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Thursday, January 21, 2010

Elliott Wave Update ~ 21 January [Update 5:30PM EST]

[Update 5:30PM: I think any reader of my blog knows that I agree with Prechter on the overall wave count of less than 1000 DOW to come in years down the road.  This "P2" was a massive corrective wave that eventually found its peak.  We are saying, by charting a triple intermediate zigzag, that P2 is likely very much over.  That means that you won't see the DOW above 10700 again for, perhaps, many decades. Its pretty much that simple really.

So yes, I am now counting down from the P2 peak in bears waves. The primary trend is showing evidence of changing. Impulsing down in squiggle counts in 5 waves and correcting back up in 3 waves.  The first real larger evidence to help confirm this view is a complete 5 wave structure at Minuette degree at least (pink).  It hasn't done this just yet as you can see on my DJIA chart below. But as we count waves down, the evidence should pile up.

Playing the upside bounces at this stage is quite dangerous unless your skilled and have kahoonas. As I tried to show on the RUT, a hard breaking "point of recognition" moment may be coming to the downside.  Yes today was a bad down day, but the apparent "strength" in the NASDAQ and RUT could just be laggards to the downside as I suggested. Of course we don't have any 5 wave structures yet at Minuette degree to make the argument "airtight".

But we do have technicals. And they are not painting a pretty picture for the bulls.

Technically, the indexes are seriously damaged and likely have more downside to go before our first solid oversold bounce wave [ii].  (Of course you skilled daytraders do this stuff all the time - play in hard markets). Indeed as it has yet to produce even a 5 wave structure at Minuette degree yet so that indicates its not done impulsing down. The indexes are certainly not extreme oversold by any means even on the hourly charts.

 This daily SPX shows an RSI break and a trendline break.  Selling has kicked in as the longish red candle on higher volume does not lie.  The top is likely in.

The Wilshire weekly also shows the overall weakness of the markets.  Notice the money flow was lower at the peak than even in 2007. The RSI channel up has broken under.

So yes, its a matter of counting wave upon wave structures assuming the P2 top is in. The structures build upon one another and so on. And no, there is no magic rebound rally taking the indexes to even higher highs coming in the Spring. This is "it", P2 top would be in. Thats the overall theory count.  But like I said, we need that first solid 5 Minuette down wave structure to start setting firmer targets and channels.  I am confident its coming.

I am using the RUT and INDU tonight because they had recent absolute price peaks from which to start a count.  Like the NASDAQ, the RUT has over lapping waves on the way down.  That usually indicates corrective waves, but in this case, it should be a series of 1's and 2's.  The "meat" of a wave (iii) down would break upper support and close the  "third of a third' wave up blue box  I show on the chart.

So the RUT may be ready to play catch up to the other indexes to the downside, or has other plans.

And the squiggle count of the RUT shows the overlap. But you can see it going down in 5 waves, and correcting up in three. Thats bearish.  Unless its just a 5-3-5 zigzag down of course. I'm thinking its just lagging to the downside as is the NASDAQ.

And the DOW also had a clean peak price from which to start a count from.  With all the bearish moves the past few days, it has yet to show 5 waves down at a complete Minuette degree. A move lower tomorrow will count as a 5th wave, at minimum.

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