SPX (S & P 500) Has Obviously Probably Entered A Short Term Wave C Downcycle

SPX (S & P 500) entered a countertrend short term Wave B upcycle on 10-24-07 (likely Cyclical Bull Market (began October 2002) and minor intermediate term cycle (began 8-16-07) high at 1576.09 on 10-11-07), see http://stockcharts.com/charts/gallery.html?%24spx, and, Wave B obviously probably peaked yesterday, which means that SPX (S & P 500) is in a short term Wave C downcycle.

SPX (S & P 500) failed to do the usual Elliott Wave 12345 up down up down up pattern on the daily chart from 10-24 to 10-31, but, did so if one includes the near perfect double bottom on 10-22-07 (http://stockcharts.com/charts/gallery.html?%24spx). The point is that it's bearish that SPX was unable to do the usual Elliott Wave 12345 up down up down up pattern in the short term Wave B from 10-24 to 10-31-07.

Today 's SPX (S & P 500) decline was obviously a big Wave A type decline, and, a countertrend Wave B type rebound is likely tomorrow, which jives with the Elliott Wave count on the intraday chart, see http://finance.yahoo.com/q/ta?s=%5Espx&t=5d&l=on&z=l&q=c&p=&a=m26-12-9%2Cp12%2Cfs%2Cw14&c. On the intraday chart SPX did a brief Wave A type move down from late yesterday until early today, did an anemic Wave B type rebound that peaked at mid session and failed to do the usual Elliott Wave 12345 up down up down up pattern, then did a Wave C type plunge late in the session, so, tomorrow should bring a significant rebound in SPX and many indexes like HUI, XAU, RUT.

Tomorrow I'm going to be looking to short GDX, the Gold Miners ETF, and short RUT (Russell 2000), via TWM. The WMT (+0.03% versus SPX on 11-1) and NEM (+1.04% versus the XAU on 11-1) Lead Indicators should both be bearish tomorrow.

Upside gaps created at today's open to watch (just in case, all are probably bearish breakaway gaps) tomorrow are 1549.38 for SPX (S & P 500), which is obviously probably a bearish breakaway gap, 828.02 for RUT, 50.90 for NEM, 45.21 for WMT, 188.10 for the XAU, 78.12 for GLD, and 50.60 for GDX, all being likely bearish breakaway gaps.

The not seasonally adjusted M2 money supply declined a substantial -$38 Billion in the 5 day period ending 10-22-07, from $7390.80 Billion in the 5 day period ending 10-15-07 to $7352.80 Billion in the 5 day period ending 10-22-07, see table two (not seasonally adjusted data on the right) at http://www.federalreserve.gov/releases/h6/Current/. Note that the M2 money supply also declined -$3.20 Billion in the 5 day period ending 10-15-07, and, is below where it was on 9-3-07, which is a major negative for the stock market.

I'm looking at a bunch of rockets right now (none are recommendations, just timing examples/info). Because a major market downcycle has begun one has to be very careful about trading rockets right now (should be very careful anyway with rockets), if one trades them at all. Generally it's a good idea to trade with the wind/market at your back. Trading long in the midst of a major or even minor downcycle is risky.

Spicy Pickle (SPKL.OB, http://stockcharts.com/charts/gallery.html?spkl) might have completed an Elliott Wave ABC down up down monthly downcycle, but, I'm waiting for a monthly cycle buy signal/strong multi day short term Wave 1 upcycle to occur, then I'll look to buy shortly after I think a short term Wave 2 downcycle has bottomed (a bullish large inverse spike would be a good sign).

Here are my quick notes from today, on some rockets I might soon trade (do your own Elliott Wave count, due diligence, etc, none are recommendations):

TIE (short term Wave (4 of) 3, upside gap at 35.20, http://stockcharts.com/charts/gallery.html?tie).

ICO short term Wave 2 or early Wave 3 (http://stockcharts.com/charts/gallery.html?ico, needs to fill upside gap at 5.38 and weak technical indicators/sell signal, insider buying).

TMY (http://stockcharts.com/charts/gallery.html?tmy, short term Wave 1).

