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Wednesday, April 15, 2009

If Its an Ending Diagonal

Then it would make more sense for the move up to be labeled something like I have above. I know I throw a lot of counts out there and I don't mean to confuse the situation but, hey its an EW blog so what else can I do? You have to adjust as the waves go along I suppose. But mainly I like to spark ideas and record them.

But again, here is the main point: This is a Primary wave 2 rally correcting the ENTIRE market move from 1576 to 666. So even a mere 38% corrective move would equate to 1013. I only suppose one thing will happen: the 200 DMA will be hit. Its still falling of course which means this is a bear market no matter what anyone says. And it currently resides at 987. Its under 1000. By the time it gets hit perhaps it will be 920-960 or so. Haven't really thought about it.

Its that simple for me. I am long in my 401K and untouched (thank god its not a daytrading type account or I would have churned it to death LOL) until the 200DMA is hit. And then we'll see. Also check out my cycles post. I am sure this rally will have 13 cycles on the hourly MACD. I am betting it will be much more than 13 though. But we'll start with 13 and we may be in only cycle 7 or starting 8.

So those few things help me to keep my eye on the ball. There is still a lot of doubt about this rally it seems which means it has a ways to run I suppose. This P2 will top only when the majority of the public is convinced that 666 was the *bottom* for sure. Thats the way it works. This is a major wave taking form not some Minor or Intermediate type. It will be easier to gauge social reaction to this rally more than others.

I don't suppose a major downward correction will occur until, again, the majority of people are convinced it won't happen. And that would include me. I am only human too.

I just received a prominent newsletter produced by Citibank's finest TA folks who are calling for a top in this rally very shortly and a move on down below 666. I think they are wrong of course. And hence the rally will continue. But why? Lack of sellers. It takes a while to ramp up fear to the levels seen this past 8 months. A 28 day rally is not enough of a correction for an entire 18 month Primary wave 1 bear move!

Every support/resistance zone gets shorted and although there are small victories, bears keep getting squeezed beyond their belief. Sooner or later they will turn bullish and then we can finally correct some. I suppose a blowoff top to 876 or so will be very bullish. But wave-wise it would be a valid wave spot for a corrective to occur. How deep? Maybe it only closes the 810 gap and holds 796.

But again I ramble. The market will do what it needs to do. But I'll keep counting nonetheless. Sooner or later the waves will take some more maturity and the structure becomes clearer. The fact that many TA types are struggling is also a clue that this structure is still very "young" in scope. Which means it has much more to go both in time and price.


  1. tend to be in your camp on this post completely..which of course means we are wrong

  2. Thanks for the work. Looking at your III of looks like the 3rd wave would be the shortest in that move unless wave 1 is really really tiny and 3 is embedded. Have you looked at this? Thanks again for all the work you do.

  3. Chad yeah I know that little stuff you point out bothers me too. It could be that this is topping on a wave 5 move and not an ABC. Then I could relable those little ones to a more agreeable number.

    But then the problem with a 5 wave move is that it seems way out of proportion

  4. DE - Go read Mish's Goodbye to the Rally post. I think you'll like it. Kind of same page as you but speaks to the resounding bottomis in sentiment you are looking for.

  5. Hum this count start to look like the one I e-mailed you 2 weeks ago, only difference is that your count is not accurate in your [A] as we had 5 waves in it with wave 5 having 5 waves as it was an ED but you can't count it correctly on 30 min you need 60 min.

    Still you're improving keep it up only thing it would have been nice of you to reply to my e-mail but I guess you're too busy.



  6. Hi Dan,

    You might want to correct your title for this post from "and" to "an".


  7. Same with your "and" in pink on your chart. Needs to be "an".

    -- Your friendly proof-reader, SRS.

  8. Dan,

    I'd also like to suggest that, while you're making the above two corrections, you also delete your phrase "But again I ramble." You were not rambling at all. On the contrary, I want to tell you that I learned some interesting & useful points in your comments today, as I do every day!

    You provide a wonderful service by sharing your considerable knowledge & skills with all of us here. I, for one, really value & appreciate it. Thank you.

  9. Dan,

    Do you still think the S&P might pull back to the 768 gap? Or do you now think it might only pull back to 810 or 796?

    What are your reasons, if you now see a more shallow pullback for Minor 2 down?


  10. Hey Dan

    I am looking at the cash and futures from the 857 top and I can see a leading diagonal playing out as Wave 1 in the first move down. Then we have an A-B-C rally in yesterday's trading session to correct it for Wave 2, the C wave of which was the rally in the late afternoon. Wave 3 begins today....thoughts?

  11. Dan this is by far the best blog on the web for Elliot Wave Analysis. I think you should take it up as a full time career. Thanks for all you do!

