I'm always on the lookout for novel ways of looking at and timing the market.

Late last year, the following chart was sent to me:

It was dated November 20, and it called for the NASDAQ's fall to end on that very day.

Well, I've got to say, I'm impressed. Strictly speaking, the NASDAQ made a nominal new low in March (and, were I watching this chart at the time, I would have dismissed it as having failed). But in a broad sense, buying up NASDAQ stocks in November would have worked out quite nicely so far. So, with the benefit of hindsight, I'm intrigued.

Apparently this is the product of something called the Heccis Cycle, and I've tried to buy the book to learn more (the, errr, order page doesn't seem to work as well as the cycle does………I can't for the life of me figure out how to actually buy the thing). I'd be interested in opinions as well as input on other cycle techniques that have worked out for Slopers.

The folks over at Elliott Wave International published a chart on their Friday update which I like quite a lot, shown below:

And this is where the real question for me is – – – will the market (a) not see the highs from June at all again this year, tumbling from these levels, as suggested in yesterday's post?; or (b) stabilize somewhat around 800 or so on the S&P, gain strength (for God Knows What Reasons) and finally push up to the ~1,000 level, and then really fall to pieces.

I really wish I knew, because when the S&P does get to around the ~800 level, nothing's going to matter more to one's trading success than picking the right train! If it's (a) and you choose (b), then you're going to miss out on the fall, and if it's (b) and you choose (a), you're going to get badly damaged, just like the March-June period from 2009 as well as 2008. Grumble.

Hi Tim

I'm a big fan of Slope and was intrigued by a comment in your latest missive – "I cannot picture a scenario in which we get above it this year." Perhaps there is. I call it Rally 2, instigated in much the same way as Rally 1, but in a much more compressed time frame.

I am a behaviourist at heart. Once I have digested some of the fundamentals, the technicals, EWs, chart-pattern formations, Dow Theory, Fibs (and trader views such as yours) et al, I put my behaviour hat on.

Elliot Wavers such as Robert McHugh, Karimba, Lamoureux and even EWI's own STU, have expected this June 11 top to be followed by:
       – a zig-zag down (albeit on differing wave counts) to a mid/late July bottom
       – followed by a final summer surge (or what I call Rally 2)
       – followed by Catastrophic wave C down in the autumn.

I know this idea is popular out there, except with Elliot Waver Bill Neely who has called the top as Jun 11, like you.

I am not a conspiracy theorist but I do believe that we have just witnessed some of the strongest market intervention by the President's Committee or the PPT (call it what you will) that we have ever seen. The conditions for intervention were perfect. Loaded up shorts, lower-than-average volume, a weakening USD, bail-out funds sloshing to big banks balance sheets via the AIG conduit, and the outrageous tweaking of accounting rules. It didn't take much buying of the market to drive a short-squeeze that could be put into fifth gear by 'dumb money' and fed by the 'green shoots' brigade.

I expect much of that to happen again. I expect a down towards 7800 in the next fortnight. Shorts will be loading up as the Jun11 top argument gains traction. This is just as we enter the summer doldrums on volume. Next, I believe the USD isn't going to bounce any further than 84 on the index in the coming fortnight. Thereafter, the pressure will be back on (for all sorts of very obvious reasons) and we'll see a falling dollar that's great for stocks (Inflation looms, will be the call). The bond recovery is looking like the dollar too. Renewed pressure on bonds will reignite the yields (inflation looms, will be the call) and drive minds to stocks again. And people will be saying "where's that next rally?".  Oh, and "Inflation is looming". Did I mention inflation?

Behaviourally, the mood will be dominated by those not wanting to miss out on 'the next rally'. Many of them did miss out on Rally 1. But not Rally 2. They will be in there early when the very first of the new green shoots appear (what do we call these?). As usual, these will have been planted by the Fed, watered by the big banks, and fertilised by the media. Expect the last week of July and the first week August to be happy blue-sky days on the news tickers. We'll get commodity speculation to kick it all off, and upswings on market-proxy Goldman Sachs. I really don't think it will take much to turn this current mini-reversal and create Rally 2.

But compared to Rally 1, I expect a take-off of rocket proportions – a true stampede for the markets. 1050 tops for the S&P, 9700 for the DOW look like a shoe-in  under this scenario. And then the rocket fuel will run out as some piece of macro news, that can't be manipulated, finally makes folks understand what deflation is really all about, and why we need Austrian economics not fiscalism. The plunge will be un-protectable.

I'm a behaviourist and I know things have a (bad) habit of repeating themselves, so I'm for Rally 2.

And I know I may also be wrong. That's why I'm currently 75% cash and ready either way, watching GS, BKX, copper, gold and oil like a hawk.

Thanks for your site.

Nick

First off, the folks at Elliott Wave International wrote me today saying they are kicking off a 17-city How to Trade in a Fast-Moving Bear Market tour from September 4, 2009 to February 2, 2010. You might want to click on the link to see if they'll be anywhere near you, since I really like their work and – – assuming this danged bear market fires its engines up sometime again – – I have found Elliott Wave to be helpful as we stairstep our way down.

Second – speaking of the same folks – here is a graph from their Short Term Update tonight (they allow me to occasionally republish graphs from time to time here) which I like:

As usual, click on the graph to see a bigger version – but it does a nice job labeling the past year of market activity. The horizontal line marked as a .382 retracement is the crucial line in the sand. Either the countertrend rally has exhausted itself (which would agree with the "2" labeling), or what we experienced over nearly four months was simply the first phase of a more hefty push higher.

My money is at least oriented toward the notion of a meaningful "B" wave down, but not cracking March's lows yet. What would harm me the most – and this is why I'm relatively lightly positioned right now! – would be a swift rise above that line, prompted either by (1) end-of-quarter window dressing on June 30 or (2) a surprisingly bullish jobs report Thursday morning.

You know what three words are next………..we shall see!