SUF is in Wave C (http://stockcharts.com/charts/gallery.html?suf, needs to fill upside gap at 6.38 and weak technical indicators/sell signal, wait for short term Wave 1).

VG (http://stockcharts.com/charts/gallery.html?vg, short term Wave 5).

PKTR (http://stockcharts.com/charts/gallery.html?pktr, short term Wave 5, weak technical indicators/sell signal).

WWAT (http://stockcharts.com/charts/gallery.html?wwat, Wave 4 of short term 3).

HUI's (http://stockcharts.com/charts/gallery.html?%24hui) final/third short term Wave 5 (began 10-22-07) of the minor intermediate term upcycle since 8-16-07 might have peaked yesterday. HUI, XAU, and gold are likely to soon return to the Cyclical Bear Market that existed from 5-11-06 to September 2007. The major spike move since 8-16-07 is/was a liquidity/weak USD spike move due to the credit/mortgage crisis.

Sometimes/occasionally cycles will put in a huge spike (in dramatic rollover mode) long after it looks like they've peaked. That's what's probably happening now, and, it jives with the extremely bearish gold COT (Commitments of Traders) data, the extremely bearish NEM Lead Indicator, SPX (S & P 500) peaking etc etc etc. When everything jives, especially in such a big way, one has to go with what's indicated.

The more important the cycle the longer it takes to peak, and, the more deceptive the Elliott Wave count tends to be, because of Elliott Wave patterns tending to occur within Elliott Wave patterns, but, the situation is very clear cut for SPX (S & P 500), HUI, XAU, gold, etc when the cycles, Elliott Wave count, indicators, etc are considered in concert.

The recent gold COT (Commitments Of Traders) data is extremely bearish, see the last/third data at http://www.cftc.gov/dea/options/deacmxsof.htm. The savvy non contrarian gold Commercial Traders traded significantly net long in the five day period ending 10-23-07, correctly anticipating the recent strength, after having gone massively short the prior six weeks, covering 5567 short gold futures and options contracts (adding 19,360 two weeks ago, added 16,788 three weeks ago, added 1751 four weeks ago, added 27,946 five weeks ago, added over 17,000 six weeks ago, and, added a massive 53,207 seven weeks ago), while adding 9632 (added 5075 two weeks ago, liquidated 192 three weeks ago, liquidated 5492 four weeks ago, liquidated 2977 five weeks ago) long gold futures and options contracts.

For all practical purposes HUI's Wave 1 Cyclical Bull Market ended on 5-11-06 at 401.69 (XAU at 171.71). HUI/XAU/gold have only risen about 8-10% from 5-11-06 to the recent cycle highs, with all the upside occurring in October 2007 due to the massive liquidity injection by the Fed and the weak USD (partly due to the Fed Funds rate cut). Technically HUI/XAU's Wave 1 Cyclical Bull Market is peaking in dramatic rollover mode versus 5-11-06's cycle highs at 401.69/171.71 (http://stockcharts.com/charts/gallery.html?%24hui).

Once a sell signal occurs it's time to exit. Actually, I hopefully exit earlier using the Elliott Wave count. The 5% major sell signal, see annotated charts 15 and 18 at http://www.joefrocks.com/GoldStockCharts.html, that occurred in May 2006, correctly indicated that it was time to turn bearish on HUI/XAU.

