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Monday, September 20, 2010

Elliott Wave Update ~ 20 September [Update 8:18PM]

[Update 8:18PM: BPSPX is yet another chart that was neatly "resolved" today as it made new recovery highs at 60.6.  Resistance at 64 or so and that would also be a 50% retrace.

It has a higher bullishness for a Minor 2 than anything in P[1] registered.

[Update 8PM: The NYAD chart seems to be following the extended 5th wave I suggested a week or so ago.  But it does not yet seem to have found its wave 3 of (5) of [5] peak. There is a decent chance that wave 3 on the NYAD is the price peak of Minor wave 2 in the markets, at least the SPX or DJIA. We may then see a drop in the SPX and then again new highs in the NYAD for wave 5 but not the cash SPX index.

So along that line of thinking, the price high of Minor blue 3 in this NYAD count may mark the cash index price high as it did in April where (3) of [5] marked that (and the SPX Primary 2?) price high.

Simply put, there has been a relentless accumulation of paper since March 2009 just when the world's financial markets have proven that they are in the biggest credit bubble of all time in the history of everything.

It can only end badly.
[Update 7:03PM: A mapping of  market internals indicates that the market finally "pulled away" from the second mass market sell decision point of Wilshire 10,700.   How far it continues to run up is why we count waves.

We assume its Minor wave 2. Will there be some secondarys that make new highs?  Sure, you see IYR did today (which is nice in that it resolved a triangle).  Maybe the NDX does too I would not rule it out at this stage. But the major indexes will be hard-pressed to clear the "flash crash" candle of DOW 11900, or the 78.6% Fib.

Today was the 10th day the NYSE experienced an up volume ratio of greater than 12:1 since the April market peaks.  It finished today at 13.14.  In conjunction with that up volume ratio, today was the lowest advancer/decliner ratio out of the 10 days as it clocked in at 4.46. Now don't get me wrong, thats still a very nice up day, but when viewed with the other nine days, it suggests things are weakening.

And why would that be? Well, we have a Mutual Fund cash reserve level that is near an all-time low at 3.4% as reported at the end of August.  We also have an end-of quarter event coming and if it closes high, will be a nice quarter indeed.  Everyone is indeed seems to be going "ALL IN" and they don't care about the fundamental situation any longer.  If we were priced for 5% perpetual growth at 1200 SPX, what percent growth are we priced for at 1160-1170?

What a rude awakening when the economy actually is probably in retraction at the moment and the actual third quarter GDP is threatening to print negative growth.

A rush to the exits?

Selling has diminished in intensity in a steady manner since the April peaks (see the red down-sloping line). This finally enabled today's breakout.  The lack of vigorous selling lately is cuing up a pent up demand to sell situation in my humble opinion.  And the shorts have been run out of the schoolyard. Sure there are stragglers, but for the most part, conditions are being set for the next crash stage event.  And that aligns nicely with the view of Minor wave 3 down.

Circuit breakers? How will that solve anything?  Shutting off the HFT machines in the middle of a "no bid" situation will only cause chaos.  If you cut off its rebound momentum potential, then when it turns back on you may see a continuation of a crash. The MAY 6th flash crash was a warning. When you create a bidless market and the HFT machines no longer can mask the volumeless internals, bad things will happen.  There are not many old-time market makers left they too have been run out of town.

Sentiment has obviously shifted to a bullish state as I can tell by the comments. Somehow we "failed" yet this market is in Minor 2 (in a three wave pattern no less!) and it has just breached a "normal" 61.8% Fib on the Wilshire.   It never fails that at the maximum price point of a wave 2, the same sentiment rears its head each and every time.
[Update 5:30PM: Along with the DJIA resolving its Minor 2 price peak, IYR also made a new recovery high which resolved the triangle mess from a counting standpoint.]
We did not get the squeaker above 1131, we got the full squeeze to next resistance (1145-1148). But looking at the larger picture helps perhaps. My eyes are on the DJIA (and Transports) today.

Back in the day (seems like ages ago) I made the case for a Leading Diagonal triangle count for the market from the April peaks to the July lows.  To me, thats the only thing that made any sense.  I stated that a retrace, as per EWP means it could be deep back toward the 78.6% Fib. On the DOW thats around 10900 and the SPX is approx 1175.  The "deep retrace" seemed to have been fulfilled on the DJIA when it hit 66% back in August.  But I guess not.

However, the SPX and Wilshire has one quirky spot in the internal waves that argues against the LD at least for them. But both the DJIA and NASDAQ do not have such quirk(s).

So the DJIA maximum retrace should be no higher than around 10906.  This also coincides with the top of the May 6th "flash crash" candle of 10,879.   This is the first "Mass market sell decision point" since the April dropoff.  The second mass market sell decision point, (which lies at around Wilshire5000 10,700 or approx 1122 SPX), seems to have been finally momentarily conquered.

The transports have not confirmed the Industrials move above its August high. A failure to do so constitutes a DOW theory divergence in my book if the divergence holds.  

So in theory, we have around DOW 130 points to play with to find the top of Minor 2.   And there is no valid inverse H&S on the DJIA. The neckline is too slanted upwards.

The blue down-sloping line connects the April 2010 peak to the October 2007 peak. This line is significant.
As far as the SPX squiggles I have been generally looking for an (a)(b)(c) count since the 1039 low. There is likely a shallow (b) wave in here somewhere in one of the places I have marked. We have a new "key marker" pivot at 1123.97.  A ton of stops will be placed just below this mark (indeed also at today's gap up).  A downside break of this pivot/gap up area signals reversal.   

One formation that I missed on Friday was an apparent "w-x-y", zigzag-zigzag-triangle sideways structure. A classic sideways alternate to a straight-up triangle.  Was this w-x-y wave (b), or wave ii of (c) or wave iv of (c)?  All three can be argued.  Note the alternate count markings reflects these configurations. How the structure develops from here will determine the ultimate outcome.

Its not the breakout that matters, can the market hold the breakout.  So did we have a wave i of (c) , iii of (c), or v of (c), today? 
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