01-22-12 Stock Market Trends & Observations Update

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Stock Market Update 01/22/12Posted January 22 , 2012 by Bob

Categories: DAILY UPDATE

WHAT S HAPPENING?

The market is ov erbought and ripe for a co rrection . . . BUT when

markets are overbought and dont correct for more than 1-3 day s, thats

a sign of an extended mo ve upward.

Stock Market Trends & Observations

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n e 0 m nu e c ar e ow y ou c an see s nc e ec 20 , e mar e as

had very shallow correc tions and nothing bey ond 3 days. This is a

rather narrow channel and probably wont hold up through time. If the

channel widens with a deeper correc tion that doesnt exc eed 3 day s

followed by a renewal of the rally, that will be a v ery good sign for an

extended rally.

As we draw nearer to the May 2 01 1 highs, it certainly appears possiblethat we have entered large step 3 up.

From the bottom in March 200 9

Large step one up ended in May 201 0

Large step two up ended in May 2 01 1.

If we exc eed the May 20 11 highs, how the market accomplishes this will

be interesting. Will we have a (1) meaningful corre ction at the May

peaks, (2) vacillate in the area of the May peaks, or (3) thrust through the

May highs with force. A thrust that continues without a corre ction

exceeding 3 days would be very nice.

Looking at the timing of the prev ious peaks, does that mean the end o f

large step 3 will be in May 20 12 o r possibly May 201 3. The stock market

tries to always fool y ou so I wouldnt put much faith in this but I will

certainly be watchful around these dates.

There is a LOT of money o n the sidelines and if this money decide d to

mov e back into stocks, a melt-up could take place. This could occ ur

when investors realize that interest rates are mo ving up (bond pric es

falling). This will forc e investors to sell bonds and buy stoc ks. Higher

interest rates are not a problem unless the economy begins to overheat.

That isnt a problem presently.

Categories

DAILY UPDATE (75)

EDSON GOULD (21)

GLOSSARY (1)

SELL/BUY ACTION UPDATE

(15)

WEEKLY UPDATE (19)

WORDS OF WISDOM (8)

Recent Posts

Stock Market Update

01/22/12

Stock Market Update

01/18/12

Stock Market Update

01/03/12

Edson Goulds 1979 Forecast

(Dec 1978)

Edson Goulds 1978 Forecast

(Dec 1977)

Archives

January 2012 (3)

December 2011 (11)

November 2011 (17)

October 2011 (19)

September 2011 (17)

August 2011 (32)

July 2011 (17)
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Im unsure how a melt-up would fit into the Presidential race but the

stock market usually figures out the winner before or during the summer

months.

As I hav e proposed since this bull market began in 2009, we had a

possibility of exceeding the 2007 all-time highs. This fits perfectly with

my v ery long term megaphone formation beginning in 2000. See VERY

LONG TERM COMMENTS far down in this update.

01 /21 /1 2 - 60 Minu te SPX - 5 Day EMA Buy /Sell Signa l

No cy cles have been posted in this update because nothing has changed.

If we continue through January without a correc tion of consequence, it

makes one wonder if the large data-set from 1950 might have the correc t

bottom, which was indicated in February (see update dated 01 /1 8/11 ).

June 2011 (10)

January 2012

M T W T F S S

Dec

1

2 3 4 5 6 7 8

9 10 11 12 13 14 15

16 17 18 19 20 21 22

23 24 25 26 27 28 29

30 31

Wall Street Quotes

The essence of investment

management is the

management of risks, not the

management of returns. Well-

managed portfolios start with

this precept.

Benjamin Graham

The time of maximumpessimism is the bes t time to

buy and the time of maximum

optimism is the best time to

sell.

John Templeton

Buy on the cannons,

sell on the trumpets.
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Its also possible that we will soon have a v igorous 3 day c orrection

followed by mo re rally. This 3 day co rrection could be all that we will

get from the January botto ming cyc le. If true, this is a good indication of

a market that wants to mov e higher and should be bought.

I remain in an overall uptrend theme as per prev ious updates.

MECHANICAL BUY/SELL SIGNALS

The following paragraphs are a curiosity and not recommended, but I do

find this mechanical trading sy stem interesting. With this system y ou

arent allowed to stray away from the trend. The chart is from MY

CHARTS, page 1, number 10.4

This is a quote from Robert Colby s book, T he Ency clopedia Of

T echnical Market Indicators, Second Edition and taken from my

notes on chart number 10.4

EMA is an abbreviation for ex ponential moving average

This is the be st simple trend-following indicator w e teste d against

daily DJIA data. Substituting 5-days for 120 -days in the same formula

(above), and starting with $1 00 and reinvesting profits, total net

profits for this 5-day EMA Crossover Strategy w ould have been $1 6

billion, assuming a fully invested strategy, reinvestment of profits, notransactions costs and no taxe s. This wo uld have be en 7 8 million

percent better than buy-and-hold. Short selling wo uld have be en

profitable..

In the chart above I hav e modified the 5 day into a 35 hour EMA. This

was due to volatility issues (gaps) that occ ur in today s markets. Trading

the SP futures (nearly 24 hours/day ) can minimize gaps but not

Old French Proverb

Rule #1: Never lose money.

Rule #2: Never forget rule #1

Warren Buffett

The four most dangerous

words in investing are

"This time it's different".John Templeton

"This time it's different" was

prevalent during the bubble

of 2000. In 1929 it was called

"New Economics".

Bob

History always repeats, only

the details change.Edson Gould

If you have trouble imagining

a 20% loss in the stock

market, you shouldn't be in

stocks.

John (Jack) Bogle

Stock are bought on

expectations, not facts.Gerald Loeb

Emotions are your worst

enemy in the stock market.

