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Thursday, September 9, 2010

Elliott Wave Update ~ 9 September [Update 6:40PM]

[Update 6:40PM: IYR reminds me of the German DAX in that a big triangle developed off the April peak. The DAX eventually did squeak new highs. IYR has so far fell just shy.

Technically, On Balance Volume is definitely flashing warning signs and CMF is weakening. Basically, we are likely reaching an "ALL IN" situation.  The amazing strength of IYR has been certainly a huge reason the markets have levitated.  But the trade is likely crowded and the waves show signs of straining.   
However there is room for a new all time high.  Target window noted.  By EW "rule" there should be a new high coming save for truncation. But its plausible we are missing merely a final wave [v] of C.
[Update 5:26 PM: The Wilshire daily candle market internal "map" of the past 4 months is revealing. The market is again approaching the Mass Sell Decision Point of May 20th, arguably a worse day then even the flash crash because this is the day that validated the crash and had the worst internals. Some points I'd like to make:

1. The 4 month trading range as explained in last night's post and using the DJIA as the example has matured enough to be moved out of.

2. Volume is apathetic at best. It will take real volume to not only get above the mass sell decision line, but volume to maintain any break above.

3. All previous breaks above the line were "monitored" by the market. Any further attempt to hold as support and move higher was negated and the market was forced back under.

4. The downsloping trendlines of the decliners and down volume on the indicators shows potential "price compression" in these indicators. Conclusion? We are likely due for a "BIG RED ONE" as a result. Fear has subsided and the VIX sell signal is still in place.

The wave structure of a potential [iii] of 3 is not something to mess around with in my opinion.  Tis why I am sticking with Minute [ii] count until it proves utterly stupid. At this moment, it is certainly not stupid. Perhaps the market can chug-a-lug for a while longer but if it does, conditions for a crash event will likely be even more ripe.  Higher prices bring even greater risk!  

The 4 month range is indeed mature.  Volume is drying up and the market is again approaching the mass sell decision line from arguably a most bullish sentiment stance of the past few months considering the overall fundamentals and larger wave count.  The effect of having run out a majority of bears, having everyone "all in" yet again on anemic volume is a recipe for a flash crash event.

Everyone who wanted to buy 1040 has likely bought it.  If the fruits of all that buying at the major support level don't pan out in more price advance, the rush to the exit and take profits could be a sight indeed. And then on the next approach to 1040, panic begins to build and everyone heads for the door. RESULT: 1040 gets smashed and 1000 does too. Welcome to wave [iii] of 3.  And there will be catching up to do on the downside as a result of all this.   The genie will have been unleashed.

This move is likely to occur fast just as the bounces have occurred fast leaving no obvious or easy entry.

[Update 4:42PM: The hourly SPX shows the story with the Primary counts and alternate.  There is a lot of negative divergence on the indicators and combined with a squiggle count that seems to be "pushing" prices up in 3 wave moves suggests at the very least, a pullback is in order.

The nature of the pullback and wave structure (if its impulsive or not) will determine the overall count. Thats why I am keeping an eye on the NYAD and other internal measures.
[Update 4:30PM: The NYAD count seems too good to abandon right now and is suggestive that today's new All-Time high could be in. P[3] will eventually demand heavy payment.

We have a double negative divergence with market prices so lets see what happens.  A dramatic flash crash is not out of the realm here. In fact, I would say the setup is fast approaching if we get to rolling a bit to the downside. This time I doubt 1040 presents much of a "pause".

The alternate NYAD count seems too "weak" to pan out at the moment, but we still must be ready for a last surprise.
The market is showing signs of pushing prices upwards in 3 wave overlapping patterns in the last 2 days. This is usually a sign of exhaustion as a proper impulse can no longer seem to form.  Whats more telling is that a subtle expanding shape seems to be occurring and it may be a repeat of what occurred at the April market peaks. Recall then that the market highs occurred on the same expanding ending diagonal-type overlapping move

Basically I am suggesting this is a false breakout of the upper down-channel line from the April peak

So we'll give the bear count one more day at least. The 78.6% retrace was hit today in the SPX. Perhaps the market has one more gasp toward its 200 DMA at 1115.59.
Bullishness has recovered amazingly strong in the AAII survey this week as most of you have probably already heard.  Bull ratio was back toward 58% from last week's results of 29%. One of the highest readings recorded in all of 2010. The rally pushed out some bearishness indeed. This one survey does not mean the market will decline right here and now, but at the least, its supportive of a major down market move coming shortly to a theater near you.

The alternate of my count above is that the move up the last few days since where I have marked (a) is merely part of a corrective (b) and (c) will challenge above 1130SPX.
I'll have more charts later:
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