc tion beginning onNovember 1 st. Institutions will be window dressing through the 31st.The most desirable outc ome is for this overbo ught market to stay ov erbought. This is the best sign to the kickoff to a big market surge.

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

Interm ediate Term3 Steps Down Are Com plete (February 20 11 T o October 4,2011)

October 4, 2011 to PresentStep 1 Up Is Underway
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1 0-2 1 -11 INTERMEDIATE TERM
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1 0-2 1 -11 INTERMEDIATE TERM ($TSX )

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

Long T erm

UptrendMar 2009 To PresentStep 2 Up (of 3) Com pletedHas Step 3 Begun ???

From the bottom in March 200 9Large step one up ended in May 2010Large step two up ended in May 2011.

Exceeding the May 2011 highs will signal that Step 3 up is official
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1 0-21 -1 1 LONG TERM

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

Very Lon g TermDowntrendJan 2000 T o Present


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Step 2 Down (of 3) Com pletedCurrently In Rally Phase From Step 2 Down

1 0-21 -1 1 VERY LONG TERM

VERY LONG T ERM COMMENT S

We have 3 possibilities for the future.

We have en tered a very wide swinging m arket
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(megapho ne formation) sim ilar to th at of 1966 to 1974.During that era we had three bear markets with two intervening

bull market rallies. Each bear market had a lower low than theprevious b ear. The interve ning bull market rallies saw new alltime highs before the nex t bear market began.

We also have formed a huge head and shoulders formation since1998. If this formation is valid, the downside measurement callsfor a bottom around Dow Jones Industrials 1,0 00.

We began a long term bull market in March 20 09. Eachsubsequent min-bear market will result in higher lows than theprior major low.

I favor the m egaphone formation as the m ost likely scenario.

Since 2000 we have had two bear markets, 2000 to 200 3 and 2007 to2009. Like 1966 to 197 4, the recov ery from the first bear market saw anew all time high (2007 peak). Its possible that we may ex perienceanother all time high during the present recov ery period. This wouldsupport the megaphone formation. A failure to make new highs wouldsupport the head and shoulders argument. In both formations theconclusion of the present recov ery would call for a third and final bearmarket. An estimated time for the conclusion o f the final bear market isapproximately 20 18.

The lesser downside target of both formations is the megaphoneformation as it likely calls for a bottom 1,0 00 to 2,000 points below the

2009 low, which would be around Dow 5,00 0.

In the head and shoulders formation the measurement calls for a bottomaround Dow Jones Industrials 1 0 00 This is almost an unimaginable


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around Dow Jones Industrials 1,0 00. This is almost an unimaginableeve nt regarding the possible fundamentals to c reate this scenario. If thisdid happen, ev ery thing that could go wrong would have to go wrong.The reasons range from the absurd to the absurdly absurd. This scenariois so dark that it doesnt seem possible but nev ertheless, the head and

shoulders formation is there and will be waiting until we pierce the all-time highs of October 2 007 .

Remember these are simply possible scenarios and are not embedded infact. Whatever the outc ome, it never hurts to be a little cautious withsome of your money . But in the worst case scenario, every thing that wetake for granted as being safe . . . . would not be safe. This is somethingto never forget in the event things go v ery badly.

Hopefully we will never have to think about worst case sc enarios otherthan to have a go od laugh at them presently.

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

REAL ESTAT E

Here is a PDF report on the cy clic nature of real estate prices. Any one

interested in cy cles and real estate should find it of interest.

Real Estate Cyc les

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

EDSON GOULD
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Swing Principle by Edson GouldUtilities by Edson Go uldDividends by Edson Gould
http://stockmarketobservations.wordpress.com/2011/10/28/swing-principle-by-edson-gould/http://stockmarketobservations.wordpress.com/2011/10/28/utilities-by-edson-gould/http://stockmarketobservations.wordpress.com/2011/10/28/dividends-by-edson-gould/


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Dividends by Edson GouldBonds by Edson GouldSpeed Lines by Edson Gou ldSentimeter by Edson Gould

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

TRANSACTION SIGNALS

ALL A CTIONABLE SIGNALS (buy or sell) A RE ONLY FOR SHORTTERM TIME FRAMES. These signals are not designed forintermediate or long te rm time frames BUT . . . . .

After a short term buy signal, long term tax status can be

achieved by a continuation of the upward trend, which causesshort term actions to morph into long term holdings.

See more details in the glossary under Tax es, Futures Contractsand Money Management.

Glossary Link

T RANSACT ION RECORD

In this blog a warning of an impending botto m (or top ) is oftenissued well in advance o f the formal buy or sell date. This allowsthoughtful consideration prior to a formal action signal. To get asense of how this works, you should read a few days prior to aformal 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 Iam ve ry skittish and usually remain so until the new direction iswell underway
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well underway .

Buy signal in October was aborted by a family illn essSELL SEPTEMBER 9, 2011BUY AUGUST 30, 2011

SELL AUGUST 30, 2011 Stopped out, re-bought quic kly BUY AUGUST 29, 2011SELL AUGUST 25, 2011BUY AUGUST 23, 2011SELL AUGUST 1, 2011BUY JUNE 23, 20 11

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

MISCELANEOUS

There are useful items throughout this blog. For instance, theWall Street Quotes can be v ery instructive. So make sure andlook all through the blog.


Identifying Bear Market Bottoms & New Bull


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