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Saturday, May 29, 2010

Weekend Charts and Stuff

The rebound since the recent low has been very overlapping, non-impulsive and lacking clear 5 wave structures every step of the way.  Sure we can put truncated endings at spots if we feel like it, but why would we try and bend the EW rules and guidelines at every turn?  There is no reason or need at this juncture. Its just not the way to apply the theory. The waves are the way they are because they are saying something about the overall rebound.

Could it be a bunch of other things in the long run? Sure. But the bottom line there are no impulsive wave structures going up yet. Only down at this stage. Thats what we see, so thats what we count.

But we do have a futures market and that does effect the cash index openings of every trading day. Monday is Memorial Day and there will be long sessions of futures trading from Sunday night (6PM EST) to Monday morning (1130AM EST) and then reopening at 6PM on Monday.  (please correct me if I made a mistake with this) The futures have been making large moves as of late just like the cash index so we could have more of the same.

One way the cash index can make it back to the SPX gap that resides at 1115.05-1107.34 is to gap up over 1095 run above 1100 and run hard as it can on the open.  And although I almost have never used a triple zigzag on my charts (save for P2 heh) this would be one of those cases where a triple ZZ makes sense.

A triple ZZ here is like an act of desperation by the market in trying to save it from a massive price move downward. A great amount of technical damage  has been inflicted since the 1220 SPX peak, far more than what occurred in the February 2010 decline low. The market must repair it for the bullish options to pan out , and make haste in doing so.

Here we can see the first ZZ from the 1040 SPX price low made an adequate a-b-c "three" and took the market back to a 38% retrace. The second ZZ must surely be counted as an a-b-c "three" and advanced the retrace almost to the 50% (using the Wilshire5000).  If the market can muster up yet another ZZ, it must do it probably very soon out of the gate on Tuesday. Why? Well if the market heads down, it may lose near term support and has a huge prominent gap up at 1067.95 - 1074.27, an equally painful exposure.  If the market loses this area, it opens the door for a drop deeper.

You have to also recall the reasoning behind a double or triple ZZ. It is a doubling or tripling in form to achieve an adequate price retrace.  So using that reasoning, a triple ZZ must always make progress over the last ZZ that occurred.  Therefore, the third ZZ should not be occurring from a start point lower than the start of the previous ZZ or else we wouldn't call it a triple ZZ. And naturally it has to "look" correct and make sense wave-wise. We wouldn't expect a third ZZ to retrace some 85-90% of the second ZZ to launch from.

In this case then, the "launch" point for a final ZZ is likely from the 1084 low achieved Friday. Then the c wave would thrust from support. As a reference, this would be approx the 38% Fib.

So the market could, in theory, make a small opening dip down and then thrust upwards in a grand surprise move. But how likely is that to occur to have to actually work your way up? This is a lazy market! It is a possibility but the more likely route the market would take is through the use of a massive gap over near term resistance at 1095 and gun it like a race car at the open and see what kind of mud slings up. And since we have a holiday and hence many trading hours for the futures to position themselves for just such a move, we have to ponder what our plan is if that were to happen.

So what if the SPX gapped up, ran over 1104 and started to fill the big gap down? What would we expect and what would the market look like?

First, the internal numbers would probably be screaming high again, albeit likely lower than the numbers at the last big gap up at 1065.  However, sustaining big internal numbers all day is precisely what the markets need to do for the bull case. They need a "follow-through" 90% up day to the 90% up day of Thursday. This they would need to "overcome" the very bad down breadth day of May 20th.

Second the market would have 2 huge festering open up gaps. One at 1065-1074, and likely another at 1089 - 1093/1094 or so.

So if the market churned upwards (after a big gap up) in overlapping squiggles and begun closing the 1115-1107 gap down, I'm looking for these things to happen:

a) Squiggles show perhaps an ending diagonal triangle move with the post-opening gap peak price labeled as [1] of c of (z).
b) Market up volume ratio and advancers decline all day and grow weaker.
c) A final fit of "overthrow" in an effort to close the gap and perhaps an interaction with the big down-sloping trendline from 1220 peak.
d) A huge reversal and an exhausted market gets spanked hard.
e) A shooting star candle forms and the market closes under the 200DMA.

Wave [ii] would then be over. [iii] of 3 would commence.

