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Tuesday, February 9, 2010

Elliott Wave Update ~ 9 February [Update 7:10PM EST]

[Update 7:10PM: Ironically, due to the way the structure has unfolded, so far the SPX and DJIA http://4.bp.blogspot.com/_TwUS3GyHKsQ/S3HQgLbciRI/AAAAAAAAD5E/Qr6mQuUvRbA/s1600-h/djia.png arguably counts best as a three wave ABC move down from 1150.45 to 1044.3 as far as it exists right now rather than the end of wave [i] or 1.  (In fact, so far the drop looks a lot like the ABC drops in early and mid 2007).  I get back to the internals and the 35:1 down day that came on what many are calling a wave (v) or [v].  This increasing downside strength should be occurring in a wave [iii]. The other acceptable place it can occur is inside a wave [c] or C.  Why? Because  C waves are third waves and exhibit many of third wave bearish properties!

So ironically, if 1044 is not a wave (i) of [iii], then a wave [i] is not necessarily the next best count. This is also because the shallow retrace to 1104 was only slightly more than 38%, or a typical [b] or B wave spot which also supports the A-B-C move.

Technically if the market was bottoming at 1044 on a wave [i], then a 61% retrace back up would likely repair a lot of technical damage.  A 35:1 down day through a key support zone (1079-1084 or so) is not easily re-taken.  You need up volume and in a healthy ratio number to likely do so. Today we had huge up numbers for much of the day yet the market never breached 1080 and arguably hasn't yet even cleared 1071 with any conviction.

So what am I saying? I am suggesting that if the market is capable of retracing back above 1104, then it may be capable of making new highs altogether!

It comes down to this:  So far we have what counts best as an ABC down from 1150.45 SPX.  I am proposing it only appears to be an ABC at the moment because we are only looking at the upper half of the entire wave down which targets into the 900's.  So my primary count has a [i] and [ii] where there could easily be an [a] or A  and [b] or B.   At 1044 we have a (i) of [iii] where there could easily be a [c] or C. The market needs follow through to the downside and soon to confirm the primary count.  Otherwise a rally back toward 1100 is not good for the bear case obviously.

I have confidence in the primary down count because it sure appears that the "kitchen sink" was thrown at the market today yet nothing substantial was yet re-taken.  (Actually there are a lot of reasons why the primary count is what it is - reason number one is we suppose P2 has topped!).

The sentiment of a "Greece" bailout causing a rally is laughable.  There are a million other fires burning if we care to look. The "fear" factor (contagion - LOL) jumping from stage to stage would help confirm that the markets are fixing to plunge again to finish out [iii].   I don't think this sentiment trait has yet "run its course".  And if they do announce an official "bailout" of Greece, watch the market perhaps sell the news like there was no tomorrow.  And watch the talking heads get confused.

We are nearing an important juncture for the reasons mentioned above. Retaking 1080 and then a march on 1100 actually doesn't necessarily support [ii].  So for the reasons I think P2 rally is over, the only logical primary count to have is that the "point of recognition" of a (iii) of [iii] of 1 is almost upon us. If it doesn't happen, then we'll see as we go, but it would be a real ball-breaker to the bearish case to have a 35:1 down day completely retraced, held, and then advanced upwards upon.

I do not doggedly hold onto this view, maybe this could be a [ii], but I wanted to present my thinking on it.

I rather think we are going to get some serious downside surprise and very soon and is why the primary count has the market inside of the top of [iii]. Specifically (ii) of [iii]. Which means (iii) of [iii] should be a real barnburner down.

I hope I didn't confuse anyone. The primary count is solidly down. Yet the bottom line is we need further proof to solidify the bearish long-term case and it shouldn't be too long in waiting.  Bears have a wall of resistance overhead and I am counting on that wall to hold firm.  When the bulls give up, they should be selling in droves with the sentiment and "contagion" spreading yet again.

