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Sunday, May 24, 2009

Constructing a Corrective From a Clear 5 Wave Move


EDIT 10:35 AM Sunday: I added a 15 Minute NASDAQ chart supporting the same type of moves
EDIT 11:08 AM Sunday: Changed the references from "Monday" as of course Monday the markets are closed. I'm still groggy heh. The chart still says Monday but I'll be lazy. Thanks Iggy.

The move from 924.6 to 879.61 was a "textbook" 5 wave move. In fact EWI said as much in their Friday's update. I charted the first half of this wave on Thursday http://danericselliottwaves.blogspot.com/2009/05/microsquiggles.html correctly predicting that Friday would see the latter of the the wave play out and it did not disappoint. Its one of the better intraday calls I have made lately.

What is nice about this 5 wave structure is that it is clear. It gives us Elliott Wavers a "marker" to go by. We can take this 5 wave move and fit it into bigger structures which gives us a better guess on exactly where we are in the overall scheme of things.

As I surmised in Friday's update, this 5 wave move down can be a C wave in a 3-3-5 ABC flat from 930 peak. That is the obvious form and it works well with all the indexes. If your a permabear and think this market will just fall apart from here, you can see it as a subwave 1 of a much larger 5 wave structure down. (Perhaps even if it only a wave 1 subwave of a C wave down in an expanded/downward flat). Those two interpretations are probably the biggest considerations amongst all the wavers in the world and it has them going in 2 different directions.

I propose a less obvious, yet viable third option as a front half of a 5-3-5 zig zag in this 15 minute chart. Consider this an alternate of this chart I posted Friday http://4.bp.blogspot.com/_TwUS3GyHKsQ/ShXcf1gpGlI/AAAAAAAAAo0/Fumvj3bwlNY/s1600-h/spx301.png The problem with my Friday chart is that it may be too loose with timelines. I put it together assuming (a) = (c) in a 5-3-5 zig zag and since (a) was a sharp drop, (c) would take longer to play out. This chart could happen if [b] or (b) - since I changed the degree labels - moves higher Tuesday and Tuesday is an up day by chance.

So I made a new chart based on the same assumption that the 5 wave move was the front end of a 5-3-5 zig zag lower. I also took an assumption that since the (a) wave was a steep drop, perhaps the (c) wave would be only .618 x (a) considering that there was only (so far) a 38% corrective (b) wave.

I also, again, changed the degree labels as this is largely a guess at this point. I have an overall "idea" that the market is experiencing an Intermediate sized (X) wave and this should consist of a Minor ABC (blue). So don't be too bothered if I change the wave degree labels back and forth from time to time at the lower levels. I am not doing this at random, I am adjusting the degree as time goes on in this (X) wave. They are logical guesses. Intermediate waves take a while to play out.

Anyways back to the 15 minute chart and the 5 wave move down from 924.6. If we can assume this is the front half of a larger 5-3-5 zig zag, and we can assume that the market is going lower on Tuesday, then 869 is a possible target. 5-3-5 zig zags often have the length (price change) of (a) = (c) as a common relationship. However if the "(a)" wave is a substantial dropoff, sometimes the (c) wave is only .618 x (a). If we assume that the 896 high on Friday was the top of the (b) in this 5-3-5 zig zag, then .618 x (a) = 869. And you can see this is a support marker also.

Its just another attempt at nailing down a possible intraday move using wave technology. This pattern nails 869 as Tuesday's low and then a rally, perhaps of decent size late Tuesday carrying through to Wednesday. This kind of move would perhaps show positive divergence on at least this 15 minute chart.

The thing about these kinds of charts is that it is easy to tell if it is playing out or not which is why I make them and post them. A choppy downward struggle on Tuesday toward this target would be indicative. If it is appears the market is doing something else Tuesday, you can ignore this chart of course.

21 comments:

  1. A very minor point Dan... You keep saying you expect so and so to happen Monday, but the markets are closed for the holiday. I know you're aware of that and it's just a habit.

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  2. While I'm here, I have a question for you. On your Stockcharts page, you have the $BKX still in P1 (in or just finished with (4)). How do you see the effects of (5) of P1 on the S&P? Banks take a plunge but not bringing the entire S&P down with it?

