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Tuesday, March 17, 2009

Elliott Wave Update ~ 17 March

I present 2 charts: A bear case and a bull case.
I can honestly say the evidence of a wave 4(5) now looks rather weak. Have I bailed on it 100%? In my heart, I bailed on it last week when I was doubt due to the breadth and volume of the rally. But for wave-sake, 780 would be the maximum for 4(5) I would think. (Of course you would have to ignore the NASDAQ - it broke 1456). If 780 resistance is broken to the upside, your looking at a run to 796, probably a touch into 800. This would fulfill the inverted H&S pattern I have shown a couple of times lately. That is the spot a nice pullback would likely occur.
If wave 4(5) is to have a chance of surviving (and hence 5(5) to new lows), it would have to start immediately tomorrow pretty much. Today finished on the high. From afar, it looks like a 5 wave move up so far from 749 to today's peak, but it ended rather bullishly so..... The inverted head and shoulder neckline was never really tested by the SPX. So I respect that upside target of 800-804 if 780 breaks to the upside.
The bearish side of the case has a few things going potentially:
1. The VIX is still holding above 40. (In danger of tracing a 5 wave move down - bearish)
2. The banking index is holding below 27.95.
3. There is a "legitimate" (I don't like it though) wave count for 4(5) to peak
4. OPEX week, Wednesdays are usually the brutal days.
5. 780 is tough resistance.
6. The friggin market is due for more than a 24% correction.
7. Negative divergences showing up on the 30,60 minute charts big time now that a new peak has taken hold.

Bull Side:
1. Breadth and volume is very good.
2. Key support areas have held solidly. 742 then 750.
3. Broken above the upper channel lines.
4. Wave structure looks more bullish and solid than a failed bear rally wave we have been so used to seeing.
5. NASDAQ has violated all known wave 1(5) possible lows - RED FLAG situation for the bears.
6. Its Springtime - the long winter is over and mood is probably shifting somewhat.
Here is my thinking (out loud): The inverted H&S has an upside target of 805 max. 796-804 is a WALL OF RESISTANCE that will not likely be cracked on this initial move up.
So the first MAJOR pullback of more than a 24% correction may in fact occur after a touch of 800. That would fulfill the IH&S pattern. Then late this week or early next week the bears would absolutely SHRED the rally back down to some critical support area, perhaps even 742 or maybe a tad lower. Then that area reverses and holds and Primary Wave 2 continues into the Springtime.
But beware, I am just thinking out loud here. Tomorrow will be a key day.


  1. great chart dano and commentary ....donation to follow tonite soon as my wife gets free....kli

  2. Kli your awesome and I wish I coulda got a proper wave 5 to new low. But the Intermediate wave (4) triangle pattern only produces a thrust. I feared that would be the case.

  3. Thanks as always for the charts. However, I would disagree with your points regarding the good volume for the bulls and a successful IH&S. The volume has been decreasing each day since "the bottom". As a matter of fact, the red candle yesterday surpassed all the daily green candles dating back to at least Dec of 2008 except for the initial candle off the bottom on the spx daily chart at stockcharts. Not very bullish to me.

    As for the IH&S, the classic telltale sign as for success is volume right? So we broke through on lower volume and it continues to dry up without even a retest of the neckline, so we'll see how this turns out.

    Only playing very small positions at this time but I can't get myself into the P2 camp yet.

  4. Great work one question:

    Isn't there a gap to be filled just past 800?

  5. If you are a bear you better pray that we drop a bit and then push higher fairly quickly. We need a count of 11 to turn this into a corrective wave (3, 7, 11 is corrective - 5,9,13,17, etc is motive). So, if we drop further than maybe 760 tomorrow and then bounce back it’s actually a bullish sign and will further strengthen the probability that Mr. Green is in play. Mr. Blue needs to push up a bit further but not too far - 804 must not be breached.

    Grabbed this from a site I like, would like to get your thoughts on the corrective vrs motive count.

  6. Dano ..cant get pay pal to wurk...hehehe..checks in the mail......may have ta wait til know im good for it....hehe..kli

  7. CK, you are correct. A 7 wave move is corrective (2 sets of ABC's I suppose)

  8. Though today’s price action was impressive, the volume was not, especially on the NYSE. We’ve seen these wedges up before, and they usually end badly. The more the bulls keep pushing them straight up on lighter volume, the more likely that eventually they will just stall out and reverse downward — and the harder and faster they push, sucking people in who are afraid they’re missing the next big bull, the faster it’ll burn out and crush the latecomers. Eventually, you run out of ‘rally chasers’.

    We’re still waiting for that first real pullback to give us some idea as to whether this rally has staying power or not. Yesterday’s reversal/distribution day was a bit of a red flag, but they tried to cover that up with the action today. But underneath the surface, the lack of volume reveals a lack of conviction.

    We’ll see how things pan out. Tomorrow’s Fed day, and Friday is quad witching/expiration day. No shortage of reasons for things to get pushed around.

  9. The Russell 2000 still has about 7% to go before it violates wave 1 territory. The COT chart also is very bearish, although I haven't studied its reliability as an indicator, and the put/call is also very bearish. I think it may still be too early to jump on the bull bandwagon...not until wave 2 is violated anyways.

  10. This could be wave 4 of primary wave 1.(As Shedlock has labeled the count) I was expecting it at a lower level but this rally has been somewhat powerful and the wave 5 March low bottomed at a standard low of -2100 McClellan summation index reading so its going to rally to a 0 or +1000 reading over the next few weeks. We saw weaker divergences at the March bottom vs Nov bottom like fewer new lows, higher low on Summation index (-5000 Nov to -2100March). The Panic of 1907 model still calls for a consolidation into early April. Nasdaq,Value Line, XOI have been spot on following it. The Dow and SP got a little ahead on the decline but are rallying back to the consolidation area. There was a consolidation from March 25,1907 to July 25,1907 with a continued sideways movement into early August before the collapse. I don't see this rally going above the Feb highs and upward momentum will probably peak within a couple of days and we'll have a weaker rally to sideways action especially after March 25. On the 1929-32 model we're about topped out but this bear has been continually crashing more in the mold of 1907. I want to see how this rally handles the April earnings season before it can be considered an impulsive new wave up.

  11. Great options...thanks for the thinking out loud part...we're all doing that and some are doing it with their accounts...yuck.

  12. I was just thinking about relabeling my chart having wave 3 top at 774. 5 waves for wave 3.

  13. Just waitng patiently for the game to play out. The 5-3-5 is what I wanted. I got it, now we'll just have to see. I am struggling more each day to stay in P1. Esp hard when you know P2 is just around the corner (if not here already). My only issues is that everything still sucks economically. However the market will lead, so maybe this is a good sign. The two charts and options is a great presentation. Thanks DE.