For once 1065 is lost, the neckline is lost and a plunge of the markets in a hard wave [iii] of 3 looks like a very real probability.

Of course all this is for naught if none of this happens. But any good bear must be mentally prepared to have the market go against him and against him hard for a bit.

Friday, May 28, 2010

Elliott Wave Update ~ 28 May [Update 7:50PM]

[Update 7:50PM: There have been a lot of stories or whatever on all the "breadth thrusts" during P2.  But the only one I really look at is Zweig Breadth Thrust indicator.  To trigger this rare signal, the signal line needs to go from under 40% (bottom red line) to above 61.5% (top red line) within 10 trading days. We had only one of these in P2 and that was right at the beginning as marked with the blue circles.  http://danericselliottwaves.blogspot.com/2009/05/zweig-breadth-thrust.html

It still stands as the only time this has triggered since the 666 low. In early February, it went from under 40 to above 61.5 yet it took longer than 10 trading days.  (you can see the actual price low in February 2010 the signal line was above the 40% mark! - had it dipped below, and then went above 61.5 when it did - it would have been a true breadth thrust.)

Now you can see the market had every opportunity right after the "flash crash" to pull off another thrust signal and it failed. After Thursday's big rally, you can see it has yet another opportunity to pull one off. In other words, the market is going to need a follow through 90% up day to trigger something bullishly special and reverse the "bad breadth day" that took the market down in a big gap down above 1110. Its as simple as that and there is no reason to ponder all the bullish alternate counts until it pulls that off.

Again, 1113-1115 is the epicenter of a wall of resistance. Sure the market may squeak above on a low volume, "hold all your cards" type move, but once someone yells "fire!" and selling begins, it probably wouldn't hold for but an instance.

So thats where we stand. The market has every opportunity starting next week to prove its not in a series of one and twos to the downside.  All it takes is buyers. Big buyers. Big breadth thrust buyers.

So those who are betting on "upside target of 1150, or 1175 or 1200 or new highs" are basically betting that this breadth thrust signal will trigger even after an amazing 13 month rally and only a 12% loss. Remember the last one at the beginning of P2 triggered from deep oversold. We are nowhere near deep oversold. We are still closer to overbought.

Now don't get me wrong here. I am not saying this breadth thrust signal cannot trigger, after all, the market is always right. All I am saying is that the odds are very very low because the wave pattern and technicals are painting something decidedly more bearish as the primary count.

If it does signal, then I will be the first to inject a load of doubt into the near-term bearish counts.  I think this rare signal would have to trigger if we are to get a market move that goes above 1220 SPX, and particulalry 1300+,  as some wave counters still like to post about. And it would have to do it next week. I don't see how it can not trigger if we move to 1150+ at anytime next week.

And since I don't think it can trigger, a move to 1150 seems remote.

The bulls are trying to just get above the 200DMA. After that great rally yesterday...nothing. No follow through = lack of conviction to buy into this rally.  The waves are overlapping and the price action is not inspiring.  However as I suggested earlier in my daily update, the key for the bulls was to just try to maintain some upper support to let them live another day. That was accomplished.

The pattern is also wedging. We have seen these telltale wedges in P1 and recently on Minor 2 peak. Its a bearish pattern.

So we have what could be best described as a double ZZ for Minute [ii] so far. But there is no impulsing down just yet so we must assume the market has one more crack at breaking above 1100 come Tuesday.
Lots of interesting ways to label the squiggles. Triple ZZ or triangle. It doesn't much matter as the waves are craggly and overlapping. I haven't had time to break it down but here is a rough sketch. I'll probably play with some charts this weekend.
Essentially a triangle is playing out. It either breaks upwards come first thing Tuesday or it fails.  Today's down waves to 1084 low looks like a double ZZ in a perhaps, complex c wave right where we might expect a complex wave to develop.
All in all, Monday may be an up start to hit a higher target, but the entire pattern no matter how you label the squiggles is bearish regardless.

E-minis [Update 12PM]

[Update 12PM: Another interesting count. The second zigzag at (y) may be over, but if the market can rope-a-dope all day sideways and hold upper key support, it lives for another weekend and the chance to trace a third and final ZZ to that pesky SPX gap.]

