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Wednesday, July 14, 2010

Elliott Wave Update ~ 14 July [Update 7:45PM]

[Update 7:45PM: I haven't commented on the VIX in a while. The thing that bothered me as a bear these last few weeks is the VIX has a huge gap up  right below 23 support. This is a fear gap. This VIX gap up was created at the 1202.26 - 1197.5 gap down on the SPX which we never have really talked about much. Its just there. Its an open wound in the space-time continuum for the market tape and bears such as me just would like to ignore it as its the ultimate challenge spot for the SPX to achieve in a wave 2.

But I have another way of looking at things: You see the VIX gap up is close to filling. So if the market can challenge the fear factor first and overcome it, then and only then can prices perhaps rise back to 1200. 

Do I think prices could rise that high? No I don't. I do however think the market will challenge that SPX price point gap down via a "proxy battle" by challenging the VIX gap up instead.  I think that VIX gap can fill long before the 1200 gap can even though the two gaps were created at the same time. And if the VIX gap filled and SPX prices were no where near 1195, that would be bearishly complacent divergence in my book.

So the market could challenge the VIX gap up - and likely fill it if only for a day or so - only to see it as the turn spot for fear to come back strong again in the marketplace. 

Did all that make sense? Market challenges the VIX fear gap up instead of the actual  SPX price gap down that created the very same VIX gap. Proxy battle. And the VIX makes a hard turn north when the fear cannot be permanently overcome. Complacency exhaustion.....and big bearish divergence.

I would be somewhat disappointed if the VIX gap up didn't get challenged close.  If this is Minor wave 2 then it probably wants to conquer that fear gap up. It has to if it doesn't want to be a wave 2. Wave two's want to be a bull wave by nature and they always fail at some key point. 

And the VIX would then look like a big bull flag.
Weekly has RSI support trendline a bit below and MACD.  A move back to both would be something to possibly  look for. Weekly is long term bullish.
Waves today appeared to be corrective in nature.  So it could be the start of a Minute [b] of Minor 2.

The count "feels" pretty ok.  Certainly it makes a pretty nice impulse structure. This is opposed to all the other previous rally waves we have seen the last 10 weeks. Those rally waves had some weird spots of overlap and lack of alternation between certain points in each structure.

Not this one so far its a nice structure.  And if its a 5 wave impulse structure, then we should expect, as a minimum, another 5 wave structure after a [b] wave to form at least a 5-3-5 zigzag which would be a typical wave 2 structure. [b] waves shouldn't generally be too deep. Holding major support is a key I think.  It can close the gap but it shouldn't be closing under 1070 I wouldn't think or certainly not close under 1058.

So trying to confirm an [a] wave peak and then looking for [b] wave weakness is about what is at the top of the count list.

The alternate is that Minute [ii] will peak without taking out 1131.  At this point, its a moot point whether its [ii] of 3 or 2.  They both imply the same thing at least for the short term as we still have quite a ways before 1131.
The advancer chart could help us determine if the 1131 high will be taken out by at least 1 index (perhaps the DJIA takes out its June high and the transports does not thereby creating a big Dow Theory divergence)

If the advancers closes above its recent pivot peak, look for at least one index to take out its June high is about what we can judge by that perhaps. So far it has behaved and there was no divergence at the recent low and there is no divergence yet now.
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