Custom Search

Monday, December 13, 2010

Elliott Wave Update ~ 13 December [Update 7:30PM]

[Update 7:30PM: The next decent bear day should be breaking this 21 month up channel in the NYAD. Is it important?  This channel would break before the SPX/WILSHIRE/NASDAQ/INDU 21-month price channels would break. So in that sense perhaps a break in this channel would signal a break in the indexes to follow. This would then be leading prices down. I don't yet have a new wave 5 top. So I hold my breath. It wouldn't take much to make a new high.

I rather imagine a smashing break down is coming soon. Flash Crash maybe.]
[Update 7:23PM: BPSPX hit the red line again.]
[Update 6:54PM The only way the dollar really works as an impulse up is if you consider all-hours when the low was made and use that as a start point. Even still, it will I think require a higher high to confirm a large impulse pattern.  A breach of the red line means my wave (iv) is, at the least, in the wrong spot. A breach of the purple horizontal line, likely calls into question the entire count on this chart as that would overlap wave (i) prices.

So based on the waves, its not a bad spot at all to "buy the dip" on the dollar. You have clear stop loss markers as I explained above.]
[Update 5:50PM: FED meeting tomorrow and its expected to be "quiet". That leads me to believe that it will be anything but. The market may react violently.

The FED doesn't set rates. The market does.  When the 3 month T-bill yield rises or falls, the FED reacts. Its that simple. So far the 3 month yield has been nailed to the floor for some 2 years. Does the FED have a hand in helping to keep it low by buying short term debt? Sure, they are a player. But its been quite a "bottom".  But my theory is quite simple: A major non-confirmation low of the 30 and 10 year marks the end of the bond bull market. And with the 30 and 10 year yields arguably in impulse patterns up, its a good bet.

And I therefore propose that the long end will be leading the short.  Langoliers.

Higher interest rates are absolutely bad for all the record junk debt out there. Indeed all the debt out there to include the funding of the government.  Higher rates are not good for massive debt. This is simple math.

So I propose a rising yield deflationary collapse.  Higher rates will begin to trigger massive defaults. Defaulting and collapsing credit is deflationary. Lets not even talk about the size of the interest rate swap market which dwarfs all.  Imagine HFT machines blowing up interest rates in chasing a trade, would the entire system melt down (I just wanted to give you an analogy of how little real "control" any one entity truly has - including the FED)

As far as prices, its the worst of all worlds for the average Joe. At some point, the last thing to go down in price will be the everyday staples we use to live. But we'll be busted long before then with credit card, loan and mortgage interest rates through the roof and the last refuge of good jobs (government connected) being wiped out at a terrifying rate (which has yet to happen as the government jobs expansion is slowly reaching its peak).  This is not hard to imagine happening.  In the end, Nature demands her payment in full.

At some point the language used will be unfriendly  to the market. With an eye toward rising rates, at some point Benny will say " We can foresee keeping rates low for the near term future." Or some such nonsense.  What may be missing is the word "extended" (ala 6 months or more). If the FED leaves out the word "extended support", well, the market place is never a rational thing.
Its been almost exactly 21 Fibonacci months since the March 9th 2009 Primary wave 1 low.  Today is the 13th, which is of course another Fibonacci number.  Today also hit 1246 SPX, which is .618 x wave 1 on our chart.

All the subwaves appear that they could be in place for P[2] high.  It now becomes a valid count to say that today could be top of P[2]. If we are looking for a P[2] top, then simple wave logic says there must be a top somewhere so why not here? And if we have all of our subwaves in place with extreme sentiment measures and waning market internals, well its just as good a place as any.

We have been down this road before. The market always seems to like to burp once or twice more to keep us off guard.  So we can only see what lies ahead and adjust our counts accordingly.

The head and shoulders inverted targets were practically met today.
Proposed Intermediate wave (C) may have all its subwaves in place. So we are looking for confirmation of the count on both small and larger scale.  Time-wise, the structure is mature 5+ months. This is more than adequate for an Intemediate structure.
Both the WLSH and SPX 10 minutes match in structure pretty much.
EWI called sentiment measures "breathtaking" on Friday night. Sentiment Trader followed that up and the "dumb money" hit an all-time high at 79% with a 45% spread to the "smart". They too are seeing some things that are amazing.

Today's open produced a CPC and CPCE readings that were very one -sided affairs  at .24 and .20. Thats practically all the money on one side of the bet - up. Even by the end of day, the ended at .65 and .56.
The popular surveys such as II and AAII are likely to record even greater readings this week.

So what can we say? In a lot of measures sentiment is looking forward to a multi-year bull. But is this the case? Will the carpet be pulled out once again? Well in the context of P[2], the answer is probably.  For a primary wave, 21 months is nicely mature to say the least.
The VIX did not confirm the April 2010 highs. The VIX failed to make a new low. Weekly RSi still has long term support
Again, NYAD failed to make a new high, which has not been the norm during P[2]. So this also is evidence that we may be due a significant pullback.
NYMO shows big negative divergence (not updated yet today)
So was today P[2] high? We'll find out in due time, maybe we burp up some more or melt up I cannot say. However, we have a valid count for all subwaves in place so we need to pay attention to it. Bear moves are vicious affairs.

Even INDU fulfilled its wave count
blog comments powered by Disqus