[Update 10:30PM: Uninspiring price action and a lot of upward biased ABC's in a possible broadening top (which happened at the top of P2 and overlapping at the top of Minor 2.) Perhaps lights out once it closes the gap if it does.

We'll see. It may be brilliant or look foolish. But I got to leave to the Airport.

PS - Look at the CPCE spike up. Positioning by the big players before a big move? I dunno, its a bit out of my realm.  Something is up. Good luck!]

[Update 9:21AM: I  don't see much talk about the big Head and Shoulders pattern that has already setup on the markets.  And that is actually good for bears. But why no big chatter? In July 2009 thats all you heard and when Jim Cramer talks chart patterns, well you knew it wouldn't pan out.

But here we are again.  Perhaps because its doesn't "look classic" (as if there is such a thing!) no one gives it much credence.

But in my 3 years in the markets, I have found that these stealth patterns are the ones that work. I particularly find this true with the larger triangles.  This is why my (XX) probably worked and this is why the recent wave (iv) triangle worked. Because no one gave them much credence and they didn't "look classic"..


So I really like the setup here. We have sentiment, that yes, has certainly been damaged, but what would you expect? The sentiment is not, however, thinking Armageddon, and thats the only thing that matters is that it has much room to go more negative. Nor is the market oversold either short, medium or long term.


Support/Resistance has a few keys levels I am watching:  You have around 1068-1072 and 1112-1115. Of course resistance is more subjective but that is about the epicenter for the near term trading. Gain and hold 1112-1115, it may open the door much higher.  Lose 1068-1072, you open the door much lower. And now the neckline is at the gap up area at this lower zone. Fill the gap and you probably lose the neckline for good.]

Overnight maintained support.

Thursday, May 27, 2010

Elliott Wave Update ~ 27 May [Update 8:25PM]

[Update 8:25PM: Just some more charts. You can see the inverted H&S pattern on the Wilshire is far above the 2 black resistance lines painted on the chart. It could be a false hope to bulls and will produce downside surprise well short of its full upside target.

Also here is something else:

Minor wave 1: Fibonacci eight days of decline
Minor wave 2: Fibonacci five days of rally
Minute wave [i] of 3: Fibonacci eight days decline
Minute wave [ii] of 3:  Fibonacci three days rally (precisely tomorrow's open).  It could be since this is Minor 3, that the subwave [ii] will be a "quickened" pace because the tug of lower prices is pulling hard.]

[Update 8PM: VIX golden cross of its 50/200DMA first since September 2008. The VIX chart is bullish looking and now its overbought has worked off. The divergence at the low versus the panic 3rd wave high can be seen. Maybe it fills the upper gap and then gets bullish again.]

[Update 5:50PM: The NYMO is certainly no longer oversold.  I once did  a quick study of P1 in checking specifically when Minute [iii] wave's started from on this indicator and what I came up with was near-zero or slightly above.

Minor 3 launched from a -13 state. We are now at -11, less oversold on this indicator then when the market was at SPX1173.

Incidentally, I feel the double ZZ is appropriate here. The market corrected in a single ZZ to the 38% retrace which was sufficient in form (it was an (a)(b)(c) pattern) for a wave [ii] . Double ZZ's then occur when the market requires higher price.

This is per EW Principles, Frost/Prechter, in which quote: " In a double or triple zigzag, the first ZZ is rarely large enough to constitute an adequate price correction of the previous wave. The doubling or tripling of the initial form is usually necessary to create an adequately sized price retracement".

So I think that certainly fits the picture here. What we may have is a doubling of form to achieve an adequate price retrace.

So everything is going according to the Grand Bear Plan....heh]

Its almost a forgone conclusion that the current rally we have labeled as Minute [ii] of Minor 3 will challenge the big SPX gap down that spans from 1115.75 - 1107.34.

I have the current rise labeled a double zigzag as that is what seems to be working best.  It also has some potential nice FIB relationships.

I show the Wilshire for form, but using the SPX, (y) = (w) @  1115.56 and within wave (y), c = a @ 1118.40

So the above span of 1115.56 - 1118.40 seems a logical stopping point for (y) and hence [ii].
Again the main theme is that this wave [ii], by nature, doesn't want to be a wave two, he wants to be a bull wave!  And to do that he must challenge and conquer the "bully" at the spot that stomped on his head. So the big gap and last Thursday's very bad market breadth down day candle is the natural spot to stage this challenge. 

