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Tuesday, June 8, 2010

Elliott Wave Update ~ 8 June [Update 7:30PM]

[Update 7:30PM: Ok two more.Again, a quick overview of what the market is facing:

1) Top count, "third of a third" panic wave will be upon the markets as soon as pink (ii) of green [iii] finishes rising. (See squiggle chart next chart.) Could be a rally back toward a Fib 45 - 62% retrace of pink (i).
2) Alternate count:  Minor 1 finishes in a leading diagonal count. But this requires a new low under 1040 first by rule. So we need at least another small wave of selling, likely very soon tomorrow, then a hard Minor 2 rally that could challenge the open chart gaps down.
3) Neither of these occur and something like a more complex corrective wave [ii] or 2 takes place (likely no true panic just yet) Gaps down get challenged.
Squiggle count:
[Update 6:56 PM: I guess my final word tonight is that I do not trust the positive divergences on the charts at the moment to produce anything more than an expected corrective up subwave (ii) of [iii] of 3. I think all the positive setups are so obvious to even non-chartists, that something smells rotten  in it.  Its like the big H&S pattern in July 2009 where even CNBC hosts were commenting on it.

Same here with all the apparent bullish setups. If the market is on the precipice of a major panic wave down, then having these oversold indicators shaken out not to be oversold anymore means that this market may really get buried here.  So maybe it has just enabled itself to get into position. Working off deeper oversold levels while maintaining a bearish setup.

I am not trying to outsmart the technicals here.  I am merely trying to stay in tune with what the market has told us so far; and that has not been bullish.  The 1000 point "flash crash". The 120-1 record down volume ratio day will be hard to re-capture. The 20-1 decliner day will be hard to recapture.  The down-sloping line will be hard to bust up and out of. The neckline will be hard to recapture and hold.  All these things can be done, but to say they "will be done" is just a hope and playing the same lame apparent bullish setup that every Tom, Dick and Harry can plainly see.

Hey maybe it pans out in a very nice rally. I won't knock it, I'll take advantage of higher prices!

But more importantly, the wave structure suggests a massive 1-2, [i]- [ii], (i)-(ii) setup and that is what I
must respect at the moment. So I won't chase any long-side here (as I cannot monitor things full time anyways), bless those that do and can profit big.  I am also not suggesting to bet the farm to the downside either.  But the market has given bears some clean stop outs points. So any aggressive-short-side bet has some decent "outs" in case it is all wrong.

And what about sentiment? Well, there are lots of sentiment indicators on charts such as BPSPX which measures the percentage of stocks in a bullish setup. Today's reading is at 40. Looking back at Minor 3 of (1) of P[1] reveals that BPSPX got down to 13.6 low.  So in that respect, the market is indeed lined up to make a much bigger move down.

But maybe the best sentiment indicators are the actual surveys of real people. And those are also "in position"  and still loaded with enough bullishness and complacency to move to a panic wave crash scenario.  Why wait?

So now we let the market decide things. It is never nimble out there. Got to go to bed early...

[Update 6:25PM: The GDOW chart is somewhat representative with a lot of charts at the moment:  It has a double positive divergence being displayed in its RSI and other signs such as MACD, ROC, etc. suggest a rally.  I cannot argue with it and its probably worth taking a trade shot to see if it pans out nicely in a good retrace wave.

But there is also another way of looking at things:  The market has merely worked off the oversold condition a bit to allow another power move down. This is kind of what happened on P[2]'s rally. Every bearish setup got shrugged off and technicals reset.

This is one of those moments that if the market rallies hard, you can say "but of course".  And if it sells off in a panic wave, you can can "we seen it coming".   Such is the crossroads the market is at.
The VIX also again is another chart, shows a positive divergence. New lows in stocks and VIX is very lame.  But again, the flipside to that thinking is the market may be behaving awfully complacent here at this stage.  The NYMO (not shown) is also at a hyper-positive divergence stage. It has rallied back toward minus 28.  Again, is this working off oversold while maintaining a bearish setup?

I am trying to see past old paradigms as P[3] will surely usher in some new technicals setups if it is to have a historic drop...
[Update 5:25PM: BIDU still seems like it put it its top. In general, it should, like most stocks, generally follow the market at this point. Thats why its important to get the market direction correct. ]
Nothing definite on the smaller charts but it might bounce since there may be a small degree wave four triangle.

Today's low made a new low in the NASDAQ and Industrials which could count as a leading diagonal pattern, yet the Wilshire and SPX did not. So do we have a leading diagonal situation?  By rule, no on the SPX and Wilshire.  Since the Wilshire is practically the entire market, I hold a great deal of weight on the waves that it produces. So the jury is out.

I'd like to see the SPX and Wilshire break under new lows that means under 1040 on the SPX which it did not do today. Maybe we get a quick surprise move down tomorrow to flush it out.

The primary count remains that a "third of a third" or (iii) of [iii] of 3 strong selling down wave will break upon the markets. So this rally wave off today's low is labeled Minuette (ii) of Minute [iii] of Minor 3. Then eventually the down move should produce a "point of recognition" or what I like to call a virgin wave area.

The problem is that many technicals signal postive divergence and there is a good deal of bearish sentiment to be sure. But is it enough? Also the dollar could experience a big retrace which is hard to argue the market will sell hard when the dollar does not rally hard. At this stage, there is still too much of a direct correlation between the dollar and equities.
The alternate count is anything that the primary count is not. I know that seems rather flippant, but there are a myriad of possibilities if the SPX 1040 holds (and thus the leading diagonal count is by rule disqualified) and the markets rally a bit here or longer. Its really up to the market to determine if selling has been exhausted near term or not or if we are ready for a nasty crash wave. If we rally for a while here in choppy action it could be some variant wave Minute [ii] or Minor 2 variant. The gap(s) at and above 1100 is obviously a fat bull target.

We have a downsloping line that has yet to be challanged.
We have a neckline "backtest" that has yet to occur.
We have what looks like a complete 5 waves down from 1105
We await what could be a decent retrace subwave (ii) which could have a normal deep retrace signature.
See the 60 minute chart for the green target box.

So we have some clear stop points.

I don't like to get fancy here. If the market is on the potential verge of a nasty third of a third, there is no reason to scream "it ain't gonna happen" when we cannot be sure. I respect the wave setup here and the potential.  In other words, I wouldn't "go long" in my 401Ks with a 30 day hold rule here.  I guess thats the basic point: patience. We have signs that the market may rebound and maybe for a week or 2, but they are not overwhelming signs and the market certainly hasn't had a true panic washout yet....

The price action still sucks for bulls here.

Yes, there are a lot of things technical and even sentiment-wise (and like the dollar chart) that suggest that a big move down will be quite delayed for a few more weeks at least, however a vast majority probably believe in the falling wedge count and a bullish retrace. That is fine and dandy but who is committing big money to make that happen? Lets see it happen first or at least some portion of it happening.
The market will move when its ready. The waves suggest that after this relief rally fails, a big selloff is coming in a third of a third. I respect that potential.
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