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Monday, July 6, 2009

Elliott Wave Update ~ 6 July



The market did indeed drop down and form a H&S neckline on the SPX today. It actually broke a bit and "saved".

Solving for blue Y. Its like high school algebra.

The move down from 931 to 886 low today looks more like a zigzag 'three' rather than a nice 5 wave structure. If Blue Y would take the form of a triangle, this 886 low would make a perfect [a] wave of that triangle. So what we await is how high any [b] wave retrace occurs. Look at your resistance zones. Look at 38% then 50% retrace from 886 to 931.

I suspect the DOW will backtest the "golden cross" 50/200 DMA area soon. The DOW 200 DMA is at 8427. The 50 DMA is at 8451.

So in review, I think the market is "solving for blue Y" of red Intermediate (X). The first move down for Y looks like a zigzag more than a 5 wave move. That points to an [a] wave of a possible triangle. Hey, that's what it looks like what can I say?

"IF P2 is NOT over (high price is not in), AND if P2 is so far a double ZZ from 666 to 956, THEN expect a triple ZZ to P2 peak, ALSO expect the third ZZ to start from a price higher than where the second ZZ started (835 or 847)."

That logic statement suggests the H&S pattern will not play out and hit its target since its target is in the 820's. I made these guidelines up myself I admit, but from an EW standpoint I think its sound thinking as far as the triple ZZ goes. It would take exactly a triangle to play out from here in order for the market to avoid breaking the neckline.

62 comments:

  1. Great charts!! That is my minute count and we were indeed in a 3 wave over the weekend, I was perplexed this morning but then it became clear when the 896 low was formed. Now I am going to speculate that 891.85 is the beggining of wave 1, if it gets taken out then it is something else but the TA supports a 5 wave structure to retrace to gap support.

    Also, this does look like a double zig zag with an ending in the 860 area. But if the C wave is anything like the C we just saw, we are probably looking at resistance at 845 more or less. I going to load up on SKF.

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  2. EWT what is the gap support? TIA.

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  3. The lower end of the gap was created in July 2nd, which is about .618 of the wave from 832 to 886 at 914-915.

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  5. got it. thanks. I was already thinking we would hit 913 tomorrow. the next few days should be quite interesting!

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  6. If the wave from 891 is a 1 wave, we will be in the 910 + area tomorrow or Wed.

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  7. EWT,
    If 891 is a wave 1 as you mention, are you suggesting two down in the am, then a big 3 up...
    TIA

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  8. Mark, that's correct. Wave 1 being the first leg up. However, this number can not be breached tomorrow to mantain that structure.

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  9. EWT,

    Thanks for your comments here recently. They have been helpful additions to Dan's charts and comments.

    Can you tell us how you count the waves from today's low of 886 to 891? I'm not sure how you get to the wave from 891 as being a wave 1 (of a 5-wave retrace back up to the 910-915 area).

    Also, if wave C does eventually fall from the 910-915 area to as low as 860, 845, or even 820, could you tell us why you prefer SKF to profit from this fall?

    I ask because if you think the financials will lead the way down, why not use 3x FAZ instead of 2x SKF? (And aren't you concerned that banks will have strong earnings reports in the next couple weeks -- or be propped up?)

    Therefore, what do you think of 3x TZA or BGZ (instead of SKF or FAZ)?

    Thanks for your thoughts.

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  10. Hi Dan,

    Thanks again for your great charts and comments.

    Both you and EWI anticipate the current downtrend to reach a significant low -- and then for P2 to resume rallying to a final high above 956.

    The key differences are that you don't think the H&S will break its neckline or go to the 820 target (below the 835 or 847 start of the second ZZ up). EWI, however, thinks the H&S may break down and that 790 to 810 may be reached.


    My question is this: if EWI doesn't think a low far below the start of the second ZZ will prevent or hinder a third ZZ to the final P2 top, why do you think it would?

    Also, if we reach 790 to 820, many people will think P3 will have begun. What then do you think will tell us if P2 is still going to a new and final top (or if, as you've said, that's too low for a third ZZ up)?