It must reconquer that bad candle day, hold as support, and then attract more buyers than sellers to continue to push up higher and clear 1173 for it to not be a wave [ii]. Wave two's must expend a lot of energy to make it back to the challenge spot. Some even manage to squeak over the finish line in one close over the challenge goal. But then the market re-stomps on its head and the exhausted wave [ii] is defeated and morphs into a wave [iii].

(This is of course how I describe P[2] as a matter of fact in which it could not reconquer Lehman Day) http://danericselliottwaves.blogspot.com/2010/04/battle-of-lehman-day.html

So wave two's tend to expend a lot of energy just to make it to the fight while the bears are hunkered down resting and waiting at the challenge spot.  And the bulls, having seen such a wondrous rebound, decide to sell or reduce positions and take advantage of prices that have turned their way and become bears themselves.  

This tends to all happen right near the challenge point. This is no accident. It is how wave two's are designed.

(This is why wave twos consistently travel back 50-66% because the challenge spots, or "third of thirds" of the previous wave ones reside in this range.  Having expended much energy in just getting to the main fight spot, the wave two is usually "re-defeated" in this area and, totally spent, panic sets in and the wave then morphs into a powerful wave three)

It took a ridiculous 6.5 point SPX open gap just to get back up today to resistance.

So needless to say, there is no point in predicting that the inverse H&S pattern will continue to travel to its full potential target length spot which is much higher than 1115-1118.  So thats why I think it will fail to attain its full target.

Call that "downside surprise" and it could catch a lot of eager bulls napping....

But, as usual, the market is the ultimate decider of things.  
So ultimately, once can say the the "big dog" fight is about to take place in the markets to determine its true fate.

Simply put: Bulls must reconquer the Bad Breadth down day, hold as support,  and then convince the rest of the market players that indeed the market is still "cheap" and deserves to be bid even higher.

And the bears? Simply don't get squeezed into and pushed high above the Bad Breadth day (approx 1120)

My primary wave count is obviously skewed toward the bearish position.

I recognize a larger bullish count that some can imagine, but I'm going to have to let the market tell me that.

Cannot make it to 1150- 1200 unless you clear above the bad breadth day first.

E-minis

The pattern seems to be resolving at least in the e-minis.  32 point rally overnight is pretty aggressive. And yes, the inverted H&S is so obvious that I'm not going to list it. I have a feeling its upside target will come up short.
Target box for (c) on the cash index if thats what we got going.

Wednesday, May 26, 2010

Elliott Wave Update ~ 26 May [Update 5:20PM]

[Update 5:20PM: As we ponder the market's next squiggle moves, the bigger picture is certainly bearish.  Using the Wilshire 5000, we see that it has today back-tested its 200DMA and then fell away rather bearishly in what could be a shooting star candle if we get confirmation and follow through. Its 200 DMA is at serious horizontal resistance.

As a bonus, by creating a "blue box" virgin area using daily candles, the Wilshire hit inside that target box.

So all in all, advantage bears on the day for sure.

[Update 5:05PM:  As Kenny pointed out, the e-minis paints a slightly differing wave picture than the SPX cash index. Its arguably a decent 5 waves up from the low which suggests we need another 5 to complete a 5-3-5 zigzag.  The SPX probably counts better as a "three" up. Perhaps this is just a (b) wave pullback to backtest the down channel upper line.

Also note that it may try and form an inverse H&S pattern so the bulls have something to chomp on technically.

No use in fretting about things.  We'll find out soon enough, maybe even by morning.

We cannot forget that the primary count has the next wave down as a potential barnstorming [iii] of 3 of (1) of P[3] which should be a quite a bit of panic involved.   The rally from 1040 reached a 50 point rebound in a three wave structure, which in the context of a potential power wave down, is pretty healthy considering the worst of a Minor wave 3 has yet to come.

So the 5 waves down from 1173 to 1040 has retraced a full Fib 38%. Usually a wave two reaches a bit higher so we cannot be sure if it is over or if the afternoon selling is just the (b) wave pullback of an (a)(b)(c) zigzag higher than today's high.

However technically the last hour down volume candle on the e-minis painted a bearish picture and arguably a big 5 wave move lower.  And on the cash SPX index we can count 3 waves from 1040 to 1090.  (Plus 50 points is one hellavu bounce at this stage)

So we'll mark the top of today's rally as Minute [ii] and we'll have to see what the market decides.

