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Saturday, March 14, 2009

Putting Waves to the VIX




Yeah, I like to put a wave count on most everything if it is clear enough. The VIX's move up from a reading of 20 in September 2008 is destined to be retraced 100% by the end of Primary Wave 2. Its a long slog. Its still holding above its gap area and has finally caught up to its 200DMA (I show an hourly chart for wave clarity purposes). It would take a combination corrective pattern it seems to push the VIX back to 20 or so. That move down on the VIX would obviously coincide with a Primary Wave 2 up in the SPX.


The first corrective pattern was pretty clearly a sharp 5-3-5 zig zag. The next corrective is the connecting "three", known as an "X" wave, which is also usually a zig zag. But, this appears to be a contracting triangle. The evidence for a triangle is that pink (c) wave within the triangle is a very complex wave and a triangle tends to have complex waves in the (c) wave positions.


If the triangle plays out, that implies one more move up in the VIX toward 50 or 50+ or so. Is that enough to make the market go to new lows? I don't know. Perhaps the "X" wave ended at the pink (c) wave position, thereby making the X wave some kind of running flat. Could be. We'll see Monday. As with every other chart I've shown lately, everything is on an edge waiting to show its hand this week.


But the more I look, the more it appears the SPX wave 5(5) is still very much alive and kicking.


The government didn't react at the bottom at 666SPX. One more drop to sub 700, and I would bet they react. That too is perhaps more evidence the market bears aren't quite hibernated just yet.

19 comments:

  1. Just curious if you threw a top trendline from the 89.53 high and try to connect to lower highs how it would look, that may give a hint as to where this last wave up should end.

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  2. Yeah I meant to put the top one on, but I see it somehow slid off heh

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  3. Dan, You're a MACHINE. Thanks for all the great insight and work. May all your trades be green. TVO

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  4. thanks dan, always refreshing to read your blog

    T-Bill

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  5. Hitting e with that little head fake out of the triangle should be enough to send it to a new low. Though last year I really thought we would be in triple digits on the vix for a new low. I really wonder if there are just not that many puts traded now because of the low prices of the equities...or if people are really just that optimistic.

    Longer term, I am wondering if we get a massive rally that just lasts 3-6 months with primary wave 2 ending this year...and primary wave 3 starting before the end of the year. Maybe thats too pessimistic, but I don't see how CRE problems, Subprime Eastern Europe, US jobs, Housing situation are going to be resolved in the intermediate term.

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  6. Hey Dan, I'm still following you. I remember about a month ago you made a post on Social showing some long-term Elliot Wave charts of the S&P. You offered the hypothesis that the Tech bubble burst was the start of the bear market (wave 1), and the subsequent rally to new highs was forced by extended leverage/credit (wave 2), and my question to you is, could this final push lower coming up be the end of wave 3, rather than wave 1 as you mention above?

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  7. I don't think so. It would be an awfully long-winded wave 3 I would think.

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  8. If you use Fractal Counting to verify the Waves on a Monthly time frame it's not impossible that were are still in 3(5) and not 5 (5). However with that being said we still should get a decent oversold rally potentially back into the 900's no matter if we are nearing the end of 5 (5) or 3 (5). The question is will this be the end of Primary 1 or not. We may not know that answer until some time later this year.

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  9. To Dan and everyone:

    Any opinions on what specific criteria will tell us when P1 is definitely over?

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  10. To the Anonymous post above regarding whether this is the end of 3(5) or 5(5), my question is whether this is 5(5) of [1] or 5(5) of [3].

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  11. Craig,
    Unless that whole structure is some kind of diagonal...it doesn't look like its 5(5) of [3].

    I actually think C ends with this low. Looking at the structures that make of A and B, it doesn't look like C should have more waves to complete.

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  12. this low...as in the one coming up still :-P

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  13. Poker if the "C" wave of the DOW was to expand by 1.618 times its "B" wave, were talking 2850 DOW.

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  14. relatively speaking 2850 is close to a government falling number I think...

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  15. Dan, great work as usual. Thnaks a bunch. Govt intervention, are you talking PPT or other perfectly timed useless announcements used to turn the market? Just curious as to your suspisions. Thanks.

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  16. I can only assume that you will give us your definitive conclusion of 5(5) vs. P2 as soon as you come to it.??...

    TIA.

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  17. ....4(5) vs. P2....you know what I mean.

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  18. hey jackass, when do you post? lets go, your as bad as lauriston lettter and market spectator, and smt, that jackass ,petey

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