Don Hays

P/E ratio - The percentage of

investors wetting their pants
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completely (who wants to trade 24 hours per day ). To avoid sleepless

nights, there are trading algorithms available with some b rokerages that

can exec ute this trade automatically.

This system simply states that when the market is above the 35 hour

EMA, the market is a buy , below it is a sell.

When the trend is obvious and y ou dec ide to stay with the trend (trend isyour friend, blah blah blah), you may have to ignore small penetrations

of the 35 hour EMA otherwise yo u must trade all of the penetrations.

The above chart has many good illustrations of this problem since Dec

20th. The trend is up but it has sev eral small penetrations of the 35 hour

EMA. Following this system means a lot of trades on small corrections.

But since online brokerage fees are so low, c ost is not a matter of

consequence. If you decide to live with small penetrations, you MUST

establish a maximum perc entage penetration in order to not be c aught ina trend rev ersal. This is important because the entire purpose of this

indicator is for y ou to remain on the correc t side of the 5 day trend.

We all know that you can encounter a lot of whipsaws in a non-trending

market. This is where the ADX lines can be helpful (see above c hart). An

ADX signal occ urs: (1) When the black line is abov e or below the

red/green horizontal lines coupled with an extreme in the green +DI or

red -DI lines; (2) When the green +DI or red -DI lines approach or crossthe red or green extreme lines, yo u may have a signal. (approach of

similar co lor lines is bullish, red on red, green on green; approach o f

dissimilar color lines is bearish, red on green, green o n red; (3) In both 1

and 2 yo u must wait for the reversal in +DI or -DI lines to ve rify the new

trend.

****************************************************************

as e mar e eeps

crashing.

Anonymous

Herd Mentality

Men, it has been well said,

think in herds; it will be seen

that they go mad in herds,

while they only recover their

senses slowly, and one by

one.

Extraordinary Popular

Delusions and the Madness o f

Crowds

Herd Mentality

Cases such as Tulipomania in

1624--when Tulip bulbs

traded at a higher price thangold--suggest the existence

of what I would dub

"Mackay's Law of Mass

Action:" when it comes to the

effect of social behavior on

the intelligence of individuals,

1+1 is often less than 2, and

sometimes considerably less

than 0.Extraordinary Popular

Delusions and the Madness o f

Crowds

I made money by selling too

soon.

Bernard Baruch

If all you have is a hammer,
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CHARTS

MY CHART LINK (updated constantly)

These are my personal charts and my playground for doodling

trend lines, wave counts and other ideas.

I draw the trend lines and wave co unts on a daily basis (sometimes

more often). Y ou can find these doodles from 1 minute to

monthly charts.

Yo u will find the best trend lines and wave counts on charts with

longer time frames. This gives perspectiv e to the lines and

counts. Perspective was a favo rite of Edson Gould.

I usually restrict my trend lines and wave counts to the first three

charts on eac h page, TSX, DJI & COMPQ. The other c harts on the

page are usually for c onfirmation of the trend and wave structure.

Page 1 Buy /Sell Signals

Page 2 Index es With 1 Minute Bars





Page 7 Indexes With Daily BarsPage 8 Index es With Weekly Bars (since 1 981)

Page 9 Indexes With Monthly Bars (since 1 981)

Page 10 Indexes With 60 Minute Bars, Candlestick

Page 11 Indexes With Daily Bars, Candlesticks

Page 12 Index es With Weekly Bars, Candlestick

Pages 13 through 1 4 are shorter term indicators. The indicators

everything looks like a na il.

Bernard Baruch

The main purpose of the

stock market is to make fools

of as many people as

possible.

Bernard Baruch

The hardest part of a bull

market is staying on.

A bubble is a bull market in

which you don't have a

position.

A buy and hold strategy is a

short term trade that went

wrong.

October, this is one of the

peculiarly dangerous months

to speculate in stocks. The

others are July, January,

September, April, November,

May, June, December, August

and February.

Mark Twain

Economists have predicted 14

of the last 3 recessions.

Market Correction - The day

after you buy stocks.

In 2008 stocks were a good

buy . . . . . Goodbye
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are used to simply look for some type o fleading action before a

turn or confirming action of the wave co unt. Page 13 is a look-

eve ry day indicator page. The other indicator pages are less

frequently visited.

Page 15 Hurst FLD Projections

Page 16 Indicators, Long Term

Page 17 International Indexes

Page 18 through 30 are sector ETFs. They represent most of the

active sector ETFs and are always a good hunting ground when

looking for something that is breaking in a new direction.

Page 31 through 45 are growth stocks with indicators. These are

stocks that have bee n in a lengthy uptrend. One qualification is

that they must not be sev erely damaged in a bear market so they

cant rise to significant new highs in the following bull market.

The growth stocks show daily market action for the last 3 y ears

and weekly prices since 1992. This gives a good perspective of

how they have be haved in the immediate past (daily c harts) and

how they behaved during good and bad times (weekly charts).

Page 46 Misc older c harts

WAVE COUNT SSIMPLIFIED

My wave counts are not Elliott Wave! Its different, simple andfunctions w ithout a maze of exclusions.

T here are 3 peaks (or valleys) to a com pleted wave cou nt.

A rev ersal of trend takes place after a completed wave count.

Often times its as simple as counting 3 bumps (or dips) on a chart .

. . Other times, not so easy .

In a downtrend the same rules apply ex cept y ou are co unting 3

, ,

goodbye vacation home,

goodbye . . .

Markets can remain irrational

longer than you can remain

solvent.

John Maynard Keynes

Money talks, but all mine eversays is "goodbye"

Don't gamble. Take all of your

savings and buy some good

stock and hold it until it goes

up, then sell it. If it don't go

up, don't buy it.

Will Rogers

Return of principal is more

important than the return on

principal.

Hope is your worst enemy in

the market.

Don't catch a falling knife.

