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Friday, May 28, 2010

Elliott Wave Update ~ 28 May [Update 7:50PM]

[Update 7:50PM: There have been a lot of stories or whatever on all the "breadth thrusts" during P2.  But the only one I really look at is Zweig Breadth Thrust indicator.  To trigger this rare signal, the signal line needs to go from under 40% (bottom red line) to above 61.5% (top red line) within 10 trading days. We had only one of these in P2 and that was right at the beginning as marked with the blue circles.  http://danericselliottwaves.blogspot.com/2009/05/zweig-breadth-thrust.html

It still stands as the only time this has triggered since the 666 low. In early February, it went from under 40 to above 61.5 yet it took longer than 10 trading days.  (you can see the actual price low in February 2010 the signal line was above the 40% mark! - had it dipped below, and then went above 61.5 when it did - it would have been a true breadth thrust.)

Now you can see the market had every opportunity right after the "flash crash" to pull off another thrust signal and it failed. After Thursday's big rally, you can see it has yet another opportunity to pull one off. In other words, the market is going to need a follow through 90% up day to trigger something bullishly special and reverse the "bad breadth day" that took the market down in a big gap down above 1110. Its as simple as that and there is no reason to ponder all the bullish alternate counts until it pulls that off.

Again, 1113-1115 is the epicenter of a wall of resistance. Sure the market may squeak above on a low volume, "hold all your cards" type move, but once someone yells "fire!" and selling begins, it probably wouldn't hold for but an instance.

So thats where we stand. The market has every opportunity starting next week to prove its not in a series of one and twos to the downside.  All it takes is buyers. Big buyers. Big breadth thrust buyers.

So those who are betting on "upside target of 1150, or 1175 or 1200 or new highs" are basically betting that this breadth thrust signal will trigger even after an amazing 13 month rally and only a 12% loss. Remember the last one at the beginning of P2 triggered from deep oversold. We are nowhere near deep oversold. We are still closer to overbought.

Now don't get me wrong here. I am not saying this breadth thrust signal cannot trigger, after all, the market is always right. All I am saying is that the odds are very very low because the wave pattern and technicals are painting something decidedly more bearish as the primary count.

If it does signal, then I will be the first to inject a load of doubt into the near-term bearish counts.  I think this rare signal would have to trigger if we are to get a market move that goes above 1220 SPX, and particulalry 1300+,  as some wave counters still like to post about. And it would have to do it next week. I don't see how it can not trigger if we move to 1150+ at anytime next week.

And since I don't think it can trigger, a move to 1150 seems remote.

The bulls are trying to just get above the 200DMA. After that great rally yesterday...nothing. No follow through = lack of conviction to buy into this rally.  The waves are overlapping and the price action is not inspiring.  However as I suggested earlier in my daily update, the key for the bulls was to just try to maintain some upper support to let them live another day. That was accomplished.

The pattern is also wedging. We have seen these telltale wedges in P1 and recently on Minor 2 peak. Its a bearish pattern.

So we have what could be best described as a double ZZ for Minute [ii] so far. But there is no impulsing down just yet so we must assume the market has one more crack at breaking above 1100 come Tuesday.
Lots of interesting ways to label the squiggles. Triple ZZ or triangle. It doesn't much matter as the waves are craggly and overlapping. I haven't had time to break it down but here is a rough sketch. I'll probably play with some charts this weekend.
Essentially a triangle is playing out. It either breaks upwards come first thing Tuesday or it fails.  Today's down waves to 1084 low looks like a double ZZ in a perhaps, complex c wave right where we might expect a complex wave to develop.
All in all, Monday may be an up start to hit a higher target, but the entire pattern no matter how you label the squiggles is bearish regardless.
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