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Tuesday, January 12, 2010

Elliott Wave Update ~ 12 January (Update:8:30PM EST)

[Update 8:30PM EST:  Some charts here.

Here is the DJIA.  Its up forced to deal with the rising trendline. Sooner or later it will break under it. Only then will we truly know the underlying strength of the markets.  Maybe it holds up much better than anyone anticipates. Maybe it runs for the exit hard. The rally needs a serious test. Even the bulls want to know if a break will not mean much or will lead to disaster.

The CPC still is bullish. The 5 MA just started to curl upwards though.

And even after the Nasdaq sold off 1.3%, and the SPX almost 1%, the BPSPX, or bullish indicator chart for the S&P500 actually bumped upwards today a smidgen. This is not good if your a bull. This was just viewed as a "buying opportunity" no doubt.

 Another chart I got my eye on. JUNK. Still hanging tough but one more slightly bad day and its going to break the long-term weekly up trendline. There seems to be a lot of volume too so its churning to no avail...

Well they say that the market likes to hide its hand as long as possible.  Most all indexes painted what at first appears to be a nice 5 wave pattern down. But there are some problems. Allow me to think out loud here.

First, the contracting ending diagonal we have been showing on the DJIA was not an ideal count because its wave [iii] was longer than its wave [i]  That was not ideal and a bit of a guideline breaking pattern.

We can solve that problem by re-configuring the waves to this chart below. This is a more ideal pattern as wave [iii] is only 79% of wave [i]. Then a subsequent wave [v] would be shorter than wave [iii] by rule.

The DJIA squiggles also supports this view. Clearly we have only a 5-3-5 zigzag corrective-looking wave move down so far.  The bear count is that it is forming a series of 1's and 2's and a big wave (iii) down is coming shortly and will smash through the rising trendline.  But for now you have to consider the revamped ED count.

The VIX has closed back inside its daily BB yet the daily candle painted a prominent "shooting star".  This looks bearish for the VIX but of course we need another candle to confirm.

Finally here is the Wilshire. The SPX and NASDAQ pretty much look the same.  It appears to be a nice 5 wave move down which implies the top may be in for this index for the short term which it may very well be. An unusual thing about this supposed 5 wave formation is that the RSI low occurred not somewhere in the third wave but the 5th. But that may mean nothing. It is unusual though. Why do I mention this and what clues may it provide?

It could be telling us that this down wave is no where near ready to correct upward in some wave (ii) despite the bullish finish. It could be indicating that the RSI was indeed not even the big bear wave iii or (iii) down yet. It could be indicating a multiple series of 1's' and 2's.

That would imply that the big fat gaps down will NOT be closed or even challenged in the next day or so as many may be speculating. I only mention all this because this is a learning opportunity for me and I want to share my thoughts.

So my question I had today was, if this was a straightforward 5 wave move down on the SPX, Wilshire and NASDAQ, why did the RSI low occur on the 5th wave and not the 3rd?

I think the next few days should provide us with that answer to that RSI anomaly.  I want to say the answer will be that tomorrow is a tremendous bad down opening after a small headfake up and we get a break of the rising bear trendlines from the March low. But I am biased so I will bite my tongue....

So all in all, the DJIA was down a mere .34% and showed only a 3 wave corrective while the NASDAQ sold off 1.30% and the SPX .84%. A bit of a fractured market.   Perhaps the highs are in on the NASDAQ and even Wilshire and SPX and the DJIA has one more push. Could be some divergences coming.

But I always felt and said that the DJIA and indeed the entire market will only break the rising trendlines when everyone is least expecting it.  And the market has created that diversion by its move over the last few days.

Bullish case for tomorrow:
1. Only 3 waves down on DJIA
2. Bullish end of day.
3. Shooting Star VIX. Gap needs filling on VIX.
4. RSI lows did not occur on a typical wave 3 spot indicating it was not a 5 wave move and was merely corrective.
5. Big gap down on SPX.etc are a big bull target.

Bearish case for tomorrow:
1. VIX has closed back inside BB setting the bear trigger.
2. RSI low today did not occur on a typical wave 3 spot indicating it was not a 5 wave move and was merely a series of 1's and 2's. Big wave 3 down to come.
3. Nasdaq is  leading the way down.
4. Dollar is almost ready for a big wave 3 up perhaps.
5. It seems to be channeling down.

So perhaps the first half of the day is bullish and the last half bearish. I also forgot to mention that major supports all easily held today on all indexes.

Its all about the rising trendline "break". It will come only when it can catch the most off guard. So that means e a majority may be looking upwards and then the downwards comes and its swift and terrible...

Regardless of how the next day or 2 plays out, I have not changed my bias to the downside. Perhaps the market manages a reprieve for a day or so, but I still see a big rising trendline break coming. Its just a matter of exactly when which is what I am pondering out loud in this post....
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