Custom Search

Thursday, June 17, 2010

Elliott Wave Update ~ 17 June [Update 8:15PM]

[Update 8:15PM: I was going to do a whole weekend post on this and still might but I have to get this off my chest.

Prechter likes to say that "asset mania" is the greatest the world has ever known as this is a Grand Supercycle wave [III] topping process spread out over many years. I would think most readers probably concur with this sense of things. Like the South Sea bubble, Tulip mania or other mania's over the centuries, we truly live in a remarkable age of an "asset"-hungry population. The very nature of our modern being is "get rich quick". And asset bubbles fill the bill very nicely indeed.

But Prechter supposes asset mania has probably peaked already and that may be so. I rather think it is reflective in the cumulative chart  Still collecting stuff (in this case paper) and hoping it all pans out. The chart is just topping out we suppose.

We have gone from Beanie Babies to Tech bubble to Real estate to Blue chips, to yard sale mania to whatever. We are still very much looking for that next "hot thing" or hidden treasure and hoping to score big.

But I just watched a show the other night that made me realize we are truly at the peak of asset mania  Its called American Pickers. And its a show about two guys who find and buy rusted junk and sell it as rusted junk for apparently big profit.

It made me smile and feel comfort in the whole theory.  This Minor wave 2 of Intermediate (1) of Primary [3] of cycle wave c of supercycle wave (a) is likely the very rightmost shoulder of a bigger right shoulder of a massive H&S top covering 10 full years.

From collecting cute, cheap stuffed animals at the beginning of the launch up (Beanie babies - 1993)  to peddling  rusted junk as "treasure" for good money at the back end.  Have we indeed come full cycle? Need I say anything more?

[Update 7:33 PM: Here is the accumulative advancer chart helping me keep an eye on the primary wave count.  It would look better if the [b] wave dipped a bit lower. So a nice red Friday would accomplish that. Of course its not up to me.  The market will decide.

[Update 6:46PM: Something I hadn't realized when I blogged about the Breadth Thrust event the other day is how similar in price levels each event turned out to be using the DJIA.

The green line is where prices went to when the event happened.  The event earlier in the year then resulted in two somewhat indecisive candles after the event at a high support level (blue box).  Then there was some weakness and nasty gap down days (red box) that held roughly a shallow retrace of 38% or so (to the red line)

Now look at the breadth thrust event of recent days. Took it to the exact same price level and now two candles holding near high support yet again (holding the purple line).  Based on this, Friday may be a nasty gap down and break this purple support and head to the red support.  But even if the market makes a move higher early, odds are that some more correction is required prior to a [c] wave launching proper. I think the bears will get one play day.

Bulls have been herded in above 1105 and bears are shaken out.

Gah, isn't the market wonderful?
Another indicator that somewhat supports Friday weakness is Sentiment Trader's posted short term indicator scores.

[Update 5:15PM: Tracking squiggle waves is tough. But the daily tape is perhaps telling us something important.  Price action has ensured that the 19:1 declining bear day has now been closed over 3 days in a row. As some of the recent discussion I have had on the importance of this candle, one cannot help but think the tape is trying to tell us it wants to go higher.

Remember, the discussion on this was "if the market can close above this 19:1 candle, and hold it as support, then a higher retrace is possible".  This seems to be the case with the "support" portion.

The next logical spot is not necessarily 1150 which is probably on most everyone's radar, particularly since the 61.8% Fib resides there but a maybe a little higher.  1168 is the top of the flash crash candle and it is "protected" by a flanking Minute [ii] counter-move that topped out at 1173.

This setup is not unlike P[2]'s challenge of Lehman Day.   Lehman Day also had its front flank protected by the extreme rally of September 18-19 2008.

P[2] never managed to breach this protective flanking candle (using the Wilshire).  It died at the top of the vine.
Primary count has today tracing out a portion of a Minute [b] wave correction of an [a][b][c] Minor wave 2 up.

There appeared to be a very be a nice expanding triangle intra-day.   The e wave occurred just as the market was forming a completed H&S pattern and it violently broke upwards like an e wave is capable of doing.

The psychology of an e wave, no matter how small or big, is to make you think a new direction in prices is coming. So after the market weakness all day, the 'e' wave break upwards is a convincing move that will likely shake out any bears for tomorrow. Only to be horrified that the market thrusts downward, perhaps in a huge gap down on Friday, and the bear is broken and frustrated and if he or she shorts a gap down open they may get reversed on yet again.  These patterns are EW patterns and the intra-day psychology is fascinating as much as it is on a multi-month pattern.

It would make "sense" to engineer a large gap down (after the triangle has occurred at end of day today) that breaks the tape under 1105, fulfills the H&S pattern to its lower target, hits support maybe above the 1089 gap for a Minute [b] price low, and the MM's work the tape back up to cover the gap before the close of OPEX.  The tape working back up may even begin the [c] wave of Minor 2.

There is a Head and Shoulder formation with a downside target right around gap support at 1090 or above.

There has been no impulsing down so at the least, we must assume higher highs above the recent 1118 SPX high are coming down the road tomorrow or next week. The lack of impulsing down and an intra-day triangle indicates a corrective wave structure.  I favor this a Minute [b] so it has the "right look".   Is [a] wave over?  Well only time will tell but the count looks decent.

Like any ebb and flow, we can see the purpose of a Minor 2 wave is to strengthen bullish sentiment sufficiently to allow a bigger Minor 3 down to occur. Thats it in a nutshell.  Ignore the news. The market wants maximum frustration from the maximum amount of people.  If your not yet frustrated as a bear, then Minor 2 is not done with things likely.  When prices move further enough up and the bulls are confident to come out and crow a bit, that will do the trick.

But why does this still work even if we know it likely to occur? Why do the emotions of moving prices instill in us doubt?  Thats the way it works and it will likely never change. Thats why studying market sentiment is far more useful an endeavor than a company's P/E ratio.

How much sentiment is good enough for Minor wave 2? Well that is the trick. We do have precedents, and P[1] is a good template for how the sentiment ebbs and flows at the price turns of Minor 1 and Minor 2.  My BPSPX is a good indicator for this purpose. It won't tell us exactly, but it should put us in the ballpark hopefully. There are also actual surveys such as AA, II and others.

The Media is also a good tell also. I like using Marketwatch for this. They scream bearish headlines too quick sometimes as they did today.

Finally we have TA to help confirm everything. When prices produce a good EW pattern that has good form, has the "right look" and corrects sentiment sufficiently and we are grounded in a clear EW count pattern, we then have TA to help us fine tune a likely turn. Thats about EW technology in a nutshell.   And I will admit the more I practice it and take this general approach and try and exercise patience and trust what I see, the better the results.

Patience is the key. The market took 30+ days to decline, an ideal Fib ratio would be 18 days of rally. This is day 8 and it may or may not need a full 18 days. It may only need 11. We cannot tell exactly because we won't know if sentiment, waveform and the right look will be when and where.  But each day does strengthen sentiment even flat days like today. And now there is a [b] wave bump forming on the tape just using daily candles.

So things look okay for the primary count still.

If this is a sharp [a][b][c] up when will the [c] wave launch? Well again, it depends on the [b] wave at hand.  [b] wave patterns sometimes take time to develop but in the context of the [a] wave it should again "look right" more than anything. More importantly we should have a viable [b] wave corrective pattern.  For instance a triangle pattern.

blog comments powered by Disqus