Spend a t least as much time

researching a stock as you

would choosing a refrigerator.

Peter Lynch

When you realize that you

are riding a dead horse the

best strategy is to dismount.

Sioux Indian Proverb


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dips instead of 3 bumps.

Each group of 3 steps must stay c onfined to a channel.

Laying a pen or pencil on the c hart will help yo u visualize the

channel.

As the trend progresses, all of the steps that make up a larger

trend will also be co nfined to a larger channel. Sometimes the

channel is not rev ealed until the surge phase has ended.

When the m arket breaks a channel (regardless of the

perceivedwave cou nt), the current step has been

terminated. (Make sure your c hannel was correc tly drawn

before calling a termination).

The correction following the second step is larger than the

correc tion that followed the first step. Obv iously the correc tion

following the third step is a reve rsal.

A single wave m ay sub-divide into another 3 waves. I will

call this an ex tension. When this happens (1) the trend is still

intact, (2) the channel will widened and (3) instead of a total of

3 steps, there will be 5 steps.

Sometimes I will use the terms step and wave interchangeably .

Reading the glossary helps in the understanding of this blog.

There are many other important facts in the glossary.

Glossary Link

ABBREVIATIONS

DJI = Dow Jones Industr ials

DJT = Dow Jones Transportat ions

SPX = SP 50 0

ES = SP 500 Futures

COMP = Nasda Com osite Index

Dont ever make the mistake

of telling the market it is

wrong.

James Dines

Wall Street never changes,

the pockets change, the

suckers change, the stocks

change, but Wall Street neverchanges, because human

nature never changes.

Jesse Livermore

Let Wall Street have a

nightmare and the whole

country has to he lp get them

back in bed again

Will Rogers

Bulls makes money, bears

makes money, pigs get

slaughtered.

My Grandfather

Never buy a stock that won't

go up in a bull market. Never

sell a stock that won't go

down in a bear market.

Wall Street is a street with a

river at one end and a

graveyard at the other.

Never check stock prices on a

Friday, it could spoil your

weekend.
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TSX = Toro nto Stock Exchange (Canadian blue chips)

SOX = Semico nducto rs

TXX = Technolo gy

****************************************************************

Long T erm UP

UptrendMar 2009 To Present

Step 2 Up (of 3) Com pleted

Step 3 Up Has Possibly Begu n


Large step one up ended in May 2010

Large step two up ended in May 2011.

Significant break abov e the May 20 11 highs should signal that Step3 up is o fficial

Nobody is more bearish than

a sold-out bull.

The public is right during the

trends but wrong at both

ends.

Humphrey Neill

Those who can, do.

Those who cant, teach.

Those who cant teach, work

for the government.

Never se ll a dull market short.

I sell euphoria and buy

panic.

The way he determines that

is to wait until prices startgapping in the charts.

Gapping on the upside is

euphoria, while gapping on

the downside is panic.

Jimmy Rogers courtesy of Jeff

Saut

"Cut your losses and let your

profits run."

Don't marry a stock. Every

stock must be sold.

Often times WHEN you take a

position can be more

important than WHAT you

take a position in.
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1 2-28 -11 LONG TERM

****************************************************************

Very Long T erm DOWN

Downtrend

Jan 2000 T o Present

Step 2 Down (of 3) Com pleted

Currently In Rally Phase From Step 2 Down

"If Santa fails to call the

bears will roam on Broad and

Wall!"

About This Blog

Observations of Stock Market

Trends uses several

proprietary technicalindicators discovered by the

author. The object of this blog

is to notify you (preferably in

advance) of the important

tops and bottoms in the stock

market. We know that's

impossible, but nevertheless,

it's attempted in this blog.

"Observations of Stock

Market Trends" is published

on an irregular schedule but a

daily update is likely when we

are near a stock market

inflection point.

If you find the blog

interesting, please become a

follower by entering youremail address in the section

"Email Subscription" (top of

this column). You must also

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link in the confirmation email,

otherwise ou ain't


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1 2-28 -1 1 VERY LONG TERM

VERY LONG T ERM COMMENT S

We have 3 possibilities for the future.

We have entered a very wide swinging m arket

(megaphone formation) sim ilar to that of 1966 to 1974.

During that era we had three bear markets with two intervening

subscribed.

Disclosure

The content on this blog is

meant to be entertaining

information and should not be

construed as investment

advice.

No statement by the blog's

author should be interpreted

as a recommendation to buy

or sell any security, financial

instrument, or to participate

in a trading or investment

strategy.

Any investment decision byanyone that results in losses

or gains based on information

from this blog is not the

responsibility of the blog's

author.

The blog's author will make

statements about certain

investment vehicles andstrategies, but It's s imply the

author expressing his

opinion, or action, regarding

his own investments. These

opinions are never to be

construed as investment

advice.
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bull market rallies. Each bear market had a lower low than the

previous b ear. The interve ning bull market rallies saw new all

time highs before the nex t bear market began.

We also have formed a huge head and shoulders formation since

1998. If this formation is valid, the downside measurement calls

for a bottom around Dow Jones Industrials 1,0 00.

We began a long term bull market in March 20 09. Each

subsequent min-bear market will result in higher lows than the

prior major low.

I favor the m egaphone formation as the m ost likely

scenario.

Since 2000 we have had two bear markets, 2000 to 200 3 and 2007 to

2009. Like 1966 to 197 4, the recov ery from the first bear market saw a

new all time high (2007 peak). Its possible that we may ex perienceanother all time high during the present recov ery period. This would

support the megaphone formation. A failure to make new highs would

support the head and shoulders argument. In both formations the

conclusion of the present recov ery would call for a third and final bear

market. An estimated time for the conclusion o f the final bear market is

approximately 20 18.

The lesser downside target of both formations is the megaphoneformation as it likely calls for a bottom 1,0 00 to 2,000 points below the

2009 low, which would be around Dow 5,00 0.

