The Morgan Report Blog

Aug 16th- Bears yell fire in empty theater?

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David Banister- www.markettrendforecast.com

Let’s clarify the SP 500 situation here: (Sent to my paying subscribers on August 16th)

Back on the Sunday night, August 7th I wrote an article forecasting a likely SP500 low at 1096-1100 ranges and explained where those numbers came from.  We ended up bottoming a few days later at 1101.

The lows at 1101 were a convergence of fibonacci weeks, months, sentiment bottoms and VIX extremes along with major insider buying all at the same time. Subscribers to TMTF were made aware of these convergences and were advised to watch 1089-1102 ranges for a major tradable low.

Going back to the March 2009 lows, The SP 500 rallied up in 5 waves from 666 to the 1370 Bin Laden highs.  At that level we had re-traced 78.6% of the entire 2007 highs to 2009 lows, a common turning point.  Since then, we have had a 3 wave decline, also common for correcting a 5 wave move to the upside.  The decline halted at 1101, an exact 38% fibonacci retracement of the 666 lows to 1370 highs.  This is what I call a “fibonacci intersection”. The same thing happened in July 2010 at 1010 on the SP 500, where a huge bottom formed amidst two Fibonacci intersections.  These are crowd behavioral patterns, and we identify them at TMTF for our subscribers.

The rally since 1101 last week to 1204 pivot highs was a 5 wave rally, this is an early bullish sign that most people don’t see. A correction of this 103 point 5 wave rally to 1204 would be normal, but the lighter the correction the more Bullish.  So far the correction is only 23% of the 104 point rally with a gap fill at 1180.

Let’s review the bull signals:

13 Fibonacci month’s from the July 2010 bottom to August 2011 bottoms

7 Times in history we had the SP 500 double in a short period of time, and in every case it retraced 27-40% of the price movement from lows to highs. We just retraced 40% of our SP 500 double, historically very high retracement.

At 1101 we had 38% Fibonacci ABC correction of the Bull leg from 666 to 1370

At 1101 the SP 500 was yielding more than 10 year treasuries

In 1974-77 we had the SAME pattern, which I outlined for everyone last week.

Insiders with massive buying, the most since March 2009 lows, corporate buybacks announced.

VIX at extreme levels

Fear gauges were at extreme levels. Sentiment was over 50% bears with normal readings at 39%.

5 wave impulsive rally from 1101 to 1204 ensued… now a pullback is due. Same thing happened last summer 1010 to 1130, pullback to1040 in 3 waves, then another 5 waves up.

What am I telling everyone?

Stop yelling fire in an empty theater….

This is options expiration week, trading this week is notoriously difficult…

The Bear case is crowded, the Bull case is not.

I’m leaning bullish as long as I keep seeing this type of confirming price action.

I’m watching 1165 on SP 500 as a pivot low worst case, but as long as we see price action above that I like the set up for a while yet on the long side.

(But Dave, the textbook for Elliott Waves doesn’t agree with you… good, that’s why I use other indicators)

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