    Thanks, Dan.

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  11. SRS, I got to that count after an ABC correction from 886. Nate has a very similar count to what I see (check his latest chart). I could be wrong obviously if that 891 gets taken out but it seems like an impulse wave. I get the target for the structure by assuming symmetry of the waves, obviously it is much better once we will know for sure is wave 1.

    I am leaning towards the banking sector because there seems to be overly optimistic view of them, so they are probably the ones that will drive the market down (Q1 was set up so they could all beat expectations, not so sure they can repeat it again). I will play it depending on what I see in the market, I could go SDS or SH too. As to why I like SKF, I just prefer it to FAZ because of my risk tolerance. I am not a big fan of over leveraged positions, especially overnight as one can lose a lot of money. I play it as safe as I can and I have a bigger portfolio so I technically don't need the extra leverage.

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  12. EWT,

    Thanks for your thoughtful, detailed answer. I really appreciate your generous sharing of your knowledge and opinions here. Best of luck to you!

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  13. EWT,

    As I type this, it is 4 A.M. (ET) and Bloomberg is listing S&P futures as 890.10. So the 891 start of wave 1 has been breached overnight. (E-mini futures also hit 890.)

    Do you count overnight movements in your breach levels? If not, do you still think we have 5 waves up to the 910-915 level?

    Or do you think we're heading back down Tuesday?

    Thanks EWT.

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  14. I only look at the cash index, futures are 3 points behind the cash index and is a heavily leveraged market so I don't really count it. I take it into consideration.

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  15. I order for this to be the wave 1, 898.70 has to be taken out after the retracement.

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  16. Let me re-post that..

    In order for this to be the wave 1, 898.70 has to be taken out after the retracement.

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  17. I stopped out with a small gain. 5 structure is out..

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  18. EWT,

    Thanks for your timely replies.

    I also got a good laugh from your original typo:

    "I order for this to be the wave 1"...

    Yeah, I wish the market would obey my orders, too.

    Best of luck with these wild swings.

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  19. does this mean you don't think the SPX will test 910 today or tomorrow?

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  20. Your welcome, I enjoy this day trading stuff. And yes Aaron, that wave I thought was 1 had a good chance of taking us there. But now that is out and by looking at the chart, it seems like we are going to test yesterday's lows.

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  21. damn I was counting on a retest of the 910 area :(
    oh well.

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  22. And btw, a nice 5 wave down just ended at 890.. I am getting in now but with a tight stop.

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  23. you think she tries to test 910 or just 903?
    or am i just way off base here.

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  24. Well, that doesn't mean we will not see 910, just means it might take longer. We still need that retracement, we just can't have have more downside beyond yesterday's low.

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  25. ok. i was thinking late today but probably tomorrow is more in the pix I think. this market can really whipsaw you!

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  26. EWT,

    u dont think this retrace today is a w2 retracement of the move from yesterday's low 886.36 to yesterday's high of 898.68? i know yesterday's move up was a little choppy but i can still see a possible 5 wave impulse, albeit a little choppy. so far, today's drop is an approx 61.8% retracement if it is considered such.

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  27. ...or we are possibly seeing wave 'b' of a flat.

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  28. definitely looking like a flat. question now is it a regular flat or an expanded...?

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  29. what's the difference between them?

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  30. looks like it is a regular flat. i have wave 'c' forming now off the 887.67 low. this should that 'c' to approx 900 if equal to 'a'

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  31. aaron,

    in a regular flat, a, b and c are generally equal in length. if it were an expanded flat, b would extend a little beyond the start of 'a' and 'c' would extend beyond the end of 'a'. i didn't see ur post until i posted that this was looking like a regular flat. so given that, i'm estimating 'c' to hit about 900, which would make it equal to 'a'. sometimes, 'c' could be .618 times 'a'. 'c' should consists of 5 subwaves.

