A Weak New Bull Market

rader Talk

The short term momentum oscillators remain positive, confirming the bullish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains positive, with zero distribution days since the new buy was issued. The leadership profile remains negative, with Friday's close yielding 59 stocks making new 52 week highs versus 153 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 20.5, remaining in the complacency camp. The primary Elliott wave count continues to suggest a wave 2 counter-trend advance within a bear market continues to unfold. If so, the wave 3 melt-down run should start once the near double top, or actual double topping pattern completes. A move above the October 2007 highs negates this bearish view, and would confirm a new cyclical bull market underway.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls after a modest summer rally attempt stalls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary:

The corrective action and Friday bounce this week continues to signal the Elliott Wave 2 counter trend topping move is not yet complete. A move to, and possibly above, the 200 day moving averages for the S&P00 and Dow Industrials (charts below) is very possible. The positive reaction to news this week - bad news, very bad news, scarily ugly news, mediocre news, and even positive news - of the stock indexes that held support, and even managed a rally off such support, argues strongly that the current rally has much further to run. The close above the 50 days MAs for the S&P500 and Dow Industrials - while the 20 day MAs are in the process of crossing above the 50 days - also argues that higher prices lay ahead. The low volume on the advance does have us worried about this bullish potential, as does the low number of stocks making new highs.

Thus overall neither the bulls nor the bears appear to have a grip on the trend, and this market badly needs some news to move prices away from the current sideways churn. Fannie Mae and Freddie Mac badly need some money from the US government - and soon, AKA this weekend - which could be the straw that finally breaks the bear's backs (at least over the shorter and more intermediate term.)

While we are agressively positioned long - in line with our trend following indicators - the overall technical set-up suggests we remain in a bear market rally, with the question of when the bear returns, rather than if. The overall technical set-up also suggests the rally has further to run. And perhaps the high volume and rapidly increasing leadership and participation can land going forward as the stock indexes trend higher. That is not the usual pattern seen at bear bottoms, but, hey, we'll take what we can get at these challenging times.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

For Free charts with trading signals and fundamentals ratings, visit AlphaKing

Weekly Trend and Trade Review

Trader Talk

The short term momentum oscillators remain positive, non-confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, with a failure of high volume to confirm Friday's advance as a follow-through day that would have triggered a buy signal for this very important confirming indicator. The leadership also remains negative, with Friday's close yielding 130 stocks making new 52 week highs versus 222 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 21.9, moving back into the complacency camp, and remains contrarian bearish. The primary Elliott wave count continues to suggest a wave 2 counter-trend advance within a bear market continues to unfold. If so, the wave 3 melt-down run should start in the non-too-distant future as wave 2 completes.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls after a modest summer rally attempt stalls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary:

The stock market advance this week confirms the Elliott Wave 2 counter-trend topping move is not yet complete, though may be very close to doing so. The NASDAQ advance, in particular, looks about done, as all waves appear in place. The Dow Industrials and S&P500 closed smack on their 50 day MAs, and whether they too break out and launch to the upside to mimic what happened to the NASDAQ, or if they stall here and the slide resumes, should be answered early next week. The lack of volume on the rally continues to argue that we are experiencing nothing more than a bear market trap for the bulls.

Our trend following indicators may also get caught up in this fool-the-most-people move, but as trend followers we will gladly trade in line with our indicators. That means holding shorts if the stock indexes begin to slide early next week, or move to the long side of the market on any failure to reverse as a buy signal is triggered. If such a buy signal turns out to be the real thing, then we'll happily make money being proven wrong in our thinking that we remain in a bear market. If such a buy signal proves us correct that the bear is alive and well - by triggering a sell signal soon after the buy - then we'll gladly reverse our positions and accept such volatility has part of the process of making money over the long term using a research proven trend following approach.

