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Wednesday, February 24, 2010

Elliott Wave Update ~ 24 February [Update 9:03PM EST]

[Update 9:02PM: The RUT probably has the most obvious Head and Shoulder pattern. (As an aside, there has been not much talk of H&S patterns even though they are all over the place.  I guess the July fakeout H&S dampened those spirits a bit.  Probably why its so desperate to make a new high) .  We see it has already had one doubletop area. Just playing around with trendlines and stuff on this chart.]

[Update 8:25: Notes on chart. 1100 level has been traded through 27 different days now.  Familiarity and comfort at this level.  Breeds complacency. 3 unclosed gaps since the recent 1044 low. Are they going to need a fourth gap up to take it over resistance for a day or keep gapping to a new market top? (resistance will be a bitch) Ponder that one.]
[Update 6:52 PM: A couple of articles here I'd like to comment on: First the short sale rules that were implemented on stocks that fall 10%.  This is just another small step being taken to dismantle the underlying apparatus that allowed the market to leverage up to 14K DOW and remain elevated.  The ironic aspect is that they think their actions are actually protecting the market when in fact it will ensure that stocks that fall hard never bounce up quite as high as we seen what happened in March 2009. Of course if they ALL fall hard, then, well, there you go.   And that fits with the overall theory that once the ultimate bear market bottom is hit,  you can forget about a mega-bounce.  

There will be many more "rules" all in the name to protect the investors. But in the end, they will all help ensure the market drops to astounding bear market lows and never gets up (quickly).  I suspect they know this to be the case, but the movement to dismantle the underlying financial apparatus has its own inertia and seemingly cannot be stopped.  Everything from the "Volcker" rule to derivatives will be dealt with in time. And all will exacerbate the decline in the stock markets.  

If you want to look at it in a simpler way, just think of the phrase "everything the government touches turns to sh_ _ eventually." And they are just getting started.  Any rule implementation done in the name of "stability and confidence" is usually put to the test soon enough in a big way. And it usually has unintended consequences.

The next one is the banks.  The best thing the banks can do to arrest non-payments and keep their cash flow going is to offer low percent interest on already outstanding loans.  Yes it seems counter-intuitive to banks but I think its obvious. Because the more they squeeze the consumer, the more likely they will hasten their own self-destruction.  Lured into taking 10's of thousands of $$ of easy money, and now sticking it to the consumers who were not only encouraged and duped by the banks to take out credit, but by government itself and indeed the President.

The banks will get even more non-friendly and the people will naturally react angrily by sticking it to them every step of the way and pulling their cash if they have any. Oh and naturally the rules changes were of course the result of a law that Congress passed all in the name of "protecting" consumers from bank abuse.  Yet all it did was give the banks cover and an excuse to rape the public who got trapped with debt. Sure credit was out of control and needs to be restrained in the long run, but screwing over the people by making them perpetual debt slaves when they are overloaded in debt obviously will have a bad outcome for all.

We don't need rules to protect against the next debt bubble, social mood and a generational change in spending will ensure of that just fine!

What we do need is an effort to keep the already outstanding loans from going into default by not making the people perpetual debt slaves with high rates that were not there when they took out the credit or begin with. The banks could easily do this with one click of a button but we all know they will do the opposite. So screw them.

And social mood will deteriorate even more. That you can be certain.

[Update 6:10PM:  There is still a very decent bearish count off the top of the Wilshire in existance.  Notice the waves up today certainly overlapped in every which way.  

Looking at this simply from an EW perspective: Since the high a few days ago, what wave structures have been impulse-looking and which have been corrective-looking?  The simple answer is the down waves have the impulse look and the waves up look overlapping and corrective. Sure we can make fancy counts out of the up waves to turn them into some form of impulse, but at this stage of the structure we would be very much forcing things (although the DJIA squiggles look better). The down count still has the upper hand. Today did NOT retrace the entire down day from yesterday.  

Also note the expanding shape which is generally bearish.  

It is this way of looking at things that presents a very bearish case.  If we get a new squeaker recovery wave [ii] high, then so be it. And there could be a lot of non-confirmations between indexes just to throw more confusion into the mix. Regardless, both the primary and alternate squiggle counts has the market heading down after this peters out.

[Update 4:51 PM: The VIX daily had the lowest oversold reading on the daily since early 2003 on the Ultimate Oscillator indicator. Not sure what this means but thought it was interesting. Bounced up today. But its a setup to show positive divergence in this indicator]

The move from the low seems, in a way, to be behaving in a big 5 wave move-type structure.  Going back to the DJIA is always the best because it always seems to follow the trendlines the best and at critical moments has the best structures.

It seems the market really worked itself back up to get one more crack at a true breakout so I will respect the price action and give it a potential count.

The chart below is my favorite count for the moment in just about everything. And before you say to yourself "well that cannot be because of such and such", well all I can say is that no matter how you count it, its not going to be perfect assuming that this is just a retrace wave [ii] or 2.  This also supports the notion that we are only in a Minute degree sized wave.

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