In the head and shoulders formation the measurement calls for a bottom

around Dow Jones Industrials 1,0 00. This is almost an unimaginable

eve nt regarding the possible fundamentals to c reate this scenario. If this

did happen, ev ery thing that could go wrong would have to go wrong.

About Me

With 55 years of studying and

investing in the stock market,

I am sharing these

experiences and knowledge

by writing a stock market

blog. This blog relies on

several unique andproprietary indicators.

I have been correct at some

of the biggest market turns in

the last 40 years. I was short

for most of 1973-1974,

reversed course and became

a buyer during the week

before Christmas 1974. I wasalso short for most of the first

half of 1982 but became a

buyer on August 4, 1982. This

was five days before the

August 9, 1982 blast off on

the historic bull market run of

the 1980s and 1990s. In

1999 I began tolling the bell

on the stock market knowing

that the end was near (no

one listened). In March 2003,

prior to the beginning of the

Iraq war I became very

bullish when it was obvious

that there was not one good

reason to own stocks

(contrary opinion) and we

h f h b d h b dl b d h


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The reasons range from the absurd to the absurdly absurd. This scenario

is so dark that it doesnt seem possible but nev ertheless, the head and

shoulders formation is there and will be waiting until we pierce the all-

time highs of October 2 007 .

Remember these are simply possible scenarios and are not embedded in

fact. Whatever the outc ome, it never hurts to be a little cautious with

some of your money . But in the worst case scenario, every thing that wetake for granted as being safe . . . . would not be safe. This is something

to never forget in the event things go v ery badly.

Hopefully we will never have to think about worst case sc enarios other

than to have a go od laugh at them presently.

****************************************************************

EDSON GOULD

Edson Gould, Premier Stock Market Strategist Edson

Gould had a profound influence o n the dev elopment of my

techniques and indicators. Prior to me subscribing to his

advisory servic e, I was just one of the crowd.

After 40 y ears I still have many of the publications from his

advisory servic e, Findings & Forecasts. Fearing the loss of these

hard copy reports I hav e recently scanned and created pdf files ofthese reports. Now I have hard copies and computerized ver sions

of the reports.

I hav e used a technique of his that I found in an obscure reference

in one of his reports. It was only mentioned once and never

again. I believe that he used this tool extensiv ely and never told

the world its importance. Prior to my finding this tool, I had been

bottom. Shortly after the

October 2007 peak I became

a seller and bear. Days prior

to the March 2009 bottom, I

bought stocks in anticipation

of a very good rally that

turned into a bull run. In the

later stages of the February-

May 2011 topping process, I

began warning of an

important market correction.

Since then my record is in this

blog.

To illustrate how things don't

go perfectly for any analyst

(such is life). My key indicator

began changing in characterduring 1987 and led to some

large losses based on

excessive leverage,

arrogance (I could do no

wrong - or so I thought) and

incorrect market

interpretations. When I had

enough, I bailed out o f the

market on October 6, 1987,just days before the 1987

crash. But I had been

severely damaged before the

crash. It took me several

years to begin a recovery and

restore my faith in my key

indicator with a modified

t i f ll t fi d diff t t h t th k t. ,


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try ing unsuccessfully to find a different way to c hart the market.

When I read about his technique I knew instantly that this was

exac tly what I had been seeking. I have charted this method back

to 1 939 and found it to be v ery useful. There is no mention of it in

the reports that I posted below as I have deleted any reference to

it. Its a super secret indicator and Id have to kill you if I told y ou

about it.

Edson Gould was truly a legend in his own time. Its too bad that

today most people have forgotten or nev er heard of him or his

discov eries. Below y ou will find only the first page of these

reports. A teaser is what yo u might call it. The rest of the reports

are available upon request. This is a man that deserves to be

remembered throughout technical analysis market history.

T he following are links to Edson Gould reports.

My Most Im portant Discov ery by Edson Gould

It was also my most important discov ery , for it ex plained the

irrational volatility o f markets that had my stified me in my early

years. During those early y ears I found nothing worked in

predic ting these irrational market swings. But the fog lifted after

reading this report and I began to understand how to begin

predicting the market.

Edson Gould Profile by MT A

Edson Gould Conc epts by William Scheinm an

Decade Cycle by Edson Gould

Decade Cyc le Update by Ned Davis

Swing Principle by Edson Gould

,

using the new method, the

key indicator has worked

correctly.

One man was responsible for

my education, Edson Gould,

the greatest technician that

ever lived.

After reading many of the

books on stock market

technical analysis, I found

that all of these methods had

high failure rates. I searched

for a formula that worked

consistently and in 1973 I

subscribed to Edson Gould's

"Findings & Forecasts". Here I

struck gold with the master

technician of the 20th

century. Extending his

methods I discovered several

indicators that I use today.

If you find my observations of

interest please add your

email address to the section,

"Email Subscription".

Spam Blocked

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A measuring indicator

Utilities by Edson Gould

A forecasting indicator

Dividends by Edson Gould

Bonds by Edson Gould

Speed Lines by Edson Gould

Sentimeter by Edson Gould

With companies failing to pay dividends c ommensurate with theirearnings, this indicato r has failed. As the market climate

continues to deteriorate in the coming years, I would expec t

dividends to return to their former lev els and this indicator will

once again become useful. Prior to the late 1990s, it had 100

years of success.

Bottoms by Edson Gould

This was written and directed at the upco ming bottom in 197 4 but

it applies to all major bottoms.

T hree Steps by Edson Gould

Where do y ou think my three steps principle came from? Straight

from this report although I modified the concept through the

years.

Edson Gou lds 1974 Forecast

Goulds 197 4 forecast kept me bearish and short throughout 197 4

until the week before Christmas 197 4, during which I began

making long term purchases. After that it was ride the bull phases

that transpired from 197 5 to 1982. 1982 to 2000 was the greatest

bull market of all time.



