Price Time Volume Investing

Here is a recap of last week.

• VIX finally over 30. I’m not sure how that is important because nothing was different from the day it was 27-28. And when they started buying it has moved back below 25.
• Sentiment surveys AAII and II are very bearish (which usually leads to a bullish market eventually).
• High quality growth stocks have been accumulated for past few weeks.
• High volume move off the low on Tuesday. Low volume consolidation on Friday.
• Waiting for IBD style follow-through next week.
• No confirmation of uptrend until new short term high beyond the 11th day of the rally.
• The Nasdaq is the strongest major market. The NDX took a hit on Friday with bad earnings reports from Google (GOOG) and Microsoft (MSFT). These price dislocations may be a one day event to get them where they want them. This is not positive for GOOG and MSFT, but the damage to the NDX may be about done.
• Biotechs continue to outperform as an industry.
• The Powershares ValueLine Timeliness Select Portfolio (PIV) is in good position and did not have the distribution of the major indices over the past few months.
• The bounce of the SP500 Index (SPX) occurred on the one year anniversary of the July 2007 high (the 16th) which I consider the end of the bull leg. The SP500 Equal Weight Index (SPXEW) and ValueLine Arithmetic Index (VLE) did not make new highs into October 2007.
• The bounce on the SPX occurred 120-121 days from the March 17th low.
• While the SPX has broken through the 1230 area which invalidates my long term Elliott Wave analysis, the VLE and Wilshire Total Market 5000 remain above this point and in solid long term shape.

The long term bull market chart from 2002-2007 shows price well above the 50% retrace point and making a normal correction. The shorter term charts are weaker but we often ignore the long term.

Looking back to the 1987 crash as a low the SPX is in pretty good shape. Price followed the 1:2 line until 1997. Had price corrected here and then resumed the trend the SPX would be exactly in the same place as its current position. Instead of correcting in 1997, price accelerated to the upside into 2000 at twice the rate of the previous move. The price action since 2000 has been nothing more than a return to a normal rate of change at the 1:2 Gann Angle.

Another way to look at long term price movement is that the 1:2 angle is actually the 1:1 angle and the move from 1997-2000 was to the 2:1 angle. Again, perception is often different than reality until we look at and analyze the long term charts.

My guess: Long term I am bullish because the long term charts look good. Short term I am waiting for this rally to exceed 11 days before I become short term bullish. Intermediate term I expect a retest of this low into October (assuming this low holds).

Tags:   Biotech · Elliott Wave Analysis · Gann Angle Fan · GOOG · Growth Stocks · Market Outlook · MSFT · Nasdaq Charts · Sentiment · Standard and Poor's 500 (S&P500) · Value Line Arithmetic Index (VLE) · VolumeNo Comments