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Tuesday, June 15, 2010

Recalculating Minor 2 Upper Target [Update 9:30PM]

[Update 9:30PM: Final update tonight. I am not suggesting the market has to go to 1172 or wherever. I am however suggesting that EW theory and technicals (and dollar retrace) certainly are supportive of it as of the close of market today. The market will ultimately decide.

All I am saying is that a decent breadth thrust event has occurred in just 14 trading days and past history suggests at least some further gains can be expected above today's high. (again not in a straight line necessarily!) We have at least a target of 1126-1130 original wave 2 target zone, but I have to concede after today that it has a bit higher potential since this [a] wave is going higher than we thought.  The 61.8% Fib is also a good spot at, yes...1151. That too should be good resistance.

It largely depends on the [b] wave pullback. But we still do not have a [b] wave down on the daily that I can see.  So the top count is still that either today's high or tomorrow will finish the [a] wave of Minor 2. [b] wave then will retrace a portion of the up move. Then [c] wave plays to a higher spot in 5 more waves to form a 5-3-5 zigzag Minor 2.

[I'll continue to update nightly charts and comments on the 15 June update post below this one]

Each day of the tape has to be respected.  I have learned that the hard way. Today moved the "Zweig breadth thrust" indicator above the 61.8% line from beneath the 40% line in only 14 trading days.  Now a true breadth thrust event takes less than 10 days as you can see what happened at the beginning of P[2]. Yet moving the required amount in any time frame has resulted in healthy price movement at least for a limited time span. I suspect it may be the same here.

The one caveat caution: In a bear market, this can be rolled over. See the long-winded move from below 40 to above 61.8 in late 2008, early 2009. (yet even in that event, there was a bullish 300+ further advance for the DOW after the move above 61.8% occurred)

Here is more on Zweig Breadth Thrust:

This is the 4th time since the March 2009 low this has happened. It is the 3rd quickest.  On the other three occasions, the market gained considerably in points (not in a straight line of course!)

So in a nutshell, today can be considered a "follow-through" day so to speak. The market is trying to prove itself. Wave 2 is trying not to be a wave 2 and be a bull wave.

The only thing that was troublesome with counting a Minor 1 wave down as a contracting leading diagonal and coupled with a truncated ending on the SPX and Wilshire5000 is that according to Elliott Wave Principles by Frost/Prechter:  "A leading diagonal in the wave one position is typically followed by a zigzag retracement of 78.6%". (Chapter 4)

And coupled with truncation, a violent move in the opposite direction should occur. So far that appears to be the case. When the market was floundering sub1100, this seemed preposterous. However the record 44:1 up volume ratio day has now been followed by a healthy 24:1 up volume day.

I have also blogged a lot about what wave twos of any degree wish to achieve. They wish to prove themselves to be bull waves (in the case of a bear market). I have proposed that the wave 2 will try and reconquer its "Lehman Day" or the spot where the market broke down at. If it can do this, it can go higher and not be a wave 2. Now usually this is easy to spot and resides at or near the "third of a third" of the middle of the structure but that is not always clearly the case.

Since this is an unusually overlapping structure from 1219 peak, we have 2 candle days that could be considered "Lehman Days".  The 19:1 decliner day which was closed over today by the Wilshire (but not the DJIA, nor e-minis) is the first hurdle. The second bad candle day was the 17:1 down day or the "flash crash" candle of May 6th that peaked at 1168 SPX.

If the 19:1 day can be hurdled and used as support in some way, then Minor wave 2 has a chance of challenging the next big bear candle and that would be the flash crash candle. Again Minor 2 would attempt to close over this and hold it to become what it naturally wants to be: A true bull wave.

Is this a valid inverted H&S target line for the SPX? Same would apply to the Wilshire.

Based on a possible inverted H&S pattern, plus breadth thrust consideration, plus considering a leading diagonal wave can retrace 78.6%, (coupled with truncation) and the fact that Minor 2 from a major peak can retrace deep, we might want to refine our likely target(s):

High price of Flash Crash candle:  1167.58 (this would be a 71.3% retrace)
78.6% Retrace mark: 1181.5

So the middle of that target would be about 1172-1175.  

One cannot dismiss all the bull days we have had. Some of the best have been closed under already but it just keeps coming and coming.

So I'd rather blog about this now and see how the market moves going forward.  I still see an [a][b][c] Minor 2 zigzag no matter what.

Other considerations are the dollar likely has a long way to go for its retrace target and you can see today, the market reacted in conjunction to the dollar/Euro dance as it has been.
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