Edson Goulds 197 7 Forecast

RSS - Posts

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Edson Goulds Five Y ear Forecast 1977 to 1982
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Edson Gould s Five Y ear Forecast 1977 to 1982

This was a remarkable forecast in 197 7 , where the Dow Industrials

had nev er been higher than 1,0 00 . NO ONE predic ted a rise o f this

magnitude in 197 7 . Most were waiting for a resumption of the

bear market.

As part of the 197 7 to 1 982 forecast: On Wednesday A ugust 4,

19 82 I went long the market for the first time in months. By

Friday, August 6 I was worried that I had made a mistake as I wasdeep in the red (I was long the Kansas City Stock Market

Contracts). The Kansas City Stoc k Market Contract was the first of

the stock index co ntracts (February 1 982). It was based on the

Value Line Arithmetic Index , margin requirement were quite low,

and it had a multiplier of 1 00 times the Value Line Arithmetic

Index , which meant the leverage was very high. On Friday (A ug

6), my wife and I went to dinner and I told her my tale of woe and

whether I should sell my long positions. I ex plained that my key

indicator had reversed and c ontinued higher on Thursday and

Friday but the market had continued lower. Since the key

indicator was usually correc t, we decided to stick it out for a few

days more (I was crazy in those days). My key indicator w as

mentioned by Gould only onc e in his market letters. If y ou didnt

catch its importance, too bad, because he only gave y ou a peek.

Prior to Gould writing about this indicator I had been loo king for

one that had similar characteristics without success. Thus when

Gould wrote about it, I recognized instantly that I had struck

gold. I have modified this indicator slightly and researched it

back to 1939. This was a lot of work as it was before co mputers

and online data (remember when Barrons was available only on

paper, still is for the distant past). Meanwhile on Monday A ugust

9, 1982 the market took off like a rocket and never lo oked back. I

skyroc keted out of the red and had a big profit In August 1982
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skyroc keted out of the red and had a big profit. In August 1982

the only people that were bullish were Edson Gould, Robert

Prechter and myself (probably a c ouple of others but I didnt know

them). Ever yo ne else was extremely bearish. It was a perfect

example of crowd behavior.

Sign Of The Bull by Edson Gould

****************************************************************

TRANSACTION SIGNALS

All actionable signals are only for short term time frames. These

signals are not designed for intermediate or long term time frames

BUT . . . . .

After a short term buy signal, long term tax status can beachieved by a continuation of the upward trend, which causes

short term actions to morph into long term holdings.

See more details in the glossary under Tax es, Futures Contracts

and Money Management.

Glossary Link

T RANSACT ION RECORD

In this blog a warning of an impending botto m (or top) is often

issued well in advance o f the formal buy or sell date. This allows

thoughtful consideration prior to a formal action signal. To get a

sense of how this works, you should read a few days prior to a

formal buy /sell signal. I often buy/sell in my personal account

based on the early warnings.

Th t ti d t k k t b tt ill h th t I
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Share this:

The transaction record near stock market bottoms will show that I

am ve ry skittish and usually remain so until the new direction is

well underway .

Qualified buy signal given from December 5th to

Decem ber 20th, 2011

Buy signal in October 2011 was never issued due t o a

SERIOUS family illnessSELL SEPTEMBER 9, 2011

BUY AUGUST 30, 2011

SELL AUGUST 30, 2011 Stopped out, re-bought quic kly

BUY AUGUST 29, 2011

SELL AUGUST 25, 2011

BUY AUGUST 23, 2011

SELL AUGUST 1, 2011

BUY JUNE 23, 20 11

****************************************************************

MISCELLANEOUS

There are useful items throughout this blog. For instance, the

Wall Street Quotes can be v ery instructive. So make sure and

look all through the blog.

Comments:Be the first to comm ent

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Stock Market Update 01/18/12Pos ted January 18, 201 2 by Bob

Categories: DAILY UPDATE

WHAT S HAPPENING?

For the moment I m kinda in a quiet period and re main in an overall

uptrend theme. When I get exc ited about an important change in market

direction, a lot of blog updates usually take place. Presently, there are

some divergences showing in the 60 minute and daily c harts. Also the

wave count appears to be maturing. All of this could be early warning

signs of a correction into late January (see cy cles update in the next

section). The expectation is the correction will be a point to add to

holdings or r esume speculative po sitions.

The following is the 60 minute indexes found on page 1 0 o f my c harts.

Notice some of the indicators have div ergences where prices are

trending higher and the indicators are making lower highs.
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01 /18 /12 - INDEXES - 60 MINUTES

CYCLES

I hav e always found the Hurst Cy cle co ncept to be interesting and Ill try

to make this an integral part of my blog updates.

Yo ull notice how the dates of the anticipated cy cle lows dont change

much from one month to the next (compare my last blogs cy cle charts

with todays). Only a sharp move up or down changes the cy cle

expectations.

The first chart is the SP 500 cy cles from 1950 to 20 42. The semi-circle

contact points at the bottom are cy cle low dates. When we have

numerous cy cles bottoming at the same time or large cy cles bottoming,

these are usually important dates in stock market history . Due to the

size of this chart, only the large cyc les are visible. Obv iously cy cle lows

shown beyo nd the present are predictions and not ye t reality.

Some cyc le lows dont produce bottoms. In a strongly upward trending

market, a cyc le low can be a sideways pattern followed by a breakout to

the upside. Looking at the chart below you can see how several large

cy cle are approaching a crest and beginning a move to their cy cle low.

This is not a strongly upward trending market as portray ed by this

chart. At be st it shows the last stage of a bull market, which coincides

with a large 3rd step in the wav e co unt.

