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Wednesday, September 8, 2010

Elliott Wave Update ~ 8 September [Update 8:57PM]

[Update 8:57PM: When the market flash crashed on May 6th, I pondered on what the Marketwatch TA adviser said at the time: "Welcome to your new trading range".  This proved to be a very prescience statement. It simply needs time after such a system shock to consolidate and garner a more bullish stance before it can move to a new range lower.

The market has indeed worked off a great deal of bearishness since May 6th. At the least, it worked off the fear. See VIX.

This proved true in 2008 when the DJIA crashed the market was locked in the range of the candle for more than 4 months: (Additionally the candle the day prior was also a mega candle so it can be said it was locked into range of both (or the weekly candle).

I marked some stuff on the charts to compare how it bounces around. Not exactly the same fractals (I wouldn't expect them to be) but the bouncing is similar.  The major point is that eventually the market reaches that RED ARROW marker at the end of the range and then starts to move out of the range.
Are we trying to find our current RED ARROW or have we already?

[Update 8:19PM: At the April market peaks, the FTSE turned down first ahead of the US market.  The current rebound counts well as a zigzag with a possible missing wave (v) of [c] of 2 not yet in place.  Technicals such as ROC, MACD generally is supportive of the wave count.

Also notice the nearly symmetrical time factors. At this stage I'd be a bit disappointed if a wave (v) didn't cut yet higher into the strange black candle virgin wave space and challenge as a wave 2 is supposed to do. Not sure if wave (iv) is not yet done either.

Then the FTSE may rollover first yet again.]

[Update 6:55PM: I'd like to explore the NYAD charts a bit more and the ideas of extensions.  The weekly chart makes a fine EW pattern since the asset mania extension began in earnest in 1995.

The NYAD is a focus because P[3] predicts that this will break down in a huge way. At the very heart of things, this NYAD sums up the internal picture. So far the NYAD rolling over has not been the case and sooner or later it will have to confirm a lower lows and lower highs and probably even an impulse pattern down. P[3] eventually will demand payment.

You can see where I get the idea of an extended primary wave [5] within the NYAD cycle wave V count.  Where I have (1) marked made an all-time high, it would have made an adequate spot for the "top". Yet the market was not done yet.
On the daily chart below, you'll notice  that [5] corresponds nicely where I had marked the (Z) of the triple ZZ count for P[2]. Yet that ultimately wasn't the market price peak.

The idea of a 5th wave extension is that each extended sub-wave advances prices.  And that would imply that the NYAD perhaps has a few more weeks of up waves left in it to complete 3, 4, and 5 of (5) of [5] of V.

We do have a "good enough" spot for an NYAD high already AND a price break beneath (4) would be evidence that the NYAD is finally rolling over. But until that actually happens....I need to keep simple EW patterns and principles of extended waves at the forefront of potential.

Simply put, if the NYAD continues to advance in a manner of an extended fifth wave as outlined in this chart below, that implies the SPX is not yet done rebounding on likely Minor wave 2 of P[3]. SPX price high would be dependent on this NYAD advancing chart count. But a challenge of 1130 or higher would be a guess.

If the NYAD instead breaks down from here and rolls over, that is evidence of [iii] of 3.

We are probably getting close to finding out either way perhaps.
As I said, an extended primary wave [5] makes sense per EWP Fig 1-10.
There are probably 2 simple charts that show the market's current "dilemma".  The first is the NYAD (advance/decline line) which is on the verge of yet another all-time high despite prices that are nowhere near both 2007 market peaks nor even now the April 2010 market peak.

At some point, the main theory of P[3], this steady, relentless advance must stop and rollover. Some say it needs to show a divergence in that the market makes new price highs yet the NYAD does not. That perhaps worked well in your grandfather's market of 10 years ago, but in the Age of Skynet the divergence criteria may have subtlety shifted so  I am not so sure it needs to be the case.

So I propose that there does exist a negative divergence and it is more than apparent as it stands right now. The RSI is waning and the NYAD new all-time highs are occurring well off the April price peak.

In other words, churning in the mud.

But again, even though the NYSE only does approximately 28% of the market volume anymore, the NYAD line still captures the totality of what is occurring. It keeps chugging to new highs but prices are faltering since April. On a larger scale, since 2007.

The one dilemna that bothers me at the moment comes into play is that if the NYAD is in an extended cycle wave V which I have been proposing and that its Primary wave [5] is also extended, then the market may only be in wave 3 of (5) of [5] and not 5 of (5) of [5].  Note the alts on the chart.
Which brings us to our second chart. The Wilshire and SPX are neatly compacted into a "base channel" carved from the April peak.  Breaking the upper downchannel line is obviously a goal of market bulls. If this line can be broken in a big way and hold as support, then perhaps that 78.6% retrace mark of 10900 DJIA is not so out of reach.

And thus the synchronicity of these 2 charts is apparent. Break upwards in prices in a big way, perhaps the NYAD is on a wave 3 of (5) of [5] and not the last squiggles of [5]. That means SPX prices are obviously going higher - perhaps eventually challenging 1130 SPX in an (a)(b)(c) move from the recent 1039 low.

But alas, we have the count where it is: On the verge of a market breakdown wave [iii] of 3 of (1) of P[3].  Break down in a big way and obey the downchannel forces, and have the NYAD confirm a wave [iii] of 3 of (1) down in the SPX.

But alas it actually needs to, like, happen....

So until 1110 SPX is breached, or the 78.6% retrace spot of this recent rebound wave, I have no need to be a hasty bear just yet and the saga continues.   We'll keep the count as it is (on the verge of [iii] of 3 down) and keep an eye on things always wary that the market has one more surprise left for us to choke on if we are not positioned properly. Its up to the market, not me.
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