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  32. I'm an EW novice but my experience has been that flat corrections are a sign of a strong trend. If this turns into a flat then wave 3/C will be quite a thrill ride.

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  33. aaron,

    i must add that this is my best count and i am still learning all this, so take it for what it is. let's just see if it plays out. cheers!

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  34. may have to make a minor adjustment on this. if we see more downside movement, 'b' may still be in progress and could still potentially setup an expanded flat.

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  35. in other words, if it breaks below 887.06 and then bounces back higher from there, we can expect this to be an expanded flat. until it does that, i'm still calling this a regular flat.

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  36. well we broke 887.06 rather easily. so this is expanded and the most the SPX can run to is 900?

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  37. aaron,

    i apologize. in my haste i pulled the wrong low. yesterday's low of 886.36 is the correct level. i believe that has not been violated. if we bounce higher from here, this is still a flat and the 900 (898 if it is exactly equal to 'a') is still the general area to expect 'c' to hit.

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  38. but 910 is out of the question though correct?

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  39. i think the probability of that occurring is less likely if this is a flat(but i can't say it is impossible). according to ew c=a would make 910 unlikely. if it makes it to 910, it would have to be interpreted as a different form. i know the 50dma is there so you never know, price could be attracted to it as resistance. good luck!

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  40. a hope and a prayer and those arent answered in the markets!

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  41. aaron,

    not to lead you astray or add too much confusion. the only other way 910 is a possibility is if the count for today's move down is considered a wave 2 and yesterday's top was wave 1. i think EWT had mentioned this above, but i think he no longer takes this view? so lets say this is a 5 wave correction, wave 3 and 5 take us higher. that i guess i will call my alternate count but i'm not putting too much weight on that. will just have to see how it develops.

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  42. we just jumped up fast in the financials. the treasury auction must have gone well.

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  43. yes. i count a clean 5 waves up right now and most likely wave 1 at one degree higher. 4 more to go...

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  44. sorry aaron, my view is still the same. this is still a flat. in an abc correction, regardless of type (zigzag,regular flat or expanded flat) wave 'c' will have 5 subwaves.this is all i am referring to at this point. we should expect to see 5 waves form to complete 'c'. they will form at different degrees.

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  45. understood. thanks for your help. and good luck.

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  46. Yes, it does seems to be a flat Z. But technically we are supposed to retrace back to 903 at least. It will be interesting to see the volume today.

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  47. EWT, could we retrace to 903 tomorrow or is that against the 'rules'. sorry about so many questions. I just received a couple books on EWP and I must say it is going to take a LONG time to read them and understand them. probably end up reading them several times.

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  48. Now things changed to expanded flat, which makes more sense for a proper retracement.

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  49. i agree. expanded flat now. aaron, u may get ur 910 now

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  50. I just went long at 883 for a second portion.

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  51. quite risky to get long at current levels no ?

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  52. "quite risky to get long at current levels no ?" not if this is a good expanded flat. good luck EWT. i was a tad early on this one, when i thought it was a regular flat.

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  53. do you really see a 910 target ?

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  55. If his turns out to be an expanded flat, there is a very good chance for 910. The market is very oversold as it is, so that is the case with the highest probabilities imo. If you go long just set your stops tight. Right now fear is sinking in.

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  56. EWT thanks for the help. sold my FAZ calls at .60 at close today. made a cool $20k in a week's time on those babies. might jump back in if we retrace back up and look at august calls. I still think this is headed to 840 or so.

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  57. Good to hear, I short my skf a bit too early but you can't win them all. I think this is the first time I missed a big move in about 3 weeks so I can't complain. I am waiting for the retracement to load up on shorts again.

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  58. you think we get a bounce tomorrow or continued sell off? 880 looked pretty tough but it didn't test it for very long. just broke under before quickly heading back up. 910 is a long ways to retrace from here. thinking about swing to FAS for a time but banks just look ugly in general and their 'super' earnings are already built into the price and i dont see much earning potential in the future.

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  59. Agree, that chart is very beautifull Dan. Very typical HS also.

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