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Sunday, January 24, 2010

Weekend Charts [Update 7:20PM EST]

[Update 5:40AM. I had the print wrong on the SPX chart. The last high is shown as incorrect and cannot be what I had labeled so I threw it out.]

[Update 7:20 PM: As overly biased I am about downside, looking over some of the commenter's squiggle charts such as Kevin's, and trying to draw a down channel (its a wedge shape) one can certainly form a completed 5 wave structure down from the peak.  It doesn't work as well on the RUT, nor at all on the QQQQ's squiggle count I show earlier, but the SPX and DJIA both have a non-overlapping area we can mark a "third of a third" as marked by the blue box.

The other thing that stands out when I start drawing more trendlines is the entire thing behaved like a falling wedge complete with "overthrow".  Falling wedges usually produce violent reactions to the upside. And although the e-mini futures are not the cash index, so far they are a bit on the aggressive buy side.

We have a long way overnight obviously, but these 2 squiggle counts have caught my eye.   This would imply there would be no wave iv's or (iv)'s and we just go into a violent upside Minute [ii].

Am I changing my mind on things overall? No, the evidence of a trend change is there.  I just want to have some squiggle charts prepared for Monday's action either way.  So the market may indeed give bears a nice gift to enter short and the blue box target area(s) would be a good entry spot. We just won't know until that opening bell. The good thing is that if there is no violent reaction to the upside, then these charts are red herrings.

Again it has the wedge shape as far as it stands right now.

I have suggested in the recent past that Google might some day make a new all-time price high as Apple, AMZN and IBM for example managed to do.  Now I have grave doubts about that (particularly if P3 has started in earnest).  Volume patterns have noticeably gone higher in the red down moves as of late. If this was a true wave (4) pullback, then volume patterns would tend to decrease less than the volume that carried prices to a wave (3) peak. This is TA and volume patterns at its most basic.

Particularly add in the fact that the founding CEO's seem to want to "cash out". The media can spin it all they want (and they do) but make no mistake, they want their money. And who can blame them? Maybe Google bounces as an initial contrarian play, who knows. But insiders selling is not exactly a vote of confidence in the long run.

How many mom and pops who played Google on its run-up to $750 (and then got burned), sold it low and took a tremendous loss only to see it make it back to $630? How many then chased the stock yet again?  A viscous high beta plaything of the MM's just like Apple, AMZN, etc.

The qqqq's are but one example of the overall waveforms of the drop so far.  Again, it only has 7 distinct waves which can only be termed corrective (if it were to bounce immediately and overlap upwards again). A quick glance at the subwaves confirms that there really is no way to construct a decent 5 wave pattern with having the bottom marked at Friday's low.

Since naturally, if we are assuming a P2 top is in, then we must also assume there is more selling to be done prior to reaching a wave [i] low and a subsequent wave [ii] rally. Time-wise this makes sense as we have only been down hard for about 3 days.

There also is no clear overarching channel just yet other than a subwave channel.  This chart is bit aggressive to the downside in projectioning Monday's opening plays and its not worth fretting about now.  What I am showing is that we may be only seeing the top half of this structure.

This is how EW theory is supposed to go. You examine the evidence and give it your best count. You play by the rules and guidelines first and foremost and then see where the chips fall.  You don't assume or project the "tricky" right off the bat.  The best count right now is just how I have it labeled (although Monday's projection is probably aggressive).  It may not turn out to be correct, but we'll worry about that when we have to.

But I try not to be too dogmatic in things.  If the market gapped up Monday and rallied into where I have marked red [1]'s price range, that would start to present some serious problems for a downside count, at least for now. I am not suggesting the market will do that, I am rather saying that it would present problems and give pause if it did.

There are now some areas where there may be a "point of recognition", or a middle of a wave (iii). One such potential area is marked by the blue box. If this is the "third of a third", which roughly marks the middle of a wave structure, you can see we definitely have a lot more squiggles to shake out before a Minute [i] bottom is found.

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