[Update 5:50PM: Here is BIDU's potential squiggle count on an ED pattern. These are worth playing to the downside because the potential reward (rapid price collapse) is well worth the risk. Deep puts might be a good play here. Of course you want to time your buying to near BIDU's peak]
[Update 5:25PM: Last week I suggested BIDU may make a new high based on a huge ending diagonal triangle pattern.  http://4.bp.blogspot.com/_TwUS3GyHKsQ/S2nv6eBfGiI/AAAAAAAAD0k/YlEz_w486pA/s1600-h/bidu.png  they reported and popped in A/H's.  The potential reward is huge if the pattern is correct and the price collapses.]

And here again is that BIDU chart.

Primary count hasn't changed. (ii) of [iii] may be over or last push tomorrow.

When I posted my last update last night after mulling things over a bit, I realized that there was a good chance that the market needed more price and time for a retrace (ii) of [iii] having only spent 4 hours up versus 18 down. http://4.bp.blogspot.com/_TwUS3GyHKsQ/S3Cg118qxTI/AAAAAAAAD4s/h5EYm7GUAXo/s1600-h/spx1.png  Of course after seeing the futures up big this morning, that indeed was the case.

The opening up volume ratio was a staggering 35: 1 and throughout much of the day it was quite elevated at times and at the price peak was over 15:1.  But some curious things took place. After the staggering opening, the up volume ratio shrank to less than 3:1 on a huge pullback. Huge amounts of liquidity were flowing today in and out of equities and other markets like the currencies.  It was all very much a "post crash" type hype and "hope".  All very odd and entertaining considering the market is still above 10K!

Its almost as if the market knows this could be a last kiss of 10K for goodness knows how long and it is fighting it tooth and nail pulling out all the bull tricks to try and spark another up rally.  We have a gaping 4 point open up gap on the SPX which is a fat bear target.  No longer are bears scared. They are shorting.  And as much as the squeeze was on today, the entire day consisted of overlapping waves and big swings in the VIX and money flowing in and out.  But its not about the bears so much as more about if the bulls have any gas left. A last gasp?

As far as the "rumor" mill about Greece bailout LOL!  Denninger said it so well, I won't repeat so I'll just link his post http://market-ticker.denninger.net/archives/1948-Hahahah...-Greecefire-Prompts-Intervention-Rumors.html

And finally to answer the question if 1044 could have been the end of [i]? In my opinion, no. The last wave down was a 35:1 down day that was much more powerful than anything previous.  That increasing market internals should be occurring in wave 3's or wave C's (because a C wave is a third wave!). So I'll stick with the view that we are in Minute [iii] down.  The good thing is that (ii) of [iii] should nearly (or already is) be over with so that means we'll find out soon!

You can see on the SPX chart, indeed the peak today was almost exactly .618 retrace in both time and price from the fall of 1104.  That is more like it. I have it labeled as a double ZZ. If it has one more push it should come early tomorrow and likely another gap up maybe to the blue box area.


The DJIA shows the bigger picture. Under resistance still.   I tacked on the Ultimate Oscillator as this is a more sensitive indicator and you can see it is showing negative divergence. Normally I may not heed something like this, but in this case, I think its worth considering.  If the trend is down, then all negative divergences must be heeded. If the trend is up then all positive divergences must be heeded. Question is what is the true trend? I say down of course, I'm a bear dagnabbit!
The markets cannot advance without the dear old banks.   Despite the huge up swings today in the markets, the banks never challenged yesterday's high.  This is the main concerning index for the bulls.  If no one wants to pull the banks back over resistance, the rally is dead. Its that simple.

Why are banks in danger(and thus the markets)? Because as I said many times, they used up all their goodwill and political capital.  The desire to bail them out again will be met with extreme anger.

Poor Citibank has billions of shares it wants to dump. Yet the stock is trading at $3.18.  This is nearing penny land folks and its a BIG deal when your talking with a capital $T as in trillions of assets.  Yet where is there the political capital to bail them out?

C will be on the radar.  It will go from one "contagion" to another. That is how the fear and uncertainty works.  There is no abating until it runs its course.

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