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Wednesday, May 12, 2010

Elliott Wave Update ~ 12 May [Update 9:13PM]

[Update 9:13PM: Haven't given up trying to figure out where BIDU is headed. Now that the 10-1 split has occurred, eventually interest in the stock will abate.  Of course Bidu's stock demise has always been mostly based on turning down with the market as we seen what happened on May 6th, BIDU took a nice haircut.

The one indicator that backs up that assessment is the Money Flow Index or MFI.  A long drawn steady negative divergence.  However is still has that momo but the momo will stop when the music (market) stops.

[Update 7:25PM: Finally the dollar.  One more rise would complete a wave structure with an extended 5th which commodities tend to do (read EWP by Prechter on this).   Its  hard to argue also since the bullishness on the dollar is very high and the bearishness on the EURO is extremely low (as pointed out by EWI if you had a subscription - hey its "free week" so go sign up through my links on the left)  But at some point it would be satisfying for the dollar to experience a decent wave (2) retrace.

I rather think this dollar wave (2) can happen very fast as you can see in other instances on the chart.  Also do not assume the market will go bullish with a retrace in the dollar. We have already seen that Gold is now ignoring the inverse relationship and the markets have shown a lot of a positive correlation with the dollar since the dollar's November 2009 low.  Dollar new highs, market has indeed rallied over much of that.

In fact markets may fall with the dollar if its a "US contagion issue"  For instance, what if the "debt contagion" has an episode here in the US finally? Suppose California has a budget crisis (or Illinois) and then this is the new debt contagion hype that the media pick up on after the markets have moved? Markets could sell hard as well as dollars.  Maybe money gets poured back into Euro's at this time.

Sooner or later, the dollar should retrace a good portion:

The point I am making is don't expect the "conventional wisdom" on certain market correlations to remain. Dollar = bearish does not mean Market = bullish or Gold = bullish. The only correlation that makes sense is that the Euro gains in a retrace higher if the dollar sells off. Of course they will hail the "bailout" a raging success.   Yup, Sure.

[Update 6:40PM: Last night I was wondering aloud how the market would handle the "time factor" in that a wave 2 peak seemed too short and the NYMO was oversold still at -54.  I pondered if wave 2 would trace some complex double ZZ or remotely a large flat.

But today's bullishness changed things a bit on that perspective. It seems the market is finding a way to satisfy both price and time requirements for wave 2 through a drawn-out ending wave pattern.  It seems to be doing this is a long-winded ending wave that is taking on an overlapping ending diagonal triangle appearance. It looks "funny" yet two 4% up moves in a matter a minutes looks even funnier and has to be accounted for.  

The time ratio of 8/5 would be nearly perfect if the market would just follow my dang chart through tomorrow!

In addition, my blue box may be the target. This is the challenge "virgin" zone of the wave down since the lower blue box was easily covered by Monday's rally.  The virgin zone can be found with no waves prior to, nor after a spot in the structure. I have long theorized that a wave 2 (no matter what degree) will at least challenge this virgin area prior to morphing into a wave 3. There is no doubt if the market gets one more day of up prices, bullishness will be back in vogue.
This longer chart shows the "wedginess" of the pattern.  The only caveat is that when I start to look higher, I need to force myself to look lower because thats what the market wants us to do.  So in the end, lets see what happens but its an exciting possible outcome.

In addition, my blue box areas never seem to fail if this is a wave 2 as I suspect.  Also the 78.6% Fib marker for the Wilshire (I don't care about other indexes) is the "Uncle" spot. If the Wilshire traces higher than this Fib, a retest of the high seems inevitable at some point. There is still good breathing room until that spot.

[Update 5:25PM: Another look at Gold.  Keeping it simple here. (5) of [5] is free to go insanely parabolic if it must and overthrow everything.

Disclosure: I have no positions in gold and stay away from paper gold. I am neither a gold bug nor one who thinks gold must collapse in price.  Gold will always have value and it is a time-tested store of money. I do however favor paper gold prices collapsing because the paper market is leveraged to the hilt (100-1?) and cannot be "delivered". Some day people may realize that en masse. So the next "big crisis" could involve the collapse of gold due to paper being recognized as a leveraged speculative scam that it largely is. Just imagine if the CFTC announces an inquiry into paper gold funds. Hence, I would think a collapse in paper gold will be a serious drag on physical. However physical may become a true "black market" if this were to happen. Yet if that happened, black markets are again subject to government intervention and confiscation.

So in the end, having physical is great but paying $1300 for an ounce may turn out to be an unwise decision if in the end if you mean to ultimately convert it back into the currency of your choice. Hence, I'll watch from the sidelines.

Yet EW patterns do suggest that Gold's run is nearer it's end than a beginning.]
NYMO is creeping back toward neutral. That is good as a wave 3 may need to be nearer zero than not to start from.

Have to run real quick. I'll be back. Looks like wedging on several levels. Looking for 2.

Wedgy overlapping waves riding a tight trendlines on low(er) volume.

Time-wise you can see the rally is closing in on a .382 ratio line.

SPX only index that didn't test/close over the 50DMA. Divergence with other indexes.
Backtesting the Supercycle upper channel line. Credit bubble refuses to die.
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