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Wednesday, March 25, 2009

Elliott Wave Update ~ 25 March

What seems to be occurring is that the market wants separation from the Primary wave 1 trappings. In other words, if the market were to be pushed back underwater from this fragile point, it would be back in Primary wave 1 parameters. Back inside the old trendlines, RSI resistance points, etc. It apparently isn't ready for that. The "breakdown point" out of the massive Intermediate wave (4) triangle was the huge 819-827 gap. It is *almost* closed but closing it does not mean it is reconquered. It can only be reconquered by trading above it, even if for just a while. It has to be wiped out as a breakdown point.
The sellers are exhausted. The advance/decline volume ratio has had a couple of 10:1 up days along with a 20:1 and...40:1! There are no overwhelming sellers to push it back into Primary wave 1 parameters apparently. Short sellers can get the ball rolling a bit but then they have to cover. The "dips" are being ferociously bought at this juncture. And why wouldn't they be? If even EW analysis predicts a rally to 940 (or even 875) or more, why not just buy and hold at these levels? Or you could buy here and hold until the 200DMA is hit.
But Elliott Wave theory isn't just about trendlines, RSI, its about sentiment and social mood. And when that mood shifts to positive, it will power this market. Springtime is a season of uplift and growth. And the market is ruled by greed and fear. When social mood is on the upswing, greed kicks in. They are buying the dips.
The one thing I will repeat is that you have to be prepared for upside surprises in this Primary 2. Today was no exception. I am having to adjust my *expectations* of wave counts, etc, because there has been a trend change.
As far as wave counts are concerned, there are numerous ways to label the structure up. I changed it once again. There are countless chart patterns going on from bull flags to inverse head & shoulders, possible ascending patterns, to trendline backtests to DMA strikes. And they are all bullish.
But to keep it simple, I will say this: This market appears to want to erase the breakdown point of 827. And it can only do this by trading above it. A break above leaves the door open to 850 and then possibly 875 as a peak [edit:I like 858]. If this is a Minor wave 1 still, Primary wave 2 will be a huge rally indeed. I am not positive it is wave 1. But for now, we'll keep it that way.


  1. whoa dan, very bullish tone. and you certainly attempt to justify, but to keep things simple, why not have your 3rd chart as the primary. way i see it kenny's got it right - just see subwave 1 as topped today, eod rally is your retrace, then we hit the next wave down (a 3) of subwave 2 tomorrow. isn't that much more simple? my indicators are jiving with this as the 30/60/daily are showing RSI and stochs with big room to go down

  2. Are you still holding FAZ? Is it time to sell?

  3. Thanks Dan,

    I am willing to wait for the turn....will wait out the divergences on the hourly.

  4. Johnny Blue, if its a wave 2 Primary, and I'm calling for a rally to eventually hit the 200DMA, how can I be bearish?

    The market is having its pullbacks, just not deep in relation to the overall move from bottom.

    It will eventually, but I am suggesting that perhaps the market cannot afford to do it from this spot. Maybe a higher spot or its pushing sideways a bit further out in time.

  5. This is the end of the 1st Quarter and End of the Month. They will not let the market drop much thru next Tuesday. Once Quarter/Month End is done then a decent pullback will occur with at least a 50% Retrace from where the peak is thru next Tuesday.

  6. Give me a break. There are plenty of EOQ, and EOY window dressings, that did not work in favor of MMs. That's a pretty flimsy hook to hang your hat on. Here, you want an example of both? Dec 2007.

  7. Dan,

    In this post, you conclude by emphasizing the potential for a breakout above 827, with a continued rally to 850 or even 875. But in your previous post, you were emphasizing the potential for a wave 2 down to 766, 750, or even 731.

    So, do you think wave 2 goes down to 766-731 by April 1, or do you think wave 1 continues up through 827-850-875 first?

    To me, it seems likely that M2M on 4/2 sparks wave 3 to 850, 875, and above.

    What do you think? Thanks.

  8. To me, it seems likely that M2M on 4/2 sparks wave 3 to 850, 875, and above

    Is that not already priced into market?

  9. SRS, The price action of the last 2 days leads to me to conclude the market wants to wipe the slate clean of that previous key breakdown point (827 or so). The wave structure supports a move up prior to a move down.

    I can count a completed 5 wave move in an alternate count that has today's high as the peak. But the reversal today was on good volume.

    I'm just slowly coming to the conclusion that the market does not want to get trapped back inside Primary wave 1 parameters and trendlines.

    These trendlines will be tested some more but if the market buys itself some time and breathing room and distance, it can survive any serious pullback.

    Just an opinion of course. I'll look at 2002, it probably did the same in pulling away from the 2 year bear...

  10. Dan,

    Thanks for your thoughtful reply. I really appreciate your reasoning through all of the evidence and possibilities, and sharing your conclusions as they evolve.

  11. To Anonymous:

    On 4/2, the FASB is scheduled to hold a final vote on changing M2M rules. Congress has pressured them to do so. So M2M seems likely to be changed. How much is the question.

    The market reactions seem to be four possibilities: 1)No reaction because change in M2M is already priced in. 2)"Sell on the news" market decline. 3)Rally of some degree & duration because it will help banks upgrade their books. 4)Sell off because investors will distrust banks' claims even more.

    I think 3)Rally is the most likely, given the current rally sentiment and rally strength. But we'll know for sure on 4/2.

  12. SRS, yes I have thought of what may happen and how it fits into the wave structure. But right now its hard to see because its still days away.

  13. Danl; Great analysis and awesome work, yes I'll be donating as I don't have software for these types of charts, but here I go again with my gee whiz. I have B labled as 3 as shown on your March 3-19 charts, C is actually A and (5)5 is B and we are finishing C which is why its acting as it is. Nice to see you mention 875 as I did a few days ago. Yes the trend has changed, its been moving sideways and yes it has bullish TA ALL over it, it has to so it can collect those that will be covering after this C up D down E up is completed then we go for the bankrupting move down to 625 and possibly 500 as the perception becomes that buyers were fooled and trapped again and where the weak hands finally give up hope. Only then can the strong hands take over because I want to buy it lower yet there were no sellers left to get it there. I'm not a permabear as I feel we are at a time when one shouldn't be. Again this is merely forming the the left shoulder of the head and should that will eventually be seen as the head of a MASSIVE head and shoulders bottom that started 6 months ago.

  14. Daneric-your "to put it simply" comment at the end of your notes is VERY helpful to those of us just learning EW-thanks so much!

  15. Dan,

    You seem to be having the same problem you had when we were at 666. Emotions catching up w/ you and you started extending your 652 targets to 625 for Wave 3. Relax and stick to your guns, your over bearishness kept you out of this rally, and your over bullish is going to do the same on the pullback. Makes no sense of taking a kick off back 99 yds, just to step out of bounds at the 1. Remove the emotions bud.

  16. Anon, I am more than amply invested in this rally by buying for my 401K sub-700. There has been no change in that. I am nothing but long. I will sell half at the 200DMA hit more or less is my thinking.

    My short term trading account is dormant no time really to monitor the tape for daytrades except small potatoes.

    But all in all not bad as closed on 832 and the NASDAQ ran like a bull.

  17. Daneric/All--- just started following your site, thanks! I am fairly new at EW... can someone answer this question in a few words: Regarding the weekly SPX, could we be in a wave 4 correction from the major downtrend, which began 10/08/07, wave 3 beginning 5/10/08 to 3/2/09? THANKS Lee