Market direction summary

Here is what we know:

• a raging bull market, which was fed-fueled and and also supported by bogus economic data stats released by government (bogus because they keep changing the way unemployment, etc. is calculated and always in a way to reflect a more positive light), has been in place since 2009.
• margin leverage is at an all time high based on the premise that the federal reserve will backstop markets forever. The underlying belief here is that the fed is bigger than the market, a notion which Greenspan already clearly dispelled back in 2009.  If the market does not decide to go along then there will be nothing that the government can do to stem the decline at this point.
• bullish market sentiment is at 27 year highs
• the fed has stopped overt QE and has clearly expressed concern about income inequality.  Still, they continue to roll over maturing assets which is in and of itself a stealth form of QE.  Their balance sheet might not be growing anymore but by no means have they begun to deleverage and after the drubbing taken by the establishment in the mid terms you can bet that Obama has calls with Yellen cautioning her not to crash the economy before the 2016 elections.  Greenspan was clear: when de-leveraging begins the markets will get hit.
• a new wave of conservatism is sweeping the country if not the globe
• trees might grow tall but they do not grow to reach the sky
• EWI counted the ending diagonal as "the top" but it proved to only be "a top".  They also counted the early Dec peak to be "the top" but since then the S+P 500 only retraced to the 38.2 and is now nearly at a new high.
• markets work extra hard to be as tricky as possible near major turns.
• global markets like Russia have gotten whacked and the result has been for Putin to take a more conciliatory tone about everything, now possibly looking to make a deal.  As a result, Germany (the clear economic leader of Euroland) is wondering if sanctions still make sense.  For now, yes, but Merkel has certainly been softening on the topic and has gone from "required" to "remain unavoidable" on the topic.  A deal with Putin could pave an end for the sanctions early next year.   The US markets and the dollar have been beneficiaries of this pounding as money fled from the affected regions into supposed safety of US markets.  The reverse can only be expected when the Russian bear goes back into its cage.
• Despite the S+P having peaked Friday at within 2 points of a new high, TVIX and UVXY are still off their recent lows even though they should have fallen due to time value loss alone.
• A new piece of info for many will be the Avi Gilbert thinks we are still tracing out 5 of 5 of 3 and if I understand his (sometimes difficult to follow) posts, he thinks that the  Oct-December rise was 1 of that 5, the pullback to the recent 38.2 fib on the S+P 500 was 2 of 5 and we are now working on wave 3 of 5 of 5 of 3.   His S+P target is 2300.
• To his credit, he wrote this MarketWatch article back on 17 Nov when the S+P was trading at 2040 with eventual, unknown to him at the time, peak of 2070.  He wrote,"if we are going to expect 2300 to be seen in 2015, the market is going to need a sizeable pullback very soon....we will need to see a correction begin within the next week, which breaks down below the 1990ES region. As long as the market drops over the next few weeks below that region, that would provide us with an appropriate wave 2 pullback, which should catapult the market to the 2300 region toward the end of the first quarter of 2015. The main reason I am looking for this pattern to play out is that the market is now within a wave (v) of a larger degree wave 3 off the 2009 lows. Ordinarily, a wave (v) in a 3rd wave provides significant extensions, which is why I have maintained the expectations for the 2300 region to be struck in this wave."
   
• Well, the correction took more like 12 trading days to begin but we did indeed get a "sizeable pullback".  So Avi seems to have a good handle on the count.   In addition, if (likely when) the DJIA breaks higher, EWI is not sure where this would leave the broader wave count.  So they have clearly been focusing on their count with no "what could go wrong" contingency plan.

I think we have to remain open minded that market distortions can last longer than shorts can remain solvent.  I don't plan to fight the ticker.  If the DJIA/S+P/$COMPX make a higher high then the threat is that TVIX/UVXY, etc. will make up for lost time to the downside.   I still own UVXY but will likely get stopped out next week.  By the way, here is the TVIX chart that would correspond to Avi's wave count.  The orange triangle is just a reminder that 4th waves often play out as triangles.

Interestingly, that is quite similar to the TVIX chart that I showed back on July 19th when I was reviewing the long term simulated chart of TVIX (simulated because TVIX did not go back far enough).  Below is the relevant chart reproduced from that post.  As you can see, it counted the coming market peak (i.e. TVIX dip) not as a large 5th but rather as a large 3rd.  So if Avi is right then it sux to hold TVIX/UVXY into the new year but possibly around the end of Q1 2015 with S+P possibly near 2300 (after 5 waves up from the recent low of course), market-negative funds like TVIX/UVXY become perhaps the only safe places to be.



Again, I don't know the future, never said I did and neither does anyone else.  Models are just models.  Humans don't know enough/can't see deep enough to be omniscient.  It's OK to have long term models but it should be pretty clear by now that I base most of my decisions on short term wave counts.  There is too many a slip twix the cup and the lip in long term prognostications.  They are fun for bragging rights but that is mainly important to people who are selling something and need marketing fodder.  As I like to say, trading is like golf: drive for show, put for dough; the short term view is the money maker.  The long term view is of use as well but mainly so that surprises are not allowed to creep up quietly.

• I was reading comments on Avi's free posts and there are always 20% of the people who, while having done no work of their own, take plenty of time to throw insults at his free insights.  I think the reason for this is the tone of presentation.  While there are plenty of "IFFs" in his wording, it all comes across as highly confident.  For some people, instead of just realizing that this is all odds based gambling, they take the high confidence as if Avi were handing down stone tablets from on high.  I guess he could soften things up with "IMVHO" after every single sentence but that would be dumbing the whole thing down just for the benefit of a small percentage of readers who are child like in their understanding of the world.  I hope my readers can keep proper context in this regard.

I will close with the AAPL chart which currently look like they are playing out one final wave to complete a motive wave up which began March 2013.  The vertical red bar is the same height as pink 1 that occurred around Feb 2014.  Bottom line is that AAPL looks to be telegraphing a peak into early 2015 but will probably peak before Avi's end of Q target for big wave 3 up of the S+P 500.  It's going to be very telling to see how the VIX ETFs behave if we do get this final wave up.  Will they freak out sending TVIX to $1.50 or will there be an inclining double bottom?  Maybe if AAPL does a DDT as shown then the latter could occur.