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Thursday, May 21, 2009

Elliott Wave Update ~ 21 May

Its hard to argue the structure that has developed from the SPX 930 top a few weeks ago. We had a double three corrective down to 878, a sharp zig zag (with a weak C leg) back up to 924 and a beautiful 5 wave move down back to where the B wave started. That qualifies as a 3-3-5 flat pattern. And now there may be a nice bounce from that support.

Question is, at what degree of trend? Was today the end of the Red Intermediate (X) wave? Will now the market get bullish again and rally above 950 toward 1000 possibly? I cannot rule anything out but I still think its lower probability at this point. A topping pattern happened at 930SPX. An apparent corrective "X" wave occurred in the form of a flat back to key breakout support 878 (twice). Question also is: Is the corrective over already?

I re-labeled my degree of trends and will speculate that a "double three" (X) wave at Intermediate degree MAY be playing out. The first corrective in the double three ended today in the form of a 3-3-5 flat for Minor wave W. The subsequent "connecting" wave usualy takes the form of a 5-3-5 zig zag and that means an upwards move to Minor X. After the Minor X wave peak, the last corrective could be another flat, another zig zag down or a triangle.

But that is getting too far ahead of things. For now, I am looking for a correction upward and a bullish one would not surprise me, in fact it would almost be required for this type of corrective pattern. How high can this Minor X wave go up and still be considered an X wave and not some kind of new ABC move higher? Well I would think a return to the 920's or even low 930's is acceptable. There is no hard rule . See Figure 1-45 through 1-48 in Elliott Wave Principle. This was my inspiration.

I think he bulls bought the dip once again.


  1. Certainly a potential and im not knocking it but you seem to have an affinity to the 200 period moving average despite the break of support on the cash daily, Vix sell signal. Dow Theory sell with transports etc.

  2. Anon even if this is a big wave 1 down out of 5, a wave 2 correction, which can be a normal 62% retracement, can take you up above 900 again.

  3. Thanks Dan. It will be interesting to see how things develop over the next week or two. I could definately see the market being pushed up next week on light volume, but I also think the trend is shifting in favor of the bears. I closed out half of my shorts today, cut I think that over the next few weeks the market moves lower so I held onto half. The last couple of times I tried going long in the past two weeks I got burned so I think I'll stay short for a while.

    Do you still have 25% of your 401K in index funds or are you all cash now?

  4. Dan, Please please let me know if we can correct to 800 level any time in future. I am loosing my patience. SPY is not even hitting 875

  5. Dan...I'm not an expert, but couldn't the ABC correction be a 5-3-5?? I'm not as good as you at this EWA, so go easy on me?

    Do you ever consider the price action of the USD when determining the market direction or trends?

    How about doing a count on the USD, or the EUR/USD. your work. You need to put a photo of you on the site, so we can see how cute you are.


  6. Anon, I can't speak for Dan, but I don't think we hit 800 anytime real soon although I wouldn't totally rule it out. I think SPX can drop below 875 in the next week or so and if that happens I think it will find support around 840 or 850. This market is tough right now, but if you look at the daily chart momentum is clearly switching to the bears camp. I'm sure we can bounce around for a couple of weeks between 875 and 930, but I think after that we will break one direction or the other. Just be patient and keep your position sizes small.

  7. well, that cowardly slipping action disappointed me. no more bull power left to even get close to 930. look at the weekly candle on spx, ndx, indu.. if tomorrows rally isnt strong enough, i think we go low again on weekly shooting star candle. maybe to finish a triangle in fourth and then waaay lower in fifth, or just to get some x wave discount for the bulls out there and make it a p2 up again.

  8. dan, you whooped my ass yesterday and i covered my longs to go short at open and made some bling today. that said, i'm going to accuse you of perhaps being over complicated again and you're gonna open a can of whoop ass on me again but here goes: what about the possibility that we just put in a minute 1 of a C down today? would make sense if you compare how long 5 minutes would be in C vs the length of our A. and call it all (X). meaning short 2 up tomorrow to 900, then hard 3 down. your thoughts?

  9. just saw your latest chart. if that answers my question, then disregard. thanks bro

  10. Thn Sun**il for your suggestions

  11. heather,

    Turning the first 3 into a 5 would create an EW violation. Sub 4 (labeled "(x)") would overlap sub 1 (labeled "a"). That's not allowed in a 5.

    I'm a newbie myself, but I remember that being mentioned at the time.

  12. h,
    the correction is a flat, not a zigzag. Cannot be a zigzag because the b wave it way too steep. I'm not sure how to be more technical than that, if anybody knows some zigzag rules of "b" wave retracements, let me know.

    yeah, let's see some pics dan.

  13. Johnny Blue, I'm looking for some kind of wave 2 or B wave retrace which already kicked in at the end of today I think on some decent volume.

    So look for at least a 38% retrace but I would bet a 50% back to 900 possibly challenging the gap down spot. This is where the battle lines will be drawn. And then yeah maybe it is a big wave 3 of C, it surely is possible.

    But either way, I'd be right. Retrace up, bear wave down. Bottom targets would be about the same. Then the question is would there be a wave 5. My complicated chart suggest that NO there wouldn't be.

    NOW THAT would be the kicker at that point. We'll see what happens.

  14. you the man baby

  15. Hi,

    I just wanted to commend you on a sterling blog. I think the key to the short term is to see the wave form up from todays low. If its impulsive or corrective. Fingers crossed for corrective , not because im short but because it would be nice to get a bit of action instead of this batsoup sideways churn