Bond Market Highlight #6
Sharp bond market rally to April 3rd three month high projected.
(COMMENT #s 257, 258, 264, 265, 268, 269, 273)
UPDATED 19980325
COMMENT 1998-257
1. Remember our COMMENTS about George Soros, CNBC, the financial media, the markets, and NEWS (see, for example, COMMENT #s 201 and 208)?
2. Well, the bond market "unexpectedly" sold off today (see COMMENT #s 237 and 251).
3. So what was CNBC blabbing about as it groped for a secret reason that only it could provide to explain the sell off?
4. You guessed it - selling by Soros!
UPDATED 19980326
COMMENT 1998-258
1. As you may recall, we've labelled the move from the 980112 high to the 980306 low as 3 "waves" (i.e., an Elliott Wave "A-B-C").
2. Remember that 3 waves suggest correction against the trend.
3. Since the market was lower at the end of the correction, the 3 wave correction suggests that the correction was a counter-trend move. The implication is that the market is telling us that trend is up.
4. Off the 980306 low, the market then rallied to the 980317 high and stopped at the down trendline off the 980112 and 980218 highs.
5. Since the 980317 high, we've labelled the move as 3 "waves" (i.e., an Elliott Wave "a-b-c").
6. We have interpreted the "a" wave as ending at the 980319 low.
7. We have interpreted the "b" wave as ending at the 980325 high.
8. We have anticipated that we are in the "c" and last wave of the "a-b-c" movement (see COMMENT #251).
9. If our analysis is correct, we are thus forming the second 3 wave sequence.
10. Again, 3 wave sequences suggest movements that are contra-trend or corrections.
11. This "a-b-c" corrective sequence is thus a corrective sequence of SMALLER DEGREE than the "A-B-C" corrective sequence - hence, the labelling with small and capital letters, and so on.
12. The larger degree correction lasted about 37 trading days and declined over 5 points. If the smaller degree correction ends today as anticipated, it will have lasted 7 trading days and declined (likely) under 2 points. Hence, one reason (but only one) why one is of larger degree than the other.
13. We should treat the larger degree correction as the end of a "4th Elliott Wave" corrective sequence with a large "5th wave" up move yet to come.
14. We should treat the smaller degree correction as the probable end of a "2nd Elliott Wave" corrective sequence of the "5th wave" up move identified in the previous point (i.e., as part of the 5th wave up move).
15. If all this is correct, we are right on the verge of getting ready to enter the "3rd of the 5th" up and to EXPLODE higher.
16. In other words, we are at the HEART of where we want to be THIS MORNING in the bond market.
17. We want to increase our FOCUS on this market and to shift resources to this trade.
18. Note that we don't even need to know the "wave pattern" from the 1993 high or 1996 low that preceded these two corrective sequences. The two corrective sequences are sufficient in and of themselves under this interpretation to define trend.
19. We also know that the 980306 low and lowest price in the bond market so far in 1998 occurred amidst a "cluster" of "A & P Points" (see page 398 of "The $upertrader's Almanac - 1st Half Edition), exactly during a week of a weekly "Inversion Index" projection in the notes (see page 277 of "The 1997-98 $upertrader's Book of Linear Time Cycles"), exactly during the anticipated bottoming of the 44 week cycle, at the bottom of the down channel, and so on (these have all been discussed at length in previous COMMENTS).
20. The robustness of the 7 trading day upmove (LUCAS # = 7) from 980306 to 980317 (11 calendar days = LUCAS #) since the 980306 low is consistent with our interpretation and suggests that this rise was the "1st of the 5th".
21. The larger degree and smaller degree wave interpretations are coming into ALIGNMENT.
22. The .382 retracement level is at 12013, the .500 retracement level is at 12000, and the .618 retracement level is at 11918 basis the June contract.
23. It is appropriate to use the entry techniques shown on pages 236 of "The $upertrader's Reference Manual" to enter the market and provide intraday GTC stops.
24. The market will quickly reveal its hand if this is the correct scenario. Third wave movements do not dally and lurk around. They are robust, contain gaps, move against bad news, open lower and close higher and up on the day, and just basically spit in the eye of all those who question the move.
25. Hence, if I have listened correctly to what the market is telling us, get ready to move higher.
26. Note, in this interpretation, that the Elliott Wave is being more heavily relied upon because its signals are clear and unambiguous. (In most other situations, it plays a background, supportive, CONFIRMING role). The "A-B-C" sequence is assumed to have already been completed and the "a-b-c" sequence is assumed to be on the verge of completion. The large degree is in ALIGNMENT with the smaller degree. Both interpretations ALIGN WITH the bottoming information which occurred 14 trading days ago among which information was that discussed in point #19. of this COMMENT.
