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Thursday, February 25, 2010

Elliott Wave Update ~ 25 February [Update 9:30PM]

[Update 9:30PM: Although the market seems to be stair-stepping lower perhaps in some kind of leading diagonal move, the 'ol brain (and price action and up reversal volume) rather tells me its perhaps a wishful count.  Particularly since certain sectors show a distinct "three" correction over the last few days and maybe are making new wave two highs tomorrow (see DOW transports and IYR). Sentiment ticked up today again even though a red market. 

Looking at this bullish percent chart, the RSI for this wave 2 (It probably is of Minor degree if its a wave two) has not yet reached any kind of expected stopping point at least at looking at how a wave 2 came off the top of the cycle high in 2007. Very rarely does this indicator get stopped at 50. It usually oscillates much more both higher and lower and peaks at a different point other than 50 RSI. I think that reflects the general swings in sentiment so once it crosses 50 RSI either way, it'll swing toward the other extreme in some way before turning again. Kind of like how sentiment works I guess. 

Taking some comparison arrows and you can get a visual picture that perhaps sentiment is not yet corrected back up enough for a wave 3 to commence.  The comparison seems valid because sentiment should generally react in the same way for Minor wave twos if its coming off a cycle top or a primary. And so far remarkably everything is very comparable. We had an early bullishness prior to actual market price top marked by black arrows.  We then had a secondary lower BPSPX reading top marked by blue arrows that showed negative divergence at the actual market price high. Then an initial fall in a wave 1 and now a retrace marked in green arrows.  

I am guessing about the need for at least 72.4 reading on BPSPX because that might be resistance. However the RSI should be probably higher toward the green marker at least around 68 RSI. So add it together and the market probably requires some more day(s) of higher prices or at least elevated prices in order to bump sentiment even more. Closeout Friday near the high or some such stuff leaving an apparent setup to break out higher next week. Then gap up Monday and crap down hard on big volume on some wonderful news. (yeah right)

We need GOOD news to go down, not bad. And this week has been all bad...Easy money for the MM's. 

Sentiment is again the key. And its going up which is good for bears despite red days (twice now this week). So rather than fret about everything, focus is on sentiment and this chart helps.  

This chart is one reason why I think P2 looks just fine where it peaked in January. This chart will help us determine if thats not the case.
Primary count in a nutshell below. The DJIA is making good 5 wave structures down. It was lagging today on the rally.  I'll post a squiggle chart later.   The upper blue trend-line is perhaps a key bear line.

People email me all the time asking for a more bullish count. The best I will do is show this chart of the DJIA. Basically, you see the channel and the long-standing inverse head and shoulder target. If its stays in the channel, well then it works its way to the target (11375) probably by late Spring 2010.  What would the count be? Well since X waves of any kind are usually zigzags, you can see the two prominent correction areas (July and the recent one) that look like...zigzags. I suppose if this count played out to target, it will crush the wave community which is probably a good thing for a bearish market in the long run. Some would go bullish calling a 5 wave move, others would quit or not care.  At least you'd no longer have a majority on the bearish side of the trade. I had to get that off my chest.

Regardless, the channel is the key. Hold the channel and its possible. Break under the channel, and its game over in my opinion. I think thats why its so important to the market that she stay away from it if possible.  To break up and away its going to take a big up day and soon. We'll know it when we see it. We seen one big day so far since the 1044 low with some ok follow through. However thats not enough to take it over resistance. This is not low-volume Christmas.  We need the the rest of the cash and liquidity anyone can possibly muster up and throw it all at the market.  We would truly need everyone and the public (as much as he/she will do) "all in" to get the most one-sided trade ever to make it to 11375. Then P3.

Do I think it can do it?  It sure would wreck a lot of good work and some near-perfect waves and  time ratios.  So no, I don't off the top of my head and I can give a zillion reasons but I don't feel like res-hashing it all at the moment. One reason it could go up? Because sentiment may not have reached the ultimate extreme that it needs to support a huge crash/P3.  Although by any way you measured it, that too likely has already occurred considering we are living in a nightmare Ponzi financial system held up by abstract numbers in Skynet. And most people are slowly realizing it. I believe Kenny refers to it as the Matrix which is appropriate.

I just wanted to get that out of the way. 
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