If you’ve been reading my recent posts at elliottwavetrader.net (where I continue to post), you know that I reluctantly closed long positions Friday. These were initiated July 18, when the BPSPX gave a Buy signal. As that signal progressed, I marked the T Theory chart on my site as having a regular T ending today. 

I haven’t been a fan of this market since mid-January, and I’ve stated numerous times that I had to see some Positive Outcomes in Price before becoming comfortable again. My main T-Theory Companion Chart has had a disclaimer on it for the last few years–’In a strong market, we may not get lower than a 50 reading [in RSI]’. And with the exception of the period covered by the T that ended April 5, we haven’t been able to stay above that 50 reading–until mid-July. It was about a week later that Price passed the mid-Keltner band on the daily chart, and we haven’t moved below that since. The curve of that mid-Keltner is now pointing upwards as well, which is a good sign. We are living with a Positive Outcome” right now.

And with that Positive Outcome, the potential for future Positive Outcomes must be considered.

There is the possibility that the T which ended today is only a portion of a larger T ending September 13. 

We have had more T’s in recent months than we get in a normal year. (In fact, there have been periods when there were no T’s at all within a 6 month period.)

In earlier posts I have explained what the VO and the McOsci represent:

The VO represents the MACD of the NY Advance-Decline Volume. It is not based on issues, which includes common stock and closed-end funds, ADRs, and preferreds, but VOLUME alone.

The McOsci represents the MACD of NYSE Up-Down Volume. It is affected by the quantity of daily volume, so that a light over-all volume day will have a less significant effect than a high volume day. As Greg Morris explains in his book on Market Breadth Indicators:

“…it appears that watching this indicator as it crosses from below to above the zero line will almost nail the market bottoms, including those that are just trading rallies.  This is probably because changes in the market are more quickly reflected in the up and down volume.”

(More on this and other Volume indicators can be found here .)

If you are a fan of MACD’s, you will understand that the Moving Average of Up/Down Volume is showing fantastic strength Market Breadth right now. (I suggest you view the unmarked T-Theory chart on my site to see more clearly the recent continued move higher in the VO and McOsci.) Notice on the above chart the continued higher highs and higher lows way above the zero line. While that shouldn’t continue indefinitely, it’s a sure sign of strength. And Price has followed. As pointed out many times, when the VO begins to recede, in a positive environment Price will continue higher. And that is what we need to see for this Positive Outcome to continue.

And should this Positive Outcome continue much longer, we will build a Price T with a left arm in mid-January, a center post  in mid-June, allowing for 5 months of T strength. I am not advocating that at this time, but it’s on my radar.

Back on May 22, I wrote a post about how “Every Snowflake is Unique”. I reluctantly went long, pointing out that we had a potential T ending July 8. But if you kept tabs on the T chart posted on my site (and shown above as it stands today), there was a shorter T on my chart ending June 8-10, and on June 14 I confirmed that the July 8 T was going to be a Bear T. The notes are on the chart shown above. Those moves gave me a positive outcome, although their results were not great for the market. And yet, as Terry Laundry pointed out, opportunity will come at these lows:

“I believe that T Theory’s major contribution will be to show you why it will always be difficult to buy at major lows, but using its reasoning you may be able to overcome these obstacles. At each and every great buying point you must struggle at the “moment of truth” where you face seemingly overwhelming negative odds. In T Theory this moment of truth is called “The center post of the T”. It represents the point in time where all the bearish negatives of the past have been discounted by the market and is about to be transformed into an emerging, new bull market.”

We must see if we get more positive results going forward, but it would be wrong to think that they have disappeared forever. There are many more examples of the strength in this market right now if you review the T-Theory Charts section of my site. 

So why am I asking you to excuse my confusion–I’ve painted a fairly strong case for continued forward movement. Why have I removed longs if I believe the market has the potential to move higher? I’ve done so because I have a T that ended today. I’ve benefited from being long for most of this move higher and we “need” a pullback to conform to T-Theory’s basic principle that the end of a T marks the end of a period of strength.  

When a T is over, equities should not do better than the return on the ten year bond if we are in a bullish environment, and we haven’t yet totally proven that case. Quite honestly, shorter term bills offer similar returns right now. There is less risk in holding these rather than the ten year, especially since they are liquid. 

The mid-Keltner is roughly at 4000 today, and I expect a return to it prior to bull continuation. But the angle of this mid-Keltner is pointing higher by 10 points each day, and that can be monitored on my charts. If you have a low risk profile–as I do–you may want to wait for confirmation of the future T’s when I post them on my main T-Theory Chart. But I would be wary of shorting what appears to be a strengthening market.

This blog is still on vacation for the next two weeks. But I suggest reviewing the charts in the “T-Theory Charts” section of the menu, as you will be able to see the continued strength in most of these.