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Wednesday, July 21, 2010

Elliott Wave Update ~ 21 July [Update 9PM]

[Update 9PM: Bonds are challenging the open chart gap which is logical if this is a wave [2] up which I think it is.  Technically there is some negative divergence going on and on the weekly (not shown) they are nearly overbought almost 70 RSI.  

Overlap in the waves + double negative divergence at the end of an uptrend = looks bearish with limited upside gain and more downside risk.

[Update 8:39PM: Few more charts.

Dollar apex turn time has worked perfectly so far.  Break over the down-trending RSI.  Remember this is supposed to be wave (3) of [3] which should be a strong trending up wave.
Here is my fear chart package updated from last night. TED spread did make a new recovery low today so it   counts as an [a][b][c] correction at minimum.

VIX is stubborn and the 23 level is very strong indeed (as I suggested weeks ago) . I  would love to see that gap up filled but that won't happen unless there is a break over the main downtrend line in the equity indexes as we have discussed.

So is the VIX predicting the break over the MAIN equity downtrend line to fill its gap or is this an unreachable comfort zone for the masses and fear is now becoming a more predominant emotion in the social mood sphere?

Lastly I don't normally put waves on the CPC (cause it is range bound indicator) but oddly it counts almost perfectly either way in this instance. So this short term instance may work well for counting since its one segment only (1 and 2).  The 10 day average has curled up. But is it missing one squiggle down to fulfill its corrective count here?
Again the VIX on its own.

[Update 7:51PM: The cumulative chart is showing divergence with stock prices. It has gone higher and prices have not.  In fact it may be a double divergence as you can see it is about even with the 1131 pop where I have green [a].

Normally you could argue this leads and stock prices will soon follow up. This interpretation supports the notion of SPX wave (iii) up of [c] of Minor 2 up. This chart is one reason why I think (iii) of [c] is still on the table.  There may be no buyers, but there are even less sellers at the moment and one side will win out even if its just a temporary win for the bulls.

The bearish interpretation is that SPX prices are leading down which can happen at significant highs and that this cumulative chart is lagging. The divergence is then simply cluing us in that all is not "right" with the market
and to take heed.

Stochs and Ultimate Oscillator are certainly not oversold here. In addition there is a quirky little negative divergence on the sensitive Ult Osc with the cumulative line. That is bearish for stock prices if it pans out.

[Update 6:55PM: Something big is near to happening in the markets. I can feel it in my bones. And being that it is in a downtrend, one really has to have a lot of nerve going long here considering fear and sentiment has "corrected" and prices are still down relatively speaking.  In other words it sure seems like a consolidation for a big bear move down.

Yes the wave structure has given us a possible upside over the trendline. However looking at this NASDAQ you can see it has exactly behaved at this main down trendline.

We can also imagine that the trendline is connecting a crap load of second wave peaks and what comes next is a big third wave of Minor degree.

So I have a count that is possible - a break above 1099 if only for an instant  or maybe even higher if the bulls can get a big squeeze going.  As I said yesterday, the market is making the decision that this downtrend line is important and it is obeying it.  

This NASDAQ has some 6 perfect touches with almost a seventh perfect touch. All could be construed as wave two peaks. So something is brewing. The VIX spiked today as if the market has finally awoken again and realized its running out of "two's".

You can tell something is going to bust open as every market internal indicator on this chart seems to be downtrending. Even today's selloff the down move obeyed this down trend in the hourly indicators.  You can see there is no more room for any sell events to remain under both the decliner and volume ratio down-trending indicators which may mean its due for a big selling event.

A mass selling event won't be hard to spot.

Of course if the market can manage to pop over the main downtrend, I can imagine quite a lot of short covering which could propel things like a soda can under pressure.  And then when the rally is over when the FIZZ is gone, a massive flash crash as they run out of buyers and sellers overwhelm.

So either case, the market destination seems to be ultimately down. How it gets there we await eagerly.

But I am not betting against the trendline here.
The market is fast approaching an apex point. Apex's in downtrends usually resolve to the downside, even if there is a false break first above.

So the primary count is this sucker is going down hard in a Minor wave 3 even if it goes up 50 points from here first! How's that for a count? The preferred count is that I hope it would go up above 1099 to finish an [a][b][c] Minor 2. But I don't get to pick.

Once again the early morning hit on the main downtrend line was a pretty easy call. And a fall back to the 1070 area was not unexpected.

But the afternoon downdraft nearly toppled this lemming-like market.  The 10 day CPC started to curl up today.  That is forcing me to start pondering some big downside moves for equities.
Its not ironic that the APEX point is forming exactly at the top of the last mass market sell decision point marked by my red arrow.  On the SPX it is the 1070 and 1072 area that we have come to know oh so well.
Another long term view of this line and the great right shoulder.
And yet another view of this important line. This is smack in the middle of the panic in 2008.  If this area cannot be reconquered, Primary wave [2] will be on its way to proving its merely a wave two. It failed its "I wanna be a bull" mission.  
Primary wave [3] awaits its full fury.
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