Click On Charts T o Enlarge
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0 1 /1 8 /1 2 - 1 9 5 0 D at a - 1 9 5 0 To 20 4 2

Acco rding to Hursts Principle o f Proportionality Waves in price

moveme nt have an amplitude that is proportional to their wav elength.

This simply means that longer cy cles produce bigger mov es up or down.

Smaller cy cles produc e smaller fluctuations.

The next chart is a close up of the abov e chart and it shows a confluence

of cyc le lows occ urring from May to September 2013. This appears to be

anticipating the most important cyc le bottom since March 2009.

Further out the cyc le low occurring in early 201 8 is much larger and

there are also several other cy cles lows anticipated about the same time.This calls into play thePrinciple o f Synch ronicity Waves in price

moveme nt are phased so as to cause simultaneous troughs. This means

all of these cy cles will bottom at the same time. This will likely be a time

for avery im portant m arket low. 201 8 could mark the end of a long

period of bad markets that began with the bursting of the 2000 internet

bubble.

Please dont get too c aught up in the large cy cles and forget that we have
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bull markets that occur in between these large cy cle lows. March 2009

to the present is a good ex ample. Theres a time to be bearish and a time

to be bullish. Y ou dont want to be like some famous wave analy sts and

become so b earish that you miss the good stuff between cy cle lows.

01/18/12 - 19 5 0 Data - Large Cy cles - 201 0 To 201 9

The third chart is also based on data from 195 0 to the present and shows

late February to early March 2012 as the date for the next important

bottom (15/1 6 month cy cle low). After that bottom the chart shows a

lesser bottom occurring during May 20 12. This chart is based on 62years of data and it tries to fit the cy cles to this large data-set. In the

next chart were going to see a difference of opinion on the upco ming

bottom based on a shorter data-set.
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01/18-12 - 1 95 0 Data - Cycle Detail - Oct 201 1 To Nov 2 01 2

The following cyc le chart is based on data since late 2007 and is

obv iously geared towards ev ents that have affected us ov er the last 5

years. Looking at this chart y ou can see how the next c yc le low is

anticipated in late January (instead of late February ). For the moment I

am inclined to believe the 2007 cy cle data-set. If the late January cy cle

low is correct a dec line should begin soon. Since this cy cle low is less

significant than the October low, it c ould be a quick cor rection with a

rapid reversal similar to November 201 1.
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01/18/12 - 2007 Data - Cycles - April 201 1 To March 2 01 3

This next cy cle chart is based on data since 2007 and shows the

important cyc le lows over the last 5 y ears. Notice how it differs slightly

from the chart based on the 1950 data-set. Its simply squeezing the

cy cles to fit into the time frame selected. I think long data-sets are

suitable for long cy cles and smaller data-sets are more acc urate for

smaller cy cles. Well see how that works out in the near future.
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01 /1 8/1 2 - 2007 Data - 2007 To Present

I find these cyc le charts to be o f significant interest as it can give y ou an

idea ofwhen to expect bottoms to occur. Wave counting gives you an

idea ofwhere y ou are in the rally or decline. Altogether, these cy cle

lows coupled with wave co unts can be of great help for narrowing down

valid buy points.

If yo u find these cy cle c harts interesting, the service Hurst Signals

prov ides cy cle charts and trading advice based on the work of J.M.

Hurst, More info at HURST SIGNALS Its an exc ellent service .

PRINCI PLES OF HURSTS CY CLI C T HEORY

The Principle of Commonality All equity (or forex o r commodity ) price

mov ements have many elements in common (in other words similar

classes of tradable instruments have price mov ements with much in

common)

The Principle of Cyclicality Price mov ements consist of a co mbination

of specific waves and therefore exhibit cy clic characteristics.
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The Principle of Summation Price wav es which combine to produce the

price mov ement do so by a process of simple addition.

The Principle of Harmonicity The wavelengths of neighboring waves in

the collection of cyc les contributing to price mov ement are related by a

small integer v alue.

The Principle of Synchronicity Waves in price mov ement are phased so

as to cause simultaneous troughs wherever possible

The Principle of Proportionality Waves in price mov ement have an

amplitude that is pro portional to their wavelength.

The Principle of Nominality A spec ific, nominal co llection of

harmonically related waves is common to all price mov ements.

The Principle of Variation The prev ious four principles represent

strong tendencies, from which variation is to be expec ted.

Further information about Hursts Cyclic Principles can be found here.

Lotsa good Hurst info here.

****************************************************************

CHARTS

MY CHART LINK (updated constantly)

These are my personal charts and my playground for doodling

trend lines, wave counts and other ideas.

I draw the trend lines and wave co unts on a daily basis (sometimes

more often). Y ou can find these doodles from 1 minute to

monthly charts.
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Yo u will find the best trend lines and wave counts on charts with

longer time frames. This gives perspectiv e to the lines and

counts. Perspective was a favo rite of Edson Gould.

I usually restrict my trend lines and wave counts to the first three

charts on eac h page, TSX, DJI & COMPQ. The other c harts on the

page are usually for c onfirmation of the trend and wave structure.

Page 1 Buy /Sell Signals






Page 7 Indexes With Daily Bars

Page 8 Index es With Weekly Bars (since 1 981)

Page 9 Indexes With Monthly Bars (since 1 981)

Page 10 Indexes With 60 Minute Bars, Candlestick

Page 11 Indexes With Daily Bars, Candlesticks

Page 12 Index es With Weekly Bars, Candlestick

Pages 13 through 1 4 are shorter term indicators. The indicators

are used to simply look for some type o fleading action before a

turn or confirming action of the wave co unt. Page 13 is a look-

eve ry day indicator page. The other indicator pages are less

frequently visited.

