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Monday, August 23, 2010

Elliott Wave Update ~ 23 August [Update 7PM]

[Update 7PM: Here is Consumer Metrics chart again showing the current consumer contraction (at least as far as how they track things). Via

Now I probably overemphasized this website and chart(s) over the past few months but we have to look for  all the clues we can for the overall wave picture. 

And what does this chart potentially say? Well I look at it one way: Consumers are contracting and a contracting consumer is supportive of a contracting social mood.  Sure we still like to spend!  Yet, I was in a shopping center on Saturday and the food places were fairly busy yet Best Buy was virtually empty. They had a huge wall of glorious TV's on sale (including a 50 inch Panasonic Plasma for $588) yet the aisles were empty. 

Simply put, we have shifted our spending habits in a big way and oh, by the way, a good deal many of us are beyond broke.  Consumer credit? That manic peak is well past us. No more zero percent interest credit card offers with no transfer fee. If they offer a 0% transfer they often want 4-5% transaction fee!  And if your credit score even whiffs of subprime, you ain't even getting these misleading offers anyway. 

But again, what can we glean from this chart? Well, we can say that the downturn (this is year over year comparisons) is equivalent to the 2008 contraction event.

At the very least, this chart does not refute the primary count of a Minor 3 of (1) of P[3] down.  The current contraction event is longer already by far and we expect everything in P[3] to be more extreme. This so far, supports that notion.
[Update 6:27PM: There are a myriad of ways to gauge bullish/bearish sentiment. Taken collectively they all probably show a neutral state of bullishness which is probably about where we expect to be. In some ways its actually still very bullish.  

The BPSPX chart represents real money in action. So you can bleat all you want that people are too bearish but this chart does not agree with that statement. Is it extreme bullish? No, of course not, and a Minor wave 2 rebound is not expected to be as you can see where other previous Minor 2 highs have occurred. Actually this Minor 2 is the most "healthiest" rebound to date. 

So the BPSPX chart still shows more than half of S&P500 stocks in a bullish configuration. This is one of the best stand-alone sentiment indicators you can have I suppose.  

You can see there is much decline to look forward to if my Minor 3 target range is even remotely accurate. And it will take a real good price decline to get it that low. Technically, the RSI and MACD have been "correcting" since the beginning of June. Thats almost a full three months. They are both now on the verge of breaking their uptrend lines. 
The overall daily also shows the H&S target.  If the market meets this target, the BPSPX should reflect it. Again note that with the daily chart, once prices are under 1010 SPX, there really isn't a whole lot of trading (hence support) from there on down to lower 900's. Even if Minor 3 was to abruptly end at say, 865, its still a large decline from current prices.
Finally the dollar is also, "perfectly" setup for a big thrust upwards to coincide with a down move in equities.

So all in all, we have a perfect storm brewing.

Very aggressive, healthy opening followed by a quick reversal and worsening weakness throughout the day.

The primary count has the market on the verge of entering a third of a third wave of Minute [i] of Minor 3 down.

Can the light August volume delay this from occurring at least this week?  There are certainly alternate counts that could drag out sideways/down rather than a true "point of recognition" moment of intense selling. We'll find out.

If the market is not yet ready and still wishes to challenge prices higher, I would think 1086-1087 area is a target I have in sight and should present some resistance.

The SPX shows the basic count. Throw a subwave "ii" at the top of today's high and see what happens. Subwave ii retraced into my little blue box area and about 50% so it was certainly a decent enough subwave ii for sure. The ALTERNATE counts would suppose that the market is going to hold up in this area for a bit longer and the "third of a third" likely won't occur until next week.
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