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Thursday, May 27, 2010

Elliott Wave Update ~ 27 May [Update 8:25PM]

[Update 8:25PM: Just some more charts. You can see the inverted H&S pattern on the Wilshire is far above the 2 black resistance lines painted on the chart. It could be a false hope to bulls and will produce downside surprise well short of its full upside target.

Also here is something else:

Minor wave 1: Fibonacci eight days of decline
Minor wave 2: Fibonacci five days of rally
Minute wave [i] of 3: Fibonacci eight days decline
Minute wave [ii] of 3:  Fibonacci three days rally (precisely tomorrow's open).  It could be since this is Minor 3, that the subwave [ii] will be a "quickened" pace because the tug of lower prices is pulling hard.]

[Update 8PM: VIX golden cross of its 50/200DMA first since September 2008. The VIX chart is bullish looking and now its overbought has worked off. The divergence at the low versus the panic 3rd wave high can be seen. Maybe it fills the upper gap and then gets bullish again.]

[Update 5:50PM: The NYMO is certainly no longer oversold.  I once did  a quick study of P1 in checking specifically when Minute [iii] wave's started from on this indicator and what I came up with was near-zero or slightly above.

Minor 3 launched from a -13 state. We are now at -11, less oversold on this indicator then when the market was at SPX1173.

Incidentally, I feel the double ZZ is appropriate here. The market corrected in a single ZZ to the 38% retrace which was sufficient in form (it was an (a)(b)(c) pattern) for a wave [ii] . Double ZZ's then occur when the market requires higher price.

This is per EW Principles, Frost/Prechter, in which quote: " In a double or triple zigzag, the first ZZ is rarely large enough to constitute an adequate price correction of the previous wave. The doubling or tripling of the initial form is usually necessary to create an adequately sized price retracement".

So I think that certainly fits the picture here. What we may have is a doubling of form to achieve an adequate price retrace.

So everything is going according to the Grand Bear Plan....heh]

Its almost a forgone conclusion that the current rally we have labeled as Minute [ii] of Minor 3 will challenge the big SPX gap down that spans from 1115.75 - 1107.34.

I have the current rise labeled a double zigzag as that is what seems to be working best.  It also has some potential nice FIB relationships.

I show the Wilshire for form, but using the SPX, (y) = (w) @  1115.56 and within wave (y), c = a @ 1118.40

So the above span of 1115.56 - 1118.40 seems a logical stopping point for (y) and hence [ii].
Again the main theme is that this wave [ii], by nature, doesn't want to be a wave two, he wants to be a bull wave!  And to do that he must challenge and conquer the "bully" at the spot that stomped on his head. So the big gap and last Thursday's very bad market breadth down day candle is the natural spot to stage this challenge. 

It must reconquer that bad candle day, hold as support, and then attract more buyers than sellers to continue to push up higher and clear 1173 for it to not be a wave [ii]. Wave two's must expend a lot of energy to make it back to the challenge spot. Some even manage to squeak over the finish line in one close over the challenge goal. But then the market re-stomps on its head and the exhausted wave [ii] is defeated and morphs into a wave [iii].

(This is of course how I describe P[2] as a matter of fact in which it could not reconquer Lehman Day) http://danericselliottwaves.blogspot.com/2010/04/battle-of-lehman-day.html

So wave two's tend to expend a lot of energy just to make it to the fight while the bears are hunkered down resting and waiting at the challenge spot.  And the bulls, having seen such a wondrous rebound, decide to sell or reduce positions and take advantage of prices that have turned their way and become bears themselves.  

This tends to all happen right near the challenge point. This is no accident. It is how wave two's are designed.

(This is why wave twos consistently travel back 50-66% because the challenge spots, or "third of thirds" of the previous wave ones reside in this range.  Having expended much energy in just getting to the main fight spot, the wave two is usually "re-defeated" in this area and, totally spent, panic sets in and the wave then morphs into a powerful wave three)

It took a ridiculous 6.5 point SPX open gap just to get back up today to resistance.

So needless to say, there is no point in predicting that the inverse H&S pattern will continue to travel to its full potential target length spot which is much higher than 1115-1118.  So thats why I think it will fail to attain its full target.

Call that "downside surprise" and it could catch a lot of eager bulls napping....

But, as usual, the market is the ultimate decider of things.  
So ultimately, once can say the the "big dog" fight is about to take place in the markets to determine its true fate.

Simply put: Bulls must reconquer the Bad Breadth down day, hold as support,  and then convince the rest of the market players that indeed the market is still "cheap" and deserves to be bid even higher.

And the bears? Simply don't get squeezed into and pushed high above the Bad Breadth day (approx 1120)

My primary wave count is obviously skewed toward the bearish position.

I recognize a larger bullish count that some can imagine, but I'm going to have to let the market tell me that.

Cannot make it to 1150- 1200 unless you clear above the bad breadth day first.
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