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Thursday, May 28, 2009

Elliott Wave Update ~ 28 May

I showed you all my X wave double zig zag today which could very likely trace up into the 920's where [y] = [x]

The market looks poised to move higher tomorrow. There was a rising wedge today but it did not collapse so it seems like a red herring. Overseas markets may be a bit bullish especially Europe and it might reflect in the futures tomorrow.
Important Commentary:

I'd like to talk about triangles as I feel it is very important at this stage of the game and I'll try and keep my thoughts organized. As I have been showing lately, both the E-minis and SPX have been charting triangle-type moves, zig zags up and down, which is the way its supposed to be for triangles.

I must say this right now: I ALWAYS respect (well except I haven't particularly respected this one) triangles, especially ones that develop over a period of 3 or more weeks until they prove otherwise. And I must say, my call for an X wave (and hence a false triangle) is a spit in the eye of this long-developing triangle.

What makes this a false triangle exactly? Well one thing stands out is that the "C" wave was a 5 wave move on the SPX and not a zig zag. The conundrum is that the e-minis actually show a zig zag by using A/H's trading as I showed in this chart of the C wave 5-3-5 down

Another aspect of triangles is that either the C wave or D wave in the cash index is usually a complex structure. The "C" was certainly simple on the cash index, basically a 5 wave impulse move. Had I marked yesterday's 913 high as the D wave top, that too would be a simple looking wave, relatively speaking.

So what am I saying? I am saying a move Friday higher to 921 or so would satisfy a complex D wave pattern (double zig zag of some sort). Ideally this wave should stay below the B wave peak of 924.6 although in an ascending triangle pattern it would be allowed to squiggle a bit higher say by a few points or so. And that brings us to the E wave.

Today *appeared* to be a bounce off of the E spot as the market hit a steep trendline. It bounced as if this was the E spot. If it was a true E marker bounce than its simple: The market will break above 924 tomorrow for good and rally above the 200DMA in the coming week. HOWEVER I have reason to believe its was a FALSE E wave marker. The setup looks too steep, both the C and D waves look too simplish on the cash index at the moment, and market internals give clues that we are still trapped in a big triangle. There is an excellent chance the true D wave peak comes tomorrow at roughly 921.

So here would be the setup: Market gets bullish early tomorrow and hits say, 921, forms the D wave peak and dribbles lower. Monday is down hard. This would be your E wave playing out. Bearish E waves of Minor size should be typically accompanied with BAD news such as GM going bankrupt. The psychology of an E wave is such that everyone thinks its the true NEW market direction (in this case down) and bears pile in but then a massive bounce at the TRUE E spot at the end of the triangle and the market breaks higher for good.

There is one last thing to talk about with triangles. They are always the LAST corrective pattern in any combination or such. That means if it does turn out to be a true bullish Intermediate wave-sized triangle that took 3 plus weeks to trace out, that means the market is moving higher on another bullish ABC move higher, above the 200DMA and likely on an attempt to breakout above 950 and head to 1000 SPX. There is no such thing as a double corrective pattern with a triangle pattern as the FIRST pattern. It's against the rules.

So to review: We have a triangle of some duration going on (3 weeks) and that MUST be respected until it proves otherwise. The other potential that I have given mostly as my primary is that the market could be in a 3-3-5 flat and then an X wave (in this case a double zig zag X wave) and that the combination of the two creates a "false" triangle. The false triangle setup would breakdown under 878 as a hard Y wave played downward. However I cannot sell you that as gospel. The true triangle setup has 879 holding support yet again next week and a breakout move higher finally comes and the market rallies on its next ABC move to a much higher spot above the 200DMA.

I always respect triangles and I need to start respecting this one some more. Keep playing the bounces in between or hold steady....but by next Tuesday this thing may be finished one way or another. Once a breakout occurs (up or down) it will get easier with the bigger macro picture.
The market crossed 900, up and down on 10 separate, distinct occasions in the past month.


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