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Wednesday, August 25, 2010

Elliott Wave Update ~ 25 August [Update 7:25PM]

[Update 7:25PM: I think its one of those moments where getting caught up in the squiggles is going to be exacerbating at times for both bulls and bears.  I like to compare things to P[1] at stages.  And since the is P[3], things will not play the same. But there could be some very comparable moments.

For instance if we look at the time period in 2008 in which we map Minute [i] of Minor 3 of Intermediate (3), we find a similar looking fractal potentially in play.  This time period was all overlap of some degree or another. Yet there are some ways we can ultimately label the move.

And certainly the market kept working itself lower.

The key thing I think is that we have resistance overhead (which should eventually stop any rise) and a market that seems to want to work downward to an initial target area. I suspect that target area resides below 1010 SPX. As I said, 990 works for me for now because it resides at the larger H&S neckline.

I use the Wilshire for form. My only real point here, is that things can get awfully difficult to count sometimes. Yet in the end, the market will go where it must go. There is an awful lot of similarities between then and now, including the psychological ponderings if we had entered "recession". (i.e.- Double dip talk now)

We can also remember the psychology at the time in summer 2008 (which also came off of pretty good earnings in 2nd qtr) that we were not sure if we were entering a recession or not.  But of course we were.

I think chart patterns will help here also.  For instance the falling wedge and compressed prices warned that there would be a violent rebound in 2008 for Minute [ii].  We don't yet have compressed prices in the current market.

Of course the real danger to be a bull is that the computer-controlled market blows a fuze or two and runs out of control, to the downside of course...
So the current market has the same look.  We can see that black iv can go all the way to the dashed line and not "violate" any EW rules.

In the end I think its going to take a lot more bearish sentiment and pessimism to induce a big corrective bounce more than a few % in the market (ala 2008 Minute [ii] of 3). Are people getting bearish? Well of course they are and working themselves toward a short term extreme.   There is a transition going on and I just don't see that we are there yet for Minute [i] of minor 3.

It may need revamping and I must remind myself to be flexible here with the count - even if the gap down from yesterday closes solidly.
You figured the market was going to bounce at major support. Question is, will there be any follow-through?

The primary wave count suggests no, at least it shouldn't be much.  Although we could shoehorn the entire drop from 1129.24 to 1039.83 and call it a 5 wave move, it would be somewhat unsatisfying because the second leg almost exactly equals the first, which suggests (a)(b)(c) and not (i)(ii)(iii). So the primary count would require at least another wave down to under 1039.

The sharp rise was required to wash out some bearish sentiment. To get Jim Cramer back tooting the bull horn.  The H.O. is just too well publicized.

The "uncle" point for bears would be the wave (i) low of 1069.49. Wave (iv) cannot breach this. Realistically though, a wave (iv) shouldn't be near there...

Obviously a lot of eyes are on the unemployment report.  It would be supremely funny if somehow the report got a lot better this week, yet the market experiences a big selloff anyways.  So as you can see, its not the news that will determine things.

Bonds took a pretty nasty hit.  I guess everyone is under the delusion that a selloff in bonds will naturally mean an explosion in equities. I have my doubts.  But the ultimate theme of P[3] is that all assets, at key times in the wave structure, will selloff together.

Again, we'll slap a "four" up near here and see what happens.

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