27. Soros is selling? Too bad, 'cause we're buying!
28. What would you like to wager that, by Friday, April 3rd, CNBC is touting that "Soros is buying" to explain much higher prices than are available this morning?
UPDATED 19980327
COMMENT 1998-264
1. CNBC ran a big piece about 10:45 CST likening the Federal Reserve to the alien ships in the movie "Independence Day".
2. In the movie, the alien ships moved into place and hover above the cities with intensions unknown.
3. CNBC's message is that the Fed is in similar position with participants not knowing whether the Fed will make a preemptive strike (tighten rates) and blast the economy like the aliens blasted the cities of the world.
4. A report by John Liscio of "The Liscio Report" was also cited on CNBC to explain this morning's early bond market sell off. Purportedly, the report stated that "the only way out" of an inflationary enironment is for the Federal Reserve to raise interest rates.
5. Nobody discussed that the market might be forming a "2" wave low (see COMMENT #258).
6. At least the gossip this morning was more imaginative than the old "Soros is buying/selling stuff".
7. The bond market this morning traded below the 50 percent retracement at 12000.
8. Opening and early morning strength has not been sufficient to even breach yesterday's high (yet).
9. See page 398 of "The 1998 $upertrader's Almanac - 1st Half Edition".
UPDATED 19980327
COMMENT 1998-265
1. The stock market has resolved the questions in COMMENT #263 by moving lower and by failing to first break the levels listed in the second column of the table in COMMENT #263.
2. The 51 minute leg down late yesterday is thus identified as the first of more to come.
3. The question now, however, is the same as occurred at the March 6, 1998 low in the bonds and in other such similar situations - i.e., is the first leg down the first leg of a "c" wave that ends an "a-b-c" corrective process and around the lower down channel trendline (see previous channel comments) and then moves to new highs or is the first leg down the beginning of the 3rd of a 5th of much more to come and on and on and on and so forth.
4. One clue will be whether the market is able to close below Wednesday's low.
5. Regardless which outcome develops, we are now in position to lower stops, if you haven't already, to below breakeven.
UPDATED 19980403
COMMENT 1998-268
1. OK, it's Friday.
2. Let's see how Soros did with all that selling in the bond market CNBC reported he was doing last week (see COMMENT #s 257, 258, and 264).
3. Let's see how prescient the widely-quoted analyst touted on CNBC, John Liscio, was (see COMMENT #s 257, 258, and 264).
4. And what about those alien ships? Seems that when they moved into place above the White House, the beam went UP instead of DOWN!
5. Matter-of-fact, the bond market completed its "c" wave low on Monday, 980330, one day after CNBC gave its very bearish assessment of the bonds (see COMMENT #264).
6. Can you now see why I consider CNBC such a valuable source as a wrong-way, CONTRARY indicator?
7. Their producers have a wide-ranging choice of whose comments they will provide access to and seem to consistently choose their guests from the large institutions which tout and endorse the prevailing crowd psychology, just like a celebrity-worshipping supermarket tabloid (Jimmy Rogers excepted).
8. So have I won my wager (see COMMENT #258, point #28.)? Well, not really, for although the bonds are much higher this morning, as expected, and although the bonds have traded above the "B wave" high of 12217 on 980218, CNBC has not yet today (to the best of my knowledge, but I haven't been hanging on their every word, either) explained the move by releasing that all-important market information, "Soros is buying"!
UPDATED 19980403
COMMENT 1998-269
1. I have deliberately not issued any COMMENTARY this week so that all could focus, without interruption, on this bond market move.
2. Hope you caught it and have paid for your "Cycles" book for the next two decades or so!
UPDATED 19980403
COMMENT 1998-273
1. The bond market traded up 11 calendar days (LUCAS # = 11) to the 980317 high and down 13 calendar days (FIBONACCI # = 13) to the "c" wave low of Monday, 980330.
2. Although the market swings will often occur in such combinations of FIXED NUMBERS, it is not always possible to determine in advance which number will best fit the unfolding pattern of the market.
3. In trading hours, the ratio of the "c" wave to the "a" wave was 1.444 (SQ RT 2 = 1.414). The "2" wave to the "1" wave was 1.340 (about 4 / 3).
4. The anticipated "c" wave declined to 11920, just 1 tick above the .618 retracement level at 11919 cited in COMMENT #258, point #22.
5. The "c" wave, with a Tuesday low instead of a Thursday low, took a little longer than the IDEAL but was still well within the expectation.
6. Can you see the very clear entry signal and stop provided by the Thrust Trading Technique on pages 115-116 of "The $upertrader's Reference Manual"?