Page 15 Hurst FLD Projections

Page 16 Indicators, Long Term

Page 17 International Indexes

Page 18 through 30 are sector ETFs. They represent most of the

active sector ETFs and are always a good hunting ground when


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looking for something that is breaking in a new direction.

Page 31 through 45 are growth stocks with indicators. These are

stocks that have bee n in a lengthy uptrend. One qualification is

that they must not be sev erely damaged in a bear market so they

cant rise to significant new highs in the following bull market.

The growth stocks show daily market action for the last 3 y earsand weekly prices since 1992. This gives a good perspective of

how they have be haved in the immediate past (daily c harts) and

how they behaved during good and bad times (weekly charts).

Page 46 Misc older c harts

WAVE COUNT SSIMPLIFIED

My wave counts are not Elliott Wave! Its different, simple andfunctions w ithout a maze of exclusions.

T here are 3 peaks (or valleys) to a com pleted wave cou nt.

A rev ersal of trend takes place after a completed wave count.

Often times its as simple as counting 3 bumps (or dips) on a chart .

. . Other times, not so easy .

In a downtrend the same rules apply ex cept y ou are co unting 3

dips instead of 3 bumps.Each group of 3 steps must stay c onfined to a channel.

Laying a pen or pencil on the c hart will help yo u visualize the

channel.

As the trend progresses, all of the steps that make up a larger

trend will also be co nfined to a larger channel. Sometimes the

channel is not rev ealed until the surge phase has ended.

When the m arket breaks a channel (regardless of the

perceivedwave cou nt), the current step has been

i d (M k h l l d


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terminated. (Make sure your c hannel was correc tly drawn

before calling a termination).

The correction following the second step is larger than the

correc tion that followed the first step. Obv iously the correc tion

following the third step is a reve rsal.

A single wave m ay sub-divide into another 3 waves. I willcall this an ex tension. When this happens (1) the trend is still

intact, (2) the channel will widened and (3) instead of a total of

3 steps, there will be 5 steps.

Sometimes I will use the terms step and wave interchangeably .

Reading the glossary helps in the understanding of this blog.

There are many other important facts in the glossary.

Glossary Link

ABBREVIATIONS

DJI = Dow Jones Industr ials

DJT = Dow Jones Transportat ions

SPX = SP 50 0

ES = SP 500 Futures

COMPQ = Nasdaq Composite Index

TSX = Toro nto Stock Exchange (Canadian blue chips)SOX = Semico nducto rs

TXX = Technolo gy

****************************************************************

Long T erm UP

Uptrend

Mar 2009 To Present

St 2 U ( f 3) C l t d
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Step 2 Up (of 3) Com pleted

Has Step 3 Up Begun ???


Large step one up ended in May 2010

Large step two up ended in May 2011.

Significant break abov e the May 20 11 highs should signal that Step

3 up is o fficial
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1 2-28 -11 LONG TERM

****************************************************************

Very Long T erm DOWN

Downtrend

Jan 2000 T o Present

Step 2 Down (of 3) Com pleted

Currently In Rally Phase From Step 2 Down


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1 2-28 -1 1 VERY LONG TERM

VERY LONG T ERM COMMENT S

We have 3 possibilities for the future.

We have entered a very wide swinging m arket

(megaphone formation) sim ilar to that of 1966 to 1974.

During that era we had three bear markets with two intervening

bull market rallies. Each bear market had a lower low than the

previous b ear. The interve ning bull market rallies saw new all

time highs before the nex t bear market began


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time highs before the nex t bear market began.

We also have formed a huge head and shoulders formation since

1998. If this formation is valid, the downside measurement calls

for a bottom around Dow Jones Industrials 1,0 00.

We began a long term bull market in March 20 09. Each

subsequent min-bear market will result in higher lows than the

prior major low.

I favor the m egaphone formation as the m ost likely

scenario.

Since 2000 we have had two bear markets, 2000 to 200 3 and 2007 to

2009. Like 1966 to 197 4, the recov ery from the first bear market saw a

new all time high (2007 peak). Its possible that we may ex perience

another all time high during the present recov ery period. This would

support the megaphone formation. A failure to make new highs would

support the head and shoulders argument. In both formations the

conclusion of the present recov ery would call for a third and final bear

market. An estimated time for the conclusion o f the final bear market is

approximately 20 18.

The lesser downside target of both formations is the megaphone

formation as it likely calls for a bottom 1,0 00 to 2,000 points below the2009 low, which would be around Dow 5,00 0.

In the head and shoulders formation the measurement calls for a bottom

around Dow Jones Industrials 1,0 00. This is almost an unimaginable

eve nt regarding the possible fundamentals to c reate this scenario. If this

did happen, ev ery thing that could go wrong would have to go wrong.

The reasons range from the absurd to the absurdly absurd. This scenario

is so dark that it doesnt seem possible but nev ertheless, the head and

shoulders formation is there and will be waiting until we pierce the all-


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shoulders formation is there and will be waiting until we pierce the all

time highs of October 2 007 .

Remember these are simply possible scenarios and are not embedded in

fact. Whatever the outc ome, it never hurts to be a little cautious with

some of your money . But in the worst case scenario, every thing that we

take for granted as being safe . . . . would not be safe. This is something

to never forget in the event things go v ery badly.

Hopefully we will never have to think about worst case sc enarios other

than to have a go od laugh at them presently.

****************************************************************

EDSON GOULD

Edson Gould, Premier Stock Market Strategist Edson

Gould had a profound influence o n the dev elopment of my

techniques and indicators. Prior to me subscribing to his

advisory servic e, I was just one of the crowd.

After 40 y ears I still have many of the publications from his

advisory servic e, Findings & Forecasts. Fearing the loss of these

hard copy reports I hav e recently scanned and created pdf files of

these reports. Now I have hard copies and computerized ver sions

of the reports.