  12. Anon yeah it may be a leading diagonal. Thought that yesterday too but everytime I paint one, it doesn't pan out

  13. dan
    awesome post bro. The Cycle analysis you did (13, 29, etc) is by far the most memorable one. I wonder if you could save it separately or flag it instead of stacking it chronologically. Perhaps create a directory called General.

  14. The problem with an ending diagonal is that the turn will likely be violent. Scaling out of longs may be advisable. Note the look of the TED spread as well.

  15. - Davlee

    I agree with your targets, but I think this move from 666 up is still just Wave 4 from Primary 1.

    However, the targets on the upside are still the same at around 920 to 960.

    Here are my counts for Primary 1.

    Wave 1 - Oct 10, 2007 - 1576 to 1296 - March 14, 2008
    Wave 2 - March 14, 2008 - 1296 to 1430 - May 19, 2008. This is about 50% of the move down from 1.
    Wave 3 - May 19, 2008 - 1430 to 667 - Mar 9, 2009.
    Wave 4 - Mar 9, 2009 - 667 to 950??? - May 12, 2009???
    Wave 5 - May 12, 2009??? - 950??? to 600??? - October of 2009????

    My target for this Wave 4 would be around 950 which would be a 38.2% retracement of the wave 3 move down. If Wave 2 lasted 2 months then I would think this bear market rally will top off by May 12th.

    Then we would start Wave 5 of Primary 1 down to 600 over the next 5 months ending in October.

    The main motivating factors for me in following this count are:

    1. The market high was on Oct 10th of 2007 so it makes sense the counts for Primary 1 should start on
    that date.

    2. Within Wave 3 there is a clear 5 wave structure down.

    (I) - May 19th to July 14th - 2 months
    (II) - July 14th to Aug 28th - 1.5 months
    (III) - Aug 28th to Nov 20th - 3 months
    (IV) - Nov 20th to Jan 6th - 1.5 months
    (V) - Jan 6th to March 9th - 2 months

    (I)/(V) and (II)/(IV) have the same time frames.

    3. Markets don't end bear markets with the dramatic reversal we've seen over the past 6 weeks. I think it should grind it's way slowly down over a five month period.

    4. Octobers is going to be bad with people getting out after last year's experience. The market also usually bottoms out six months before the real recover. I don't see a recovery in real estate prices and employment until the first half of 2010.

    5. Today's foreclosure report paints a new grim picture with foreclosures on the rise from unemployment instead of pricing corrections. GGP also filed for Chapter 11 and commercial real estate foreclosures will start hitting banks.

    I'm stitting on the sidelines right now with both longs and shorts waiting for 950 to hit before selling all my longs and going all short.

  16. Anonymous, I agree with your wave count. I just think it is going to top out sooner. And I think the Feb highs around sp500 880 should provide resistance. Sentiment is getting extremely bullish according to some blogs; I still need to see some sentiment figures like the AAII poll. If that hits 50%bulls, the drop will be imminent.
    I also think the drop will be steep and hard and we'll go far below 600. The market has been bottoming at %38 below the 200day average and that was the percentage at the 1932 bottom. I just received an e-mail from a market historian/newsletter writer who indicated that this rally has now matched the 31%Great Depression rally into Nov 1931. After that top, the market went into freefall into the 1932 July low. I still maintain that this bear market is following the panic of 1907 which lasted 90 weeks and we are somewhere around week 80. This consolidation pattern from Nov until now has lasted longer than the 1907 episode but has still maintained the form.
    ---Mr. Panic of 1907

  17. Would it be possible that Nov 20th to now represents Wave 4 of the entire bear market decline thus far? It could be broken up as follow:

    Wave A: Nov 20th to Jan 6th
    Wave B: Jan 6th to March 6th
    Wave C: March 6th to April 17th?

    There are several reasons why I believe this may be the case.

    1) The Jan 6th to March 6th decline, represented as Wave B above, subdivides into 3 waves instead of 5 waves which leads me to believe it is corrective rather than impulsive

    2) Wave A and Wave C would consume the same amount of time: 29 trading days

    3) Wave A and Wave C is almost equivalent in length: 203 points vs. 209 points

    From here, we could drop down to the low 700s, then rally for a bit before embarking on a final decline below the March lows. This would mean that Wave 4 could possibly be a running triangle correction.

  18. Anonymous earlier projected wave 4 of Primary 1 to end on May 12 -- pretty darn close! How about May 8th? We hit 930 and, while we may go all the way to the declining 200-day at 950 area I doubt it. Perhaps now, on May 19 we've just ended smaller wave 2 of 5 of Primary 1?? And did we end it with an ending diagonal triangle?