Weekend Update: If It Were Easy....

From Thursday's Update:

Next Update: Saturday, with an update on the markets and the pending resumption of downside volatility.

On Friday the Dow was up over 200 points out of the gate, and then kept running, closing up over 400 points. What kind of "resumption of downside volatility" was that? 

(1) First and foremost, the trend-signal indicator is not even close to reversing Long.

(2) Second, as far as pattern recognition principles are concerned (DJIA charts below), nothing has changed...except the Nasdaq, which is discussed below. 

(3) We do not pick tops, even tops of counter-trend rallies. As is suggested in #7 below, we can do some analysis that suggests when the market is near a top. Nonetheless we do respect and trade on the side of the dominant trend and in this case, it is still down (basis the DJIA).

(4) Let's start with a telling chart of the DJIA. One look is all it takes to conclude the trend is down and it's only a matter of time before prices get back in sync with its dominant trend...lower. 

(5) Let's contrast that against the chart of the NDX, the Nasdaq 100. This index has some of the biggest most recognizable names on the board and in aggregate they represent over 40% of the total capitalization of the index: AAPL (11.3%), AMZN (9.4%), MSFT (9.2%) FB (5.5%) and GOOG (4.9%). 

(6) This NDX is a compellingly bullish looking chart with price breaking out as it did on Friday. But in and of itself it does not eliminate the bearish case. 

(7) This is the strongest argument that the down cycle is still in force: The DJIA at a normal 61.8% retracement within an orthodox EW pattern. 

(8) Referring again to the chart above, Friday's rally would be a perfect final 4th wave before the beginning of a new leg down. 

(9) None of this matters. It is pure speculation, bullish and bearish. Best bet: follow the trend-signal line and sweat out the wiggles while waiting for the bigger, unambiguous trends to come around. 

(10) If it were easy, we would all be rich; very, very rich. 


Note: SQ calls are showing being stopped out at 3.30 for about a 10% loss. If you exited just 1/2 on the stop, you are still up 71% currently on the other half. The maximum return on these calls so far has been +85%. I need an equation for putting that into a single cell. Any takers?