Friday, December 4, 2009

SPY: Bearish Wolfe Wave?

Eric commented this morning that it would be funny if we sold off on the "good jobs number". Well, that certainly didn't happen this morning with yet another yearly high on the SPY. It should be noted that other indices have not been making new highs this week as new money is running toward the safer big names... perhaps a sign we are near the top.

Eric also noted that macro man has stated the obvious: everyone has the 50% retrace level (SPX 1121) on their radar.

Also, Bespoke observed that we have had a few days where we gapped up or had a quick rise at the open, only to sell it in the afternoon. The adage is that dumb retail money buys in the morning and the smarter "adult" money sells it in the afternoon... another bearish indicator.

The next meme may be to protect the dollar with higher rates and the bond market has been (very subtly) signaling this. Gold and reflation names are being hit today.

Let's look at the obscure Wolfe Wave pattern for a clue. Yesterday I looked at the XME and the Wolfe was not very clean. Today's SPY Wolfe shows the peek above the trend from Point 1 to Point 3... so this may be Point 5 this morning?? The short-sell target is 109.60 and the time-frame is 12/9 (next Wednesday's close). A run above today's high would not invalidate the pattern, it just gives a higher Point 5 and the target would need to be re-calculated.

I do not do swing trades on SPY and prefer to use other indices or stocks, but it is worth looking at the SPY for the general view. I got some TWM (short smalls) and short GDX this morning... so I'm sure Eric will be fading me.

For more info on Wolfe Waves, Todd has done some good analysis on this indicator and I'm just starting to look at them. (He has no association with my lame attempt at Wolfe Waves!)


  1. Tony,
    Is your 4-point based on the swing low from yesterday (the 3rd) and the swing high based on 11/23?
    If so, connecting 1-4 to figure out the target line, we just hit it at $110! And what a move it was!


  2. Yeah, it looks better with the 130-min or 60-minute chart... I'll figure it out eventually.

    But it worked this time.

  3. I updated the chart with 65-minute bars:

  4. I said the 'noise traders' would buy it in the morning.

    I'm not fading you, I'm fading them... you just keep being with them.