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Tuesday, April 13, 2010

Elliott Wave Update ~ 13 April [Update 9:10PM]

[Update 9:10PM: Here is a simple PVT, or Price and Volume Trend indicator study on the DJIA. I expanded the indicator so you can see it easier. Here is Wiki on the PVT as a quick reference http://en.wikipedia.org/wiki/Price_and_Volume_Trend

Note the last line:  "So when prices are going up, PVT should be going up too, and when prices make a new rally high, PVT should too. If PVT fails to go past its previous rally high then this is a negative divergence, suggesting a weak move."

The DJIA has clear negative divergence on this indicator for the first time for P2. This study supports the idea  of a P2 top close at hand considering it is overbought on a weekly scale. Notice the divergence at the 2007 top also.  
[Update 6:25PM: Trivia question: What day did the 1930 rally top out on the DJIA?

Answer: April 16th.

Just sayin'.

PS: Isn't the Intel earnings the best darn news you heard this year?  I mean wow they are stumbling over themselves reporting the blowout earnings.

Rally ain't gonna end on bad news!

[Update 6:11PM: The RUT]
[Update 5:30PM: Again here is the Wilshire5000 weekly. Overbought and now coming up to major resistance of the 2008 crash. Inverted H&S target almost met.  As far as a wave structure when comparing P1 and P2 side by side, it makes a beautiful EW pattern.  

I would think most technicians expect to be forewarned of a P2 peak (or whatever). Even EWI expects this "peak" to be only A of (Z) of P2 which implies after a B wave correction, another move up will occur to a new high and they assume thats when the negative divergences will occur in spades. That may very well happen but they only showed a P2 wave pattern on the DJIA. I have no clue what they are thinking for the SPX, etc.   

I don't think we necessarily need a divergence in technicals warning of a big fat correction or a P2 peak. Indeed P2 had many such bearish setups that never panned out fully. There already was negative RSI divergence on the weeklies and such and they never produced anything sustained. Indeed the market has failed to correct 38% the entire P2 rally.

It is now clearly overbought. It is at major resistance.  Can it correct for a few weeks and then make another run to new highs? Sure, I am not ruling out this possibility, its just that the way I have been counting it doesn't fit into things at the moment.

Many people ask me "what level would you consider P2 a bust?"  Naturally a wave 2 can go back to less than 1 point to the old high but that really would kind of be pointless yes?  I never have given an answer but today will be the closest you see me explain it. In simple terms, 1300 is just about a bullish breakout and suggests that the old highs will be met.  Indeed if the SPX approaches 1300, the NASDAQ will surely make a move above its old 2007 high. 1240-1250 is really stretching things and would have to be brief and unsustained. 1220 is doable and still be P2.

A false break above 1200 is perfect.

So why must P2 end here?  Technically its simple: If the entire market can regain old 2008 major support, then it can make a run to new highs.  In a way this is what the NASDAQ has already done but it is only one index that everyone is clearly piling into.  

But more importantly, the wave pattern is, quite frankly, awesome as a Primary wave 2.  The wave was supposed to be sharp and it was.  It has done its job and then some.
The SPX is near roughly where one would expect a roll-reversal as Kenny calls it. Sure it can squeak higher but 1200 cannot be taken and "held" and used as a base or it will have repaired most of the severe technical damage of 2008.  So its 1200 area or bust for P2 kind of. Sure it has wiggle room and we can get a false breakout above 1200, but it shouldn't be lasting any length of time.
The drop today was too deep and traced into what is counted as Minute [i]'s price range.  This happened almost across the board in indexes to include the DJIA, Wilshire, SPX, RUT, and NDX100. The NASDAQ almost did but did not quite.

So the market appears to be forming an ending diagonal triangle that has come out of an ascending (or at the least contracting) triangle. In January only the DJIA sported this ED out of a triangle whilst the SPX, NASDAQ, RUT and WILSHIRE were way more bullish impulses. Now its the entire market that sports an ED pattern out of a triangle.  This is a most bearish possible setup we can have.

The count for the ED should consist of "ABC" type legs in a pushing manner per Elliott Wave Principle.

The squiggles seems to very much support this ABC formation particularly for wave [iii].  For wave [v] the main thing is we are looking for "overthrow" and then a fairly quick reversal. So a big gap up that closes in the red tomorrow should indicate exhaustion. But it doesn't have to open bullish.  It just needs to make a new high on at least the Wilshire and SPX.  Usually we get overthrow.

The SPX and WILSHIRE did not make a new high today so the requirement of an ED is unfulfilled.
The ascending triangle target aligns with the "overthrow" target.
The top alternate is that the market just formed a series of 1's and 2's for Minute [iii] and the market is about to get big sustained upside. I added the alts on the SPX chart. Again, I don't support this count for the primary as the squiggles and recent ascending triangle targets and indeed the massive inverted H&S target on the entire market is very close at hand as pointed out yesterday http://1.bp.blogspot.com/_TwUS3GyHKsQ/S8OWmd4aKAI/AAAAAAAAEvo/4K6HfqBRG_A/s1600/wlshdailt.png
This is one pattern I will play if we get the overthrow over the upper trendline.   I cannot see a sustained move above 1200 right off the bat here. I think it gets knocked down hard after a popover.

And yes, the primary count is that it would be P2 peak. At the very least, ED patterns tend to support rapid price collapse moves in the opposite direction to lower than where the ED started. The ED started at arguably 1172 so its a big move down for starters.

Due diligence of course.
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