The goal is to make a solid return when the trend delivers on a new trading signal, while keeping losses small on failed signals, rather than being proven right all the time. No one, no investment system, can do the latter with any degree of success, and trend following is the next best alternate to having a time machine that can give us tomorrow's hindsight today. The average annual rate of return for the AK Trading Indicator - using the NASDAQ Index to gauge results - is 15% long only (unleveraged,) 30% (leveraged,) and 19.7% long/short (unleveraged,) 35.2% leveraged (from 1973 through the end of 2007.) The average trade is close to 17% on wins, versus 3% on failed signals (unleverged,) 34% on wins versus 6% losses (leveraged.) Thus results since the June 24th sell signal are very much in line with expectations.

We will not act before our indicators tell us to, as there have been many times in history where a new trend change signal was close to being signaled yet the signal never happened, as one aspect of the AK Trading Indicator we like is its ability to only limit signal changes to those that likely matter the most. Annual trading results of all our portfolios are shown in the archives of our Updates between 12/24/2007 and 1/2/2008.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

For Free charts with trading signals and fundamentals ratings, visit AlphaKing

Still a Bear Market

Trader Talk

The major stock indexes were down 2% yesterday so of course today they were up a similar amount, with such volatility no doubt good for the business of anti-stomach ulcer drug makers. Officially, the NASDAQ advanced 2.5% on 2.3 billion shares, while the Dow Industrials rose 2.4% on NYSE volume of 5.4 billion shares. The leadership profile remains negative, with 80 stocks making new highs versus 233 stocks making new lows.

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading Indicator. We have no new trades at this time.

The overall pattern remains solidly bearish, with the downward stair-step pattern of lower lows and lower highs remaining intact. As trend followers we do not need to be able to predict the markets to make money, and certainly no one can predict stock market turns and trends with any high degree of success over the long term. With that said, here's what we believe to be the higher probability plays going forward. The first is based on Elliott Wave and our experience of the breakdown/pullback historical pattern of expectation. That says since the S&P500 fell in five clear waves over four days prior to today's bounce, and today the S&P500 shows a Fibonacci 50% recovery of points lost during the prior slide, what should follow very soon is a continuation of the collapse, all as part of something very bad indeed for those long the market.

The second most likely outcome is based on our experience of technical analysis, which says those 50 day MAs shown in the charts below look mightly enticing to the bulls, and it wouldn't be a major surprise to see those technical-lines-in-the-sand be the final resting place for this counter-trend advance within an on-going bear market. We have seen no sign yet that the stock market wants to flip to bull mode, and we remain very cautious until the investment ducks start to turn for real. The next down move should be much more scary than we have seen so far during this bear, and we believe strongly that it remains a question of when the next down-leg of bear starts, rather than if.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

For Free charts with trading signals and fundamentals ratings, visit AlphaKing

Major Bear Market Downleg Underway

Trader Talk

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, confirmed with a very bearish leadership profile, with Friday's close yielding 44 stocks making new 52 week highs versus 900 stocks making new 52 week lows.

The 4% rule remains negative, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 26.4, showing some acceleration in fear, though well shy of anything that would signal the sell-off has suffered a capitulation needed to signal a turn positive. The primary Elliott wave count continues to suggest a wave 3 melt-down run is underway, with the current wave count wave (i) of Wave 3, though an out-right crash at this point is not out of the question.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary:

The technical ducks all continue to confirm a major bear down-leg is underway, with an acceleration of the selling expected to land soon, with the 2002 lows the target for the stock indexes for this leg of the great bear. Such prolonged and deep bear phases do not end until we see some form of capitulation selling that results in a rapid melt-down. Sentiment continues to remain complacently bullish, thus no major rebound rally or change in trend from bull to bear is slated to land anytime soon. The S&P500 broke below the March lows, making a new 52 week low in the process, confirming the Dow Industrial's breakdown run of a couple of weeks ago. Low volume on rallies, high volume on sell offs, an expanding number of stocks making new lows, the stocks indexes joining that expanding list of new lows, confirm we are in an on-going bear market of some significance. When the technicals show some signs of a wash-out of the bulls, or indeed some sign of buy interest from traders and investors, we will change our stance. But so far all investment ducks point in the same direction. Be wary of, and prepared for, a genuine collapse going forward, as we believe strongly that we've seen nothing yet, despite the stock indexes being down very hard on the year.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com
For Free charts with trading signals and fundamentals ratings, visit AlphaKing