I hav e used a technique of his that I found in an obscure reference

in one of his reports. It was only mentioned once and never

again. I believe that he used this tool extensiv ely and never told

the world its importance. Prior to my finding this tool, I had been

try ing unsuccessfully to find a different way to c hart the market.

When I read about his technique I knew instantly that this was

exac tly what I had been seeking. I have charted this method back


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y g

to 1 939 and found it to be v ery useful. There is no mention of it in

the reports that I posted below as I have deleted any reference to

it. Its a super secret indicator and Id have to kill you if I told y ou

about it.

Edson Gould was truly a legend in his own time. Its too bad that

today most people have forgotten or nev er heard of him or his

discov eries. Below y ou will find only the first page of these

reports. A teaser is what yo u might call it. The rest of the reports

are available upon request. This is a man that deserves to be

remembered throughout technical analysis market history.

T he following are links to Edson Gould reports.

My Most Im portant Discov ery by Edson GouldIt was also my most important discov ery , for it ex plained the

irrational volatility o f markets that had my stified me in my early

years. During those early y ears I found nothing worked in

predic ting these irrational market swings. But the fog lifted after

reading this report and I began to understand how to begin

predicting the market.

Edson Gould Profile by MT AEdson Gould Conc epts by William Scheinm an

Decade Cycle by Edson Gould

Decade Cyc le Update by Ned Davis

Swing Principle by Edson Gould

A measuring indicator

Utilities by Edson Gould

A forecasting indicator
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g

Dividends by Edson Gould

Bonds by Edson Gould

Speed Lines by Edson Gould

Sentimeter by Edson Gould

With companies failing to pay dividends c ommensurate with their

earnings, this indicato r has failed. As the market climate

continues to deteriorate in the coming years, I would expec t

dividends to return to their former lev els and this indicator will

once again become useful. Prior to the late 1990s, it had 100

years of success.

Bottoms by Edson Gould

This was written and directed at the upco ming bottom in 197 4 but

it applies to all major bottoms.T hree Steps by Edson Gould

Where do y ou think my three steps principle came from? Straight

from this report although I modified the concept through the

years.


Goulds 197 4 forecast kept me bearish and short throughout 197 4

until the week before Christmas 197 4, during which I began

making long term purchases. After that it was ride the bull phases

that transpired from 197 5 to 1982. 1982 to 2000 was the greatest

bull market of all time.



Edson Goulds 197 7 Forecast

Edson Goulds Five Y ear Forecast 1977 to 1982

This was a remarkable forecast in 197 7 , where the Dow Industrials

had nev er been higher than 1,0 00 . NO ONE predic ted a rise o f this
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magnitude in 197 7 . Most were waiting for a resumption of the

bear market.

As part of the 197 7 to 1 982 forecast: On Wednesday A ugust 4,

19 82 I went long the market for the first time in months. By

Friday, August 6 I was worried that I had made a mistake as I was

deep in the red (I was long the Kansas City Stock Market

Contracts). The Kansas City Stoc k Market Contract was the first of

the stock index co ntracts (February 1 982). It was based on the

Value Line Arithmetic Index , margin requirement were quite low,

and it had a multiplier of 1 00 times the Value Line Arithmetic

Index , which meant the leverage was very high. On Friday (A ug

6), my wife and I went to dinner and I told her my tale of woe and

whether I should sell my long positions. I ex plained that my keyindicator had reversed and c ontinued higher on Thursday and

Friday but the market had continued lower. Since the key

indicator was usually correc t, we decided to stick it out for a few

days more (I was crazy in those days). My key indicator w as

mentioned by Gould only onc e in his market letters. If y ou didnt

catch its importance, too bad, because he only gave y ou a peek.

Prior to Gould writing about this indicator I had been loo king for

one that had similar characteristics without success. Thus whenGould wrote about it, I recognized instantly that I had struck

gold. I have modified this indicator slightly and researched it

back to 1939. This was a lot of work as it was before co mputers

and online data (remember when Barrons was available only on

paper, still is for the distant past). Meanwhile on Monday A ugust

9, 1982 the market took off like a rocket and never lo oked back. I

skyroc keted out of the red and had a big profit. In August 1982

the only people that were bullish were Edson Gould, Robert

Prechter and myself (probably a c ouple of others but I didnt know


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them). Ever yo ne else was extremely bearish. It was a perfect

example of crowd behavior.

Sign Of The Bull by Edson Gould

****************************************************************

TRANSACTION SIGNALS

All actionable signals are only for short term time frames. These

signals are not designed for intermediate or long term time frames

BUT . . . . .

After a short term buy signal, long term tax status can be

achieved by a continuation of the upward trend, which causes

short term actions to morph into long term holdings.

See more details in the glossary under Tax es, Futures Contracts

and Money Management.

Glossary Link

T RANSACT ION RECORD

In this blog a warning of an impending botto m (or top) is often

issued well in advance o f the formal buy or sell date. This allows

thoughtful consideration prior to a formal action signal. To get a

sense of how this works, you should read a few days prior to a

formal buy /sell signal. I often buy/sell in my personal account

based on the early warnings.

The transaction record near stock market bottoms will show that I

am ve ry skittish and usually remain so until the new direction is

well underway .
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y

Qualified buy signal given from December 5th to

Decem ber 20th, 2011

Buy signal in October 2011 was never issued due t o a

SERIOUS family illness

SELL SEPTEMBER 9, 2011

BUY AUGUST 30, 2011

SELL AUGUST 30, 2011 Stopped out, re-bought quic kly

BUY AUGUST 29, 2011

SELL AUGUST 25, 2011

BUY AUGUST 23, 2011

SELL AUGUST 1, 2011

BUY JUNE 23, 20 11

****************************************************************

MISCELANEOUS

There are useful items throughout this blog. For instance, the

Wall Street Quotes

Documents

01-22-12 Stock Market Trends & Observations Update