7. Note how this technique kept the trader in the downside of the "c" wave well past Thursday and into this week before reversing on the very first sign of strength and signalling the up move just off Tuesday's low.
8. It's tough to do much better unless one is trading intraday data or is willing to enter the market long against a prevailing near term downtrend at retracement levels, channel lows, and so on.
9. Even so, this was not the only entry signal that was provided. For instance, review the "Basic Charting Technique" on pages 94-101 of "The $upertrader's Reference Manual".
10. This basic pattern ABSOLUTELY MUST occur in a market at the beginning of a sustained, major market move over an extended period of time.
11. It is absolutely impossible for the move to occur without this pattern appearing at the beginning of the move.
12. Again, note how this pattern signalled that the "c" wave had ended and the bond market advance had begun.
13. Also, note how the market closed higher on Tuesday, 980331 and how the close was higher than the opening price, the first such day since the "c" wave down began.
14. It is highly recommended that one become intimately familiar with the use of these and a few more such entry/exit techniques.
15. They are simple to understand and use.
16. The key is to NOT use them indiscriminately, but to learn WHEN to apply them (i.e., at the turning points signalled in the books).
17. The Producer Price Index is scheduled for release next Thursday and, if we are truly in the "3rd of a 5th", should continue to fuel this market as we move into the release of the number.
18. Since the use of the "Linear Cycles", "Inversion Cycles", and Elliott Wave have been so important to properly anticipating market movement in this market of late and catching the two lows of 980306 and 980318, it makes sense to place more importance on these tools in following this move than might normally be the case.
19. Since the move upwards from the 980330 low has been so sharp and explosive, we have to assume that we are in the "3rd of a 5th" Elliott Wave sequence.
20. This means that a corrective, against-the-trend "4th of a 5th" and an impulsive "5th of a 5th" in the direction of the major trend (up) should still follow.
21. Hence, since our expectation is that we still have the end of the 3rd, 4th and 5th waves in front of us, the first sign that our interpretation is incorrect will be if what we are assuming is the end of the 1st wave (the 980317 high at 12122) is broken to the downside (i.e., if price trades lower than this 12122 level).
22. The reason this would require reassessment is that a 4th wave low is not supposed to OVERLAP a 1st wave high. (Such overlaps do often occur in the futures market, however, and in ascending/descending diagonal triangles).
23. Make sure you also understand how a new all-time high in the bond market will reset the sequence in the "Progression of Prices" (see pages 272-279 of "The $upertrader's Almanac - 1st Half Edition) and that the failure to make a new high will leave the sequence as is.
24. What would negate the outlook?
25. Draw an up trendline off the 980306 and 980330 lows.
26. Now draw a parallel trendline off the 980317 high.
27. Can you see how today's high occurred (roughly) at this upper up trendline of the up channel?
28. Can you understand the significance of the bond's inability to close above the "B" wave high at 12217 on 980218 after having touched the upper bounds of this up channel?
29. Do you understand that it is possible for this rally to end now and that, if such occurs, the entire move down from the 980112 high to the 980306 low would be a "circled A" wave composed of a smaller "A-B-C" wave and that the rally from the 980306 low to today's high would be a "circled B" wave composed of a smaller "A-B-C" rally which, in point # 10 of this COMMENT, we have interpreted as a "1-2-3" wave of an unfolding 5 wave sequence which has still not ended?
30. The reason we should assume the "1-2-3" interpretation is (among others) that, if the rally from the 980306 low were to prove to be a "circled B" wave, it would be significantly shorter than the assumed "circled A" wave.
31. In other words, the "circled A" wave would consist of 53 calendar days down and the "circled B" wave would consist of 28 calendar days up making the latter shorter, in time, than the former. This condition sometimes occurs, but its occurrence is rare.
32. Further, the waves would be in 1.892 proportion which is not of the sacred ratios of ancient geometry.
33. Important market turning points usually see these sacred ratios present and often in proportion to one SERIES of ratios derived from the same base number.
34. Hence, the reason why a close above the assumed "B" wave high at 12217 on 980218 is so important to this market - it is another signal that must occur in order for us to continue to interpret the rise from the 980330 low as a "3rd of a 5th wave" instead of something else.
35. Of course, this matter can be resolved Monday, Tuesday, or some other day soon by a close above the assumed "B" wave high at 12217 on 980218.
36. These closes can be incredibly important to a market.
37. COMMENT #265, point #4., for instance, of 980327 focused on the importance of the stock market's inability to close below the low of Wednesday, 980325.
38. Wednesday's intraday low was broken on both Friday and Monday, but the market could not close below this level and was able to muster the strength to regroup and eventually move to new highs late this past week.
What Highlight do you want to go to next?
Bond Market Trading Highlights Main Page