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Thursday, June 10, 2010

Elliott Wave Update ~ 10 June [Update 9:40PM]

[Update 9:40PM: revamped the SPX chart using closing prices. McK in comments suggested plotting things in closing prices.  Actually in closing prices, its not even a leading diagonal, just a well channeled 5 wave move. Note that all the market internals such as fear, sentiment and decliner ratio is exactly where it is supposed to be in a 5 wave structure.

Max fear at the bottom of (iii) of [iii].
Max bearish sentiment at the bottom of [v]
Biggest decliners at the "third of a third"
Lesser decliners at wave [v]

If the market turns and heads down thats perfectly fine. However, if it heads sideways/up for a retrace, well at least we can account for it. Thats about the best we can do.

[Update 8:54PM: The McClellan's Oscillator will start to work against the bulls here. It is no longer oversold of course.   Regaining market points is going to cause this to move higher likely. Energy is expended in any retrace advance. Notice the wave 2 signatures in P[1] that I have circled. We'll keep an eye on this.
The NDX count has as its "flash crash" as the low and has been "doing its own thing" as it tends to do.  But do not be fooled!  Look at the larger picture. A few trendlines will make my point.
[Update 8:22PM: Here is my EUR/USD count. I think the wave 5 makes better sense as the extended wave as commodities can tend to do.  As explained per EWP book, currencies can be considered a commodity. And commodities advance more on fear-based sentiment unlike equities. For instance when oil went to $147 in 2008, recall the sentiment was more fear-driven (gonna run out of oil!) then a "feel-good" thing. No one felt good about high gas prices!

So in that sense, wave fives are often the extended waves because as fear ramps up concerning commodities, the final wave 5 extending is the result. Now lets see if the count holds.

A very steep declining trendline, that if broken, should be good for a squeeze or two.

Tonight's post brought to you in question and answer format.

1.  Is the primary count still 1-2, [i]-[ii], (i)-(ii) with a big third of a third right around the corner?
A: Probably not the primary anymore. The market doesn't appear to be ready for more intense selling just yet. A 44:1 up volume ratio day certainly doesn't fit well in a Minor wave 3. The wave personality better fits a leading diagonal count perhaps at the moment.

2. Is the Minor 3 down still a valid count? A: Yes.  But there can be no further delay. The market would have to reverse in a huge way and head down with conviction within a day or so at most and 1105 cannot be breached although if it got close to that, it wouldn't "look right". So really things need to collapse like overnight.

3. Whats the primary count now?  A: The leading diagonal count with the 1042 SPX as a truncated low.

4. But you said a LD it cannot truncate by rule? A:  Yes I don't like it even though it only missed by 1.3 points.  The main point is that there could be a Minor wave 2 retrace of the entire decline.  So thats the focus.  We'll recount and adjust as we go along.  Or you can label the 1040 as the Minor 1 low as EWI does. The main thing is we want to try and determine what the market may do and how long it may take. Most every other index counts well as a LD including the Nasdaq, Industrials, Transports, RUT and almost the Wilshire by a mere 9 points.

5. Whats with the mega gap up today?  A: In my opinion, if the market closes under today's gap, it'll be some bad blood for the bulls and Minor 3 is back on!

6. How were internals today? A: Strongest upside volume ratio day at ever recorded on my stockcharts going back 20 years at 44.8:1.  Stronger than when near P2 launched in 2009 with the 41:1 up day.

7. Ok, what about advancers:decliner ratio? A: Ahh, there is the rub. Only a 7:1 up day. We had 2 recent days that were stronger at 19:1 in mid May and the 13:1 day at the end of May. These were both completely closed under. So the trend for advancers is going down.

8. So today is not a "follow-through" bull day?  A: No not in my opinion. The market reset so-to-speak at 1042, so now it needs another follow through day to prove it is bull-worthy.

9. What is resistance? A: The gaps that lie just above 1100 with the 1107-1115 gap being the true "challenge" spots for the bulls. This is the gap that produced the 20:1 decliner ratio day.  The lower gap under that at 1102-1098ish produced the 119:1 down volume ratio day. The upper gap will be harder to close over.

10. If this is Minor 2, what are we looking for? A: Likely a choppy mess with a few bears days thrown in. Mainly though today's gap shouldn't be closed under before Minor 2 is done.

11. How long is it likely to last? A:  If Minor 1 took 6 weeks, then at least a multi-week wave 2. And it may not count pretty.

11.1 What would be the price target? A: Wave 2's should retrace 38-62%. But normally expect 47 - 72%. My thoughts here are one possible close over 1120, with 1130 (50% fib) being the max. Then it gets chopped down hard.  The upper gap at 1107-1115 will not like to be closed over. And it may not stand to allow it to be used as support!

12. What does the leading diagonal count Minor 1 down have going for it? A:  Market internals and sentiment reflect very well on it.  Wave [iii] is where maximum fear was (highest VIX), and wave [v] was where maximum bearish sentiment resided.  Wave three produced the strongest downside decliners with a 20:1 day. Wave [v] had much less decliner ratio and the waves became more choppy in wave [v].

13. Anything other noteworthy today? A: Yes, the total volume was crappy low so that is bearish overall.

14. So you abandoned the Primary count of a series of ones and twos? A: Heck No!  This market is dangerous as ever - I mean look at the gyrations! - and if there is a spot that exists that could catch a majority completely off-guard, then we may be near it!   However, I am giving today's record 44:1 up day the benefit of the wave count.

Certain technicals that lie above will bring out more sellers such as the 200 DMA at 1107 and the gap(s) resistance.

The dollar fell hard today. Still a correlation between $ and equities. I reconfigured the dollar chart below as topping in Intemediate (1).  The basic premise may be this: Equities needs a few weeks for Minor 2 retrace up and the dollar needs a few weeks for an Intermediate retrace (2) back down.  Remember, the dollar retrace's can occur very fast and cover the ground it needs. It merely is looking for a price target. Time is secondary.

I hate to project a multi-week slop - but this is the "ideal" - if it happens.  I am thinking one close over 1120 at most. But hey, the market decides not me!
Reconfigured the dollar chart - just in case. Its best to keep an open mind on things. According to Prechter in EWI, commodities often have the wave 5 as the extended wave.  So this looks pretty ok. Bullishness was way too high. And sentiment always matters.
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