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  3. Iggy, yeah heh I mean Tuesday of course

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  4. 867 is Tuesday stop...

    with 23.6% retracement, theres no other option...

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  5. Take a look at overseas market, they all form head and shoulder pattern and ready to plunge...

    so your 869 target should be achieve next week...

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  6. McClellan Oscillator had a very small change on Friday in both the Nasdaq and NYSE which means a big move is coming on Tue and Wed. The charts would say it will be down however we are in the favorable Window for EOM activity so it's not a 100% certainty. I could see a sharp drop on Tues followed by a reversal Wed and Thu. The 23.6% Retrace at 868 looks to be a key level to watch or the 50 Day EMA at 862. A drop to the 862 to 868 range could yield an ABC type move from the 930 high or it could be just 1 of 3 of 5. Either way there probably will be a bounce from the 862-868 range.

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  7. Good wurk dano....i long for those nasty gap moves but these ARE tradable.........

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  8. Vix has a 3 white soldiers reversal... It's ready to take off like a rocket...

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  9. Daneric,

    very nice analysis.You are expecting at 869 c wave and A wave to end,do you mean we will get B up and C down of X-Wave still to come? Or X-WAVE finishing here at 869 (time proportinality?)
    thanks

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  10. A close at or below 869 next week would confirm the short term H&S of the S&P an would quickly target 840 downside target within a week before a meaningful bounce, still a good point to cover regardless if it is a correction or crash. I would still track the USD index closely for confirmation of the move. We are probably going to 835-840 in the next couple weeks, the question is do we still have all summer to play the bounce or is it time to the start paying the piper.

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  11. Hi Daneric. Great job you do here, thanks.

    The site tradingaces.blogspot.com has some excellent, very thought provoking, and sometimes frightening, but enlightening writings. I am wondering whether your EW scenarios fit with any of the writers 3 scenarios in the article, "Behind The Curtain".

    I strongly urge everyone to also please read the other articles from this site, "Twinkle Twinkle Little Star" (immediately below this one), and "The Rogue Wave" as these and others there tie in with "Behind The Curtain". I highly reccomend this site for good reading, hope you don't mind me posting here/

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  12. Everyone, and I mean -everyone- is forecasting this down move. That makes me suspicious, especially with the strength foreign markets are showing today.

    Is there a bullish alternative to the current count or is it as Daytrader wrote, "there's no other option" ?

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  13. Fuzzier_joe, I think re:forecasting the majority of market sentiment is bullish right now. The TA blogs are another story.

    Actually Daneric is doing a very balanced presentation of alternatives and the possibility of a sideways consolidation followed by a higher move certainly exists.

    However, even if you are a bull at this juncture a correction might be exactly what you desire since it will ensure a healthy retracemnt and then a move towards the SPX 1100 or where abouts forecasted by many.

    IMHO, continuing a straight bullish move at this point will not be good in the long run.

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  14. dan, i think this is a very legitimate viewpoint (big long flat correction) and i'll tell you two reasons: 1) i think we did it in '38 just like this, just on a more minor scale (less points). if you look hard at the '38 move around this time we sort of had a small double head, a 32% down move (which would get this initial move closer to 830s), a large flat retrace for B, then a 50-61.8 down C. 2) i really don't see a correction after a 2 month up rally, soon to be followed by another 2 month rally, completing in just a couple weeks. mid to late june makes way more sense. Good work as always

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  15. I am short here, but I am also suspicious. The wave structure off the March 6 low is like trying to read a Russian newspaper. If you say you understand you most likely don't! DE gets my respect for trying to make sense of this crazy batch.

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  16. caldero called you and kenney , rookies.

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  17. (note to self)

    Trust my gut more (the pain, the pain...) !!

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  18. dan did lay out the possibility of the market going up to 920-930 first then downward we go last week. Based on his mentioning of not expecting big stock price swing even if the market does correct, I decided to hold still and wait.

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  19. Well, looks like the 200 day sma and ema (as well as all other MA's have been taken out ... so now what??

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  20. spx 200 dma is 930. not taken out.
    i just wish they take it out and be done with it. i hope it is today, even though i am in faz and knee deep.
    remind me of the 1007 the day before election. they kissed it and market went down 10% points after that

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