Saturday, October 31, 2015

[JNUG] - detailed planning for the next purchase

If you follow the backlinks you will see that I have been in nearly perfect tune with the wave count of JNUG for several weeks now.  The common saying on Wall St is that past performance does not guarantee future results and that is true for anything in a chaotic system or semi chaotic system or seemingly chaotic system.  It is my experience that wave counters move in and out of tune with the counts and that the counting is more accurate in some areas than in others.  Don't ask me why.  Requiring a detailed explanation for every observed phenomenon before being able to take advantage of it is like requiring a detailed meaning of life before you can begin living.  It is enough for most intents and purposes to simply acknowledge that something is or is not, has or has not.  Besides, man is not capable of comprehending the infinite level of detail required in order to remove all chance, all chaos from the equation.  When a butterfly can flap its wings in Japan to kick off a series of turbulence events that will result in tornadoes across the world, what is the use of trying to explain it given our lack of omniscience and omnipotence?  This is why I maintain that the true fundamentals are unknown and unknowable to man.

Having said that, in EW analysis recent past correctness doesn't guarantee anything but it does increase the odds of being correct in the near term.  At the end of the day it is always about odds and never about certainties which is why all bottoming or topping calls on this blog always have the intrinsic caveat of USE STOPS because the model might become invalidated.  Model invalidation is not failure.  The only failure is watching a model invalidate and then failing to act.  That is not something I can control in my readers.  Failure to let one's thinking side override one's emotional side is a personal issue.

So, here is my view of the likely way JNUG plays out next week.   Simply worded, 3 waves down have transpired from blue b/red e.  The current model requires 5.
  • Green 3 is shorter than green 2 per the red vertical measurement stick and thus wave 5 must be shorter than green 3 (i.e. reverse upward before ~$34) else the model is busted.  Please don't go away thinking that this must happen;  "else the model is busted" is always a possibility.
  • A move back above the blue horizontal without one more wave down also busts this model. 
  • In the diagram below, orange 3, 4, and 5 are stretched out to bottom some time before noon but if this gaps down Monday AM then it will likely be trying to put in a unicorn tail type finish.  So the 4th wave might be a very fast bounce after the gap followed by one fast and final plunge to something just above $34 before reversing upward.  You have to be ready right at the start of the trading day if you want to be there with your Gatling gun all set up on the tripod as the herd dashes into your sights.   In the case of a unicorn tail finish, the optimal slaughter will occur in a very short time window.
  • The blue model would just be a HT 4th wasting time but the end result would be the same in terms of bottoming price.
  • If you catch the bottom on this, set stops just below the red vertical that marks the limit of wave 5.  If this is exceeded to the downside, all bets are off and Avis final lower low in M+M could be unfolding.  Don't sit there and take it... 
During the execution of this I encourage what I would characterize as resolute calm.  Don't get excited or manic just because the model is working out.  Wait for the full 5 waves down and then buy and then set stops per above.  In any hunt, the most accurate shots are made by he who calmly squeezes the trigger instead of jerking it.  If you bailed out when I did (never mind swinging short like I did), do keep in mind the huge ass kicking that you just side stepped here.  So you have a buffer that others do not.  Use that to enhance your feeling of confidence in the model while respecting the clearly stated limits of this model.  

First post on [OSTK]

After learning from commenter Augustine in response to this post that's leadership was Libertarian I thought it would be interesting to "EW their chart" to see if there was any difference between this company and the broader markets.  Below is the log scale model at the monthly level.  Interestingly, OSTK is out of phase with the broader markets.  Its bottom was not 2009 like all of the companies whose bounce was goosed by help from the fed.

First off, a rising tide floats all boats and few if any will be levitating above water level if the tide goes out very suddenly.  Certainly not in retail as it is a commodity business.  The difference between good retailers and poor ones will be measured by survival or lack thereof.  The good ones will be there after the flood waters dissipate and the bad ones will have been washed away.

Overstock's wave count can be interpreted in 3 different ways:
  • The red count does not say whether the 2004 peak was the end of a motive wave or just then end of the 3rd wave up of a motive wave.  It does have the look of W3 to me but there is not enough prior data to be sure.  But whether it was a 3 or a 5, it is clearly still retracing that monster move up.  So far this has taken the form of 3-3.  In other words 3 down into 2011, 3 up into 2013.  The red path says that this will be a flat correction meaning it now need to finish 5 waves down.  
  • The cyan path says the same thing as red except that wave 5 down will fill the gap before reversing.  That scenario would be a massive but short lived market panic that fulfills Prechter's Conquer the Crash vision.
  • The blue path says that the last move up was w3 instead of 5 of 1.  Thus OSTK finishes out a HT4 maybe to $7 and then enjoys a strong 5th wave to higher highs before its next big pullback occurs to $7 again.  I could see this happening if there were a big crash, then OSTK made bank clearing out the old inventory paid for by collapsing debt (the liquidation phase should benefit liquidators!).  At some point the liquidation is done (peak of coming 5th) and liquidation profits fall (a-b-c into wave 2).
Bottom line, avoid this stock until we see 5 down complete and then jump on it because we already know how volatile it will likely be to the upside.  This was trading at $80 back in 2005 and the higher high that I model is coming after the crash is certainly worth making a portion of your recovery portfolio.
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