Weekend reading to prepare for the trading week(s) ahead - T Theory, VIX, Benner-Fibonacci cycle, and SPX overbought - or not?

Terry Laundry is updating his T Theory work at his T Theory website - today (so far), he's showing:

Update for Sunday August 2 2009 (to be completed by afternoon)
Today's Topics include;
1. Discussion of the small black T in the AD Line chart that calls for a small, short correction next week.
2. A review of my companies July 31 2009 report and introduction to the concept of "benchmarking".
See the daily Indicator PDF chart below then listen to the audio commentary that follows:
Short Range Indication Chart Download SRT20090731
Then read my one page report to clients that begins to talk about strategies and other concepts to maximize the longer term A-D Line Ts rate of return for investments and the Audio Commentary that follows.
ASIC Report Download 2009.07 Report.web

Here is what Terry's new T Theory chart looks like at that link he provides - do remember to go there and keep up with his audio comments on what this means and how to intepret (and how to use it):

Todd Salamone and Rocky White have once again prepared good analyses that I recommend my readers take a look at, in Schaeffer's Research Monday Morning Outlook: After a Blisteringly Hot July, 1,000 Now Looms on SPX. The Schaeffer's summary states:

Although last week cooled off just a little bit, the Dow Jones Industrial Average (DJIA) finished its best month since 2002, soaring 8.6% in July. The major market indices traded flat for the better part of last week, only to rally sharply heading into the weekend on a General Electric Company (GE) upgrade and stronger-than-expected economic data. Looking ahead to next week, Todd Salamone, Senior Vice President of Research, zeroes in on resistance at the 1,000 level for the S&P 500 Index (SPX), as well as the Russell 2000 Index's (RUT) 80-week moving average. Todd also checks in with the 10-day moving average for the buy (to open) call/put ratio on the International Securities Exchange (ISE). Then, Senior Quantitative Analyst Rocky White explains why conventional wisdom surrounding a recent "overbought" signal from the SPX's relative-strength index might be off the mark. We wrap up with a look at some key economic and earnings reports slated for release this week.

And don't miss this one - Bernie Schaeffer himself weighs in with Schaeffer On Charts: Beware 'Group Think' on Volatility VIX traders certain volatility is headed higher. In addition to some other great comments, he points out that when VIX option premiums were acting and pricing similarly before - in August 2008 - that was actually "too soon" compared with the SPX market playing out its October 2008 swoon. He suggests that currently, options traders buying SPX puts (and calls) at current "low" levels are actually overpaying relative to recent historical volatility.

(I may add some additional items to this weekend reading list later today - but these are definitely at the top of the list!)

Here's some information I've developed using the Benner-Fibonacci cycle, in the "for what it may be worth" category! I am aware that Terry Laundry is bullish into 2010. And I see that Raymond Merriman believes that the move up from March 2009 may extend so it isn't just a 5-month rally, but last for 16 months - almost the same time period as Terry Laundry states (17 months). With the Dow Industrials having poked their January highs, and remembering my promise to explore some of the more bullish possibilities, here's one aspect of that. From an Elliott Wave perspective, I think it would have to be a larger "B" wave (and not a 4th wave) because moving substantially higher wouldn't really fit the typical Fibonacci relationships for a 4th wave, and would also get past more trendlines to a point where it wouldn't look fitting for a 4th wave either.

The Benner-Fibonacci cycle is one of those which I covered a couple of months ago in my "Cycles Review" series (you can use that label to locate more about those cycles. Last night I browsed my copy of the Frost & Prechter book, "Elliott Wave Principle" - first, I verified that a 4th wave often retraces 38.2% of the 3rd wave (in practice I think we know it can sometimes do 50% of the 3rd wave). I think the SPX is near that, but much higher and it looks emphatically more like a "B" wave (and the QQQQ's of course have now retraced 50% of their entire move down, having tagged $39.82). Tony Caldaro has the same view that I do, that the drop from the 2007 peak is a three-wave move and not a 5-wave move (as EWI asserts). Couple that with these Fibonacci levels, and it's looking more like we may have a "B" wave in progress. That's how Tony has been labeling it all along, but he uses his own proprietary OEW methods, so partly I'm having to translate a bit using the EWP-book based EW that I know. Frankly, it's quite odd for me see see a 3-wave move that has the "C" wave so lengthy, but I think I can get past that if the market is willing to do so!

My eye fell on the Benner-Fibonacci cycle discussion in the EWP book (page 151 and Fig. 4-18) just when I opened it last night. So I returned to it and worked out the projections using its cycles for peaks, intermediate lows, and "panic" lows. It projected a panic low in 2003 - check. It projected an intermediate low before that, in 1995 (before the market really took off in the late 1990's). It would project the next intermediate low in 2011, and the next panic low in 2021 - so, will see!

The Benner-Fibonacci cycle projected a peak in 2000 - check. And the next peak in 2010 - so again, will see! Doesn't have to be a higher high, but would be an important high in this cycle. (The next one would be in 2018.) So perhaps the Benner-Fibonacci cycle helps to support the idea that the rally has further to run before finishing its work in 2010.