Thoughts for December 16, 2007...

This week we are going to go back to some fairly basic Elliott Wave interpretation. Just about anybody who is familiar with the basics of the Elliott Wave Prinicple know that price tends to unfold in five-wave formations followed by three-wave corrections. When we look at price movement on the S&P 500 up from the low of November 26, we can see a fairly clear five-wave formation up into the high of December 11. The three-wave formation down from this high seems to be a fairly predictable example a typical Elliott Wave structure.

We can also find further confirmation of this interpretation by looking at the behavior of the Relative Strength Indicator (RSI) as these waves unfolded. The high set on the S&P 500 Index received confirmation by a corresponding high on the RSI. Conversely, as prices closed at a lower low for the close on Friday, December 14, the RSI actually finished higher than on Thursday. This suggests that the downward movement on Friday lacks any real momentum.

We can add to this information the fact that the correction from the highs of December 11 have retraced approximately 46.6% of the previous rally. This suggests that a decline to between 1450 and 1477 would reflect a retracement between 38% and 62%. Such a retracement would be consistent with the proportionality that we typically find suggested by Fibonacci analysis of price movement.

This combination of elements suggests that the current downward price movement possesses many of the characteristics typical of a standard Elliott Wave formation. The structure of the price pattern from November 26 assumed five waves up followed by three waves down. The downward price movement off the high of December 11 has retraced a proportional amount of the previous wave higher. The lower low reached with the close on Friday was not accompanied by a lower low on the RSI. All of this suggests that any further downward movement from this point will be limited.

A post for World AIDS Day...

Yesterday was World AIDS Day. Once a week I post my thoughts on the market, but during the week I work with patients living with HIV/AIDS. Most of the folks I help are in the advanced stages of the disease. I am proud to say that every person with whom I have worked have seen improvement in their lab values. Unfortunately, not every person referred to me has chosen to accept my services. Equally unfortunate is the fact I am only one person, and the need for assistance far outstrips the resources available.

I was asked to speak at my church this past Sunday in recognition of World AIDS Day. After the feedback I received from those who listened, I decided to share my words here. I hope you find them worth your attention...

Today is World AIDS Day. Given that I work exclusively with individuals who live with HIV/AIDS, Beth and Jay asked me to say a few words for the occasion. I had a difficult time bringing my thoughts and feelings together into something well-developed and structured, so I just decided to share with you the ideas I wanted to impart.

Since today is a service devoted to Joseph, I thought about what he and Mary must have gone through in their own experiences as unwed parents. It occurred to me how little we hear about their parents or their family. It made me wonder why they did not stay with an aunt or an uncle or a distant cousin when they returned to the city of Joseph’s origin. It made me wonder if they experienced the same reactions from their family and their community as many people who live with HIV/AIDS do today.

I wanted to share with you the types of people and issues that I see on a daily basis. There are the women who were infected by their husbands. Husbands whom were either stepping out or on the down low. There are the individuals who live with schizophrenia or some other diagnosis of psychosis, whose success with treatment depends more on their mental health care than their HIV care. There are the developmentally disabled, who are simply incapable of managing the complicated regimens that often accompany the treatment of advanced HIV. There are those who are dealing with substance abuse issues so profound that their addictions control them more than the patient’s own sense of self-preservation. There are some who live with one of these. There are some who live with all of these.

There is the patient who served hard time for a crime committed in his youth. Though he has served his debt to society and been out of prison without incident for seven years, he has been repeatedly denied full-time employment. Nevertheless, he reliably pays his bills by mowing lawns, cleaning industrial sites, and working odd jobs. This past week we got back one of his lab results, which was at desirable levels for the first time in years. When I told him how proud I was of his accomplishment, he looked up at me and said, “I just needed somebody to give a ____.”

We can focus on many different interpretations about the meaning of Christmas or how to win the fight against HIV/AIDS, but none can be clearer than this. It is now during this darkest time of our year that we celebrate a gift of light. God sent to us somebody who cared for us and loved us and forgave us for our flaws and our shortcomings, and who asked little more than that we do the same for one another. We may not be able to solve many of the world’s insurmountable problems, but sometimes all we really need to do is care.

Thoughts for December 2...

I have kind of been struggling with what to post tonight. I have decided to be succinct. The S&P 500 traded down toward the lower range of the long-term trend channel that we have previously discussed, and which is illustrated in the chart below. It also declined to approximately 4.6% of its 50-week simple moving average, as we have also discussed. I should not the similarity between these situations and the depth of the thrust down in August.

These declines were all followed by a rally back up toward this same 50-week moving average, as illustrated below. Given the speed with which this rally has progressed, I would find it surprising to see the resistance of this moving averaged violated without some sort of proportional pull-back.

At this point, it is difficult to say how deep that retracement will be. I am of the opinion that the lows of the recent downtrend have been set. I would find it encouraging from a bullish perspective, if the 1460 level was not successfully penetrated. That said, it is entirely possible that we might see another test of the lower range of the trend channel without substantially altering the overall scenario that I have been describing over the last few weeks. It will be an interesting week to watch.