The NEM Lead Indicator is BIG TIME SCARY. The NEM Lead Indicator = +1.04% versus the XAU today/on 11-1,+5.51% on 10-31, -0.01% on 10-30, -1.46% on 10-29, +0.09% on 10-26, -0.72% on 10-25, +0.32% on 10-24, -1.33% on 10-23, +0.91% on 10-22 (yes, same as Friday), +0.91% on 10-19, -0.88% on 10-18, -2.00% on 10-17, +1.11% on 10-16, -0.31% on 10-15, -0.19% on 10-12, +1.62% on 10-11, -1.28% on 10-10, -0.25% on 10-9, -0.06% on 10-8, -0.57% on 10-5, -1.17% on 10-4, +0.37% on 10-3, +1.35% on 10-2, +0.33% on 10-1, -0.41% on 9-28, -2.21% on 9-27, -4.13% on 9-26, +0.40% on 9-25, +2.03% on 9-24, +0.07% on 9-21, -1.46% on 9-20, +0.69% on 9-19, -2.33% on 9-18, -0.53% on 9-17, +0.12% on 9-14, -1.34% on 9-13,+0.02% on 9-12, +0.25% on 9-11, -0.69% on 9-10, +0.42% on 9-7, -1.39% on 9-6, +0.06% on 9-5, -1.81% on 9-4, -0.98% on 8-31, -0.03% on 8-30, -1.86% on 8-29 = an extremely bearish -11.78% versus the XAU the past 46 sessions, see six month NEM Lead Indicator at http://finance.yahoo.com/q/ta?s=%5EXAU&t=6m&l=off&z=l&q=l&p=&a=&c=%5Ehui,nem.

Notice that the Russell 2000 (RUT, http://stockcharts.com/charts/gallery.html?%24rut) probably peaked in July at 856.48 versus a countertrend Wave B cycle high at 852.06 on 10-11-07, so, RUT is in a substantial Wave C type decline that should bottom well below the Wave A cycle low at 736.00 on 8-16-07. If RUT bottoms at 700ish then it has about 18% to fall from it's countertrend Wave B cycle high at 852.06 on 10-11-07.

The S & P 500 (SPX, http://stockcharts.com/charts/gallery.html?%24spx) is up all of 1.30% from July 2007's cycle high at 1555.90 to 10-11-07's likely Cyclical Bull Market cycle high at 1576.09, thanks to massive Fed credit due to the mortgage/credit crisis. Once the market/SPX breaks down nearly sectors will get whacked. SPX actually broke down a few months ago, hitting a 5% major sell signal, see chart 2 at http://www.joefrocks.com/GoldStockCharts.html, and, the recent strength was rollover action, which was the upcycle/Cyclical Bull Market since October 2002 running out of gas. What was going on in the market was very important peaking action.

The reliable WMT Lead Indicator is extremely bearish, see the six month chart (shows WMT, SPX, HUI relative performance) at http://finance.yahoo.com/q/ta?s=%5EHUI&t=6m&l=off&z=l&q=l&p=&a=m26-12-9,p12,fs,w14&c=wmt,%5EGSPC.

The point of sell signals is much more to indicate that risk has increased dramatically than it is to be a psychic nailing every cycle high. Double and even triple tops are fairly common, as is rollover action with modestly, and, much less frequently (especially for major 5% sell signals), sometimes substantially higher cycle highs occurring. SPX's (S & P 500) 5% major sell signal, see chart 2 at http://www.joefrocks.com/GoldStockCharts.html, indicated that July's cycle high at 1555.90 was a likely/potential Cyclical Bull Market cycle high, and, more importantly, that trading SPX long was risky, because, a very important cycle trendline had broken down.

Cycle trendlines/channels used in concert with Elliott Wave patterns and gaps are the basis/crux of "Trade the Cycles." "Gaps action" is very important.

If one decides to trade volatile stocks/ETFs obviously paper trade for a while or trade very modest positions at first.

As a long term multi-year investor in any stock, commodity, etc. you want to buy near the primary multi-year Secular Bull Market/very long term upcycle trendline. Gold's primary multi-year Secular Bull Market/very long term upcycle trendline is at $475ish right now, so, gold would be a great buy in the $475-500 range. When the vast majority of gold writers say it's a great time to buy or are bullish, as they almost always are, it's rarely a good time for long term investors to buy.

HUI/XAU's Wave 2 Cyclical Bear Market began 5-11-06, see charts 7 and 9 at http://www.joefrocks.com/GoldStockCharts.html. The primary Secular Bull Market trendlines since late 2000 are at 200-220 for HUI and at 85-90 for the XAU. Those are the targets for where the Cyclical Bear Market will bottom. NEM's Wave 2 Cyclical Bear Market began on 1-31-06. ....... http://www.JoeFRocks.com/ .

HUI NEM XAU