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Tuesday, July 7, 2009

Elliott Wave Update ~ 7 July

SPX closed at major support. A break of support could bring intensified selling (and not just futures-manipulated openings). So if your committed to the downside bearish interpretation (and if you think P2 peaked at 956) from here hang on, there is some potential bigger down moves to come this week or early next. EWI is calling for potential "measured moves" to 800 if the Head & Shoulders breaks, and, like Kenny I don't know how they come up with that target, it seems low.

However, there exists some small signs of potential bullishness. We have some positive divergence on the RSI of the 30 minute and 60 minute charts. We have negative divergence on the VIX. Market closed at support. A major bear move will wipe all this out of course.

So overall, I'm leaning for a bounce tomorrow, potentially bullish (c) wave up of a [b] wave expanded flat.

Now the obvious: The market closed beneath the H&S pattern neckline. Contrarian position: its a false break and recovers (for now) and, at the least, forms a second right shoulder.

Overall to be truthful, I have no dog in the current fight (haven't traded hardly at all in a while - I just have no time to daytrade with my job). My 401K is sold out long ago at a nice price in the 900's. So I am not trying to be biased although I have obviously been leaning toward a final P2 rally peak this summer. The one reason I lean toward that is because the experts, Elliott Wave International, supports that stance at the moment. So I have no reason to go against that particularly since I was looking for the high 900's which failed to materialize when I thought it might.

However I do go against their stance that a price retrace that goes to possibly 800 (damaging in my opinion) would still allow a higher P2 later this summer or in the fall or whatever. I just happen to think that if the start point of the second ZZ gets taken out (either 847 or 835 - not sure) then a triple ZZ to p2 peak ain't happening.

So that thinking leads me to believe a hard turn will come for the final rally to P2 peak without letting prices get too "out of hand". Whats that magic mark? Well, I like 864 as a low for this current downturn (Y=W). However I can live with slightly lower down to 850 perhaps, maybe even 845 for that magical 38% overall retracement mark. Anything lower (like 800), and I question if 956 can be taken out again in any final rally this year. In fact the 38% mark would be my "line in the sand" (845)

But even that I will try and not be dogmatic in any approach. The waves will tell the story, at least we hope.


  1. You ask why EWI came up with a target of 800 (plus or minus 10 points): 805 is the first strong support beneath 900, and 811 is the 50% correction of the rally which began March 7th.

  2. Thats more than the H&S target which is what I was getting at.

  3. i believe EWI uses the standard expected move for a head and shoulder pattern to come up with 800. by measuring the distance of the top of the head (956.23) to the neckline (approx 880) that translates to a roughly 76 pt move. subtract that distance from the neckline and u get roughly 800 (804 in this example)

  4. dan, great work. you're gonna hate me for this, but all you need to do to make 800ish feasible is change your triple zz theory to a double zz theory or ABC :p

  5. >all you need to do to make 800ish feasible

    If you call 956 to 888 "wave 1" and 888 to 931 "wave 2" then the 161.8% extension is in the low 800's. I trade futures so the number is 817.

    I've never paid much attention to H&S or any other pattern.

  6. Hi Dan,

    Thank you for today's charts and comments.

    Can you please explain your reasons for thinking that a decline below 845 will make a third ZZ above 956 impossible? If EWI doesn't think even 790 would kill P2, why exactly do you thiink below 845 would be too damaging for P2 to resume its rally to a final peak above 956?

    Also, can you please explain what specifics you will look for to tell if P2 will resume -- or to tell if P3 has begun?

    Thanks Dan.

  7. I think 845 vs. 800 is a moot point. Since this 4 -month bear market rally hasn't had a decent correction, it's not unreasonable to expect a 50% retracement (811) or even 61.8% retracement (777). The market has to prove itself that P2 is not over by tracing out higher high's and higher low's. We don't know that we are in P3 until we're well into it!

  8. If W is relabeled 1 and X = 2 then we would get that low 800/even high 700s target. But for trading purposes, I am more interested in the current pattern. If not an explanded flat, then what else?

  9. Thats it ..very good palmerjoe keeps beating me on the head......"think like the cabal" are starting to scare me.....hehehehehheheehheh

  10. Nice charts, Dan. The expanded flat would definitely be an upside surprise, even if it's temporary. Even Cramer is now calling for a correction. We'll see.

  11. Cramer is now bearish? Well well , now I know a bullish move is coming LOL

  12. Daneric: you turned into a bear today. I am so happy!

  13. dan,

    yer work is world class.

    much appreciated.

    if DXY does in fact have one more move lower, and oil one more move higher, and both in short order, then yer count is disco.

    triple ZZ.

  14. Jay, you must read past my first paragraph. I throw bears a bone, but I ma not really bearish. I am looking for the Y wave low.

    864 seems like a good spot.

  15. did they say 811? 811 is a 38.2% retracement PERCENTAGE-WISE of the entire fall from SPX high to low.

    Since you disabled even pasting here, I can't link to it.

  16. Mark I didn't disable pasting, thats a blogger thing I don;t know how to fix

  17. well regardless, I did a post on stockstop about it, but 1044 = full percentage retrace of entire drop from 2007 highs to march low (which might and should be a LOT to expect in 3-4 months). 811 works out to a 38.2% retrace. other levels

    50% = 855
    61.8% = 900
    78.6% = 964

    interestingly, I calculated july 1 as the 23.6% time retrace of the drop (in business days) and around sept. 15th would be 38.2%.