Weekend review for reading up on T Theory and other technical/sentiment analysis, and how to consider when trading equities

For weekend reading, I posted a reference to Bill Luby's recent article about VIX that was at Seeking Alpha, which I posted at my UBTNB3 blog (link at site link & feed at right). Bill Luby maintains his VIX and More blogspot chock full of info on VIX and related matters, so I keep his site in the sites list at the right side of the page. I'll also note that the EWI folks remain in their point of view that we're going into a massive third wave down that will be even more crushing for equities and other asset classes - whereas Tony Caldaro with his Objective Elliott Wave (as posted here yesterday, from his Elliott Wave Lives On site, also with link at right) foresees a "C" wave down that won't go as low; and besides, we're probably getting ready for a 4th wave consolidation or correction upward before it even finishes its 5th wave of its wave one. Well I don't want to dwell on Elliott Wave theory right now - just want to remind readers we've got the context of some competing viewpoints and remain sifting for the most likely path of what's yet to come. Among the weekend reading we recommend, here are two constants.

One of course is Terry Laundry's T Theory. He's now added daily updates too, which is a real good addition. Even if you don't check in there daily, however, you'll want to check out his weekly update with charts and audio commentaries, at his T Theory site (also always in the list at right). Here's a quote from his main page, but this doesn't have the live links, so click the link above (or in the list at right) to get there and follow his links to his charts and commentaries:

For end of day updates go to this link T Theory Foundation then to the Calculation page for the chart/data and my short daily comment about 6:30PM ET.

Update for Saturday October 31 2009 For today's discussion we have two charts below; the first for the near term outlook using my regular daily charts, the second for the longer term Ts. See these charts or download them if you wish, then listen to my audio commentary, part A for the first chart, part B for the long term chart. Helpful Hint for Windows users; I have been told that if you are not getting the audio stream to work for you, right click on the audio link and it will download the audio file to your computer, after which you can play it. Daily Updates will continue at the Foundation site as noted above.

Daily Chart Download SRT20091030
Audio Commentary for the Daily Chart above Download TTO20091031A
Longer Range T Chart for Bond Fund and China Fund Download FAGIX vs MCHFX abcdTs
Audio Commentary for the Fund Chart above Download TTO20091031B

I also continue to recommend reading this weekend's Schaeffer's Monday Morning Outlook: Long-Term Uptrend Intact, But Risks Lie Ahead. Here's the quote from their intro so you can see what technicians Todd Salamone and Rocky White are addressing now in terms of sentiment and technical indicators regarding equities and the dollar:

The Dow Jones Industrial Average (DJIA) once again played tag with the 10,000 mark last week, but headed sharply lower as the weekend drew nearer. Still, the Dow did manage to outperform its major counterparts for October, carving out a gain of 0.01% versus the S&P 500 Index's (SPX) loss of 2% and the Nasdaq Composite's (COMP) drop of 3.6%. The market remains rife with concerns, and Todd Salamone, Senior Vice President of Research, zeroes in on several of these potential hurdles in this week's commentary. In addition, Todd takes a closer look at put/call ratios for the SPX and the CBOE Market Volatility Index's (VIX) massive spike to close out the week. Next, Senior Quantitative Analyst Rocky White takes a look at the U.S. dollar, the massive amount of skepticism that has been directed toward the greenback lately, and the potential impact of this sentiment reading. Finally, we wrap up with a look at some key economic and earnings reports slated for release this week.

Personally I think they should spend a bit more time also analyzing the relative underperformance of the Nasdaq, but it's stll good and interesting technical information they present.

From the swing trader perspective, the decision tree is largely this: either we're going down for a real big drop to last at least a couple more month or longer. Or we go further down for a moderate drop, then have a possibility of seeing equities to higher levels. I'm grossly oversimplifying, but for a reason. Near-term turbulence aside, we're more like to see equities drop lower into mid-/late November, without new highs first. So investors and slow (KI$$) swing traders should maintain the attitude of selling rallies, shorting equities and/or staying in cash, until either (1) we identify the completion of the first wave of "C" completed (maybe at SPX 1022? - just guessing!), or (2) if you're really a slow trader, we identify the entire "C" wave down complete (maybe around SPX 866 or lower? - just guessing!), or (3) we're proven wrong and equities push to new rally highs (we're really not expecting this but it's to protect just in case, ya know!).

Shorter-term active traders will still want to follow the waves with wave counts, trendlines, cycles probabilities and levels. Just recognize the obvious - volatility has increased - and respect it with measures like reduced position size, trading only when very clear on your setup, doing TMAR on half when first objectives are met and tightening stop on the rest, being sure to stop out when wrong, etc. Mostly the discipline you should always be using, but with heightened alertness now.

UPDATE: Tim Wood of Cycles News & Views (site included in my list at right) is the featured technician this weekend in the 1st hour of FinancialSense.com Newshour with Jim Puplava. Tim tracks financial markets expertly with cycles, McClellan and other technical indicators; and is also the only Dow Theorist I trust. So it's worth a listen.

ADDITIONAL UPDATE: Also check out Mike Burk's Technical Market Report at Safe Haven: http://www.safehaven.com/article-14893.htm.