I would not be overly surprised if the market manages to squeak out another small rally leg to my blue box area just above 1090. Yet the primary count is tugging at the market in a powerful wave 3 at several degrees of trend.

E-minis

Since we have 5 waves down, we are looking for a Fib retrace of the entire 5 waves. Time-wise it took a Fib 8 days to decline, we could be looking at a multi-day rally to wash out excess bearishness. Now lets see what the market decides.

Tuesday, May 25, 2010

Elliott Wave Update ~ 25 May [Update 9:40PM]

[Update 9:30PM: Its always good to look back and see fundamentals following the waves as they generally should. As goes social mood and hence economic activity, so goes the fundamentals that follow. A site I check every day has an interesting commentary update tonight. http://www.consumerindexes.com/.

Social mood is not getting better. It is getting worse.  This will translate to going into full hunkering-down mode and economic activity will continue to shrink.

But worse yet, if the stock market loses another 20-30%, its "lights out" for America's pension system that is already deep in the red.  And hence budgets will be busted even further. Eventually government support will falter as the debt load is already too high.  The government will cut jobs, pensions and support. This will further deflate things drastically.  It won;t take much to produce a viscous cycle and that will ramp up social mood even more to a precarious state.

The FED can print all the money all they want. But if they are not giving it directly to the people (they kind of are in certain subsidies, but what they are giving to the people is being far outpaced by other massive deflationary forces),  there can only be a devastating deflation. With wages and jobs being cut, how can there be inflation?

Oh sure companies and utilities and governments can raise prices, add more endless fees, and tax the hell out of you in an effort to make more profit and keep the system propped up, but this is not true inflation. What it will be however is discretionary spending deflation on the part of the individual.   


I really don't see any way out of this. Social mood is the key, and if anyone thinks its getting better raise their hand and show me how, cause I just am not seeing it.

[Update 8:38PM:  The pathing the market takes seems to be playing out to a crash scenario very well indeed. The 2008 crash is a good learning wave lesson for how a market builds up the energy in a series of wave ones and twos and then the bottom falls out.
My last update was worded poorly.  Heavan's no, 1150 is not a target. The blue box area is, then the 200DMA and of course the big gap down above that. That would be in the realm of a 50% retrace which is normal for a wave two. However being that the market may be stuck in a magneto drawing prices lower, one is taking chances in holding longs in my opinion at this stage.

Ultimately the big blue box virgin area should be created in the big "third of a third" and this will be the really big panic spot. VIX should explode possible to the 2008 high or higher.

For now, many pundits are oddly bullish. Me? I am waiting to sell any further rally short again.  
[Update 8:20 PM: I think I worded what I said in the last update badly. I stated that someone mentioned 1150 as a target (in comments). In comments I responded that 1150 is highly unlikely because it would have to reconquer the 74:1 down day.   Sorry for the confusion.  I think the blue box area is the first target, 200DMA a possible second target and the big gap down a third target area. The "bounce" wave [ii] should fail at one of those areas. 1150 again, is highly unlikely.


(I had called 1150 a "random target" in the sense that I wanted to shoot that notion down and why - I now edited my comments to better reflect that.)

[Update 6:07PM: The SPX squiggles Look at this through the eyes of a cold, calculating market technician or computer.  For now the blue virgin area is the first zone that wants to be challenged. And then that big freaking gap down.  If all that happens, then we look at the waveform and structure and internals and go from there.

The 74:1 down volume ratio day is the key. Perhaps that can be squeaked above to be sure, but to regain and "hold" it means the market is virtually erasing all that bad down mojo. If this is P3, that shouldn't probably be happening.

Most market technicians use moving averages. So the still-rising 200DMA at 1103 is a highly eyeballed spot obviously .  A close or break above will be considered bullish but only closing the big gap down and holding that as support, will allow this market to go higher than that.

All this of course is presumptuous and assuming the market is in a healthy wave [ii] of 3. Heaven knows it could reverse whenever it feels and head south and rip everyone's face off.

After all, after a [ii] of 3 comes [iii] of 3 of (1) of P3, and that should be a barnstormer.
[Update 5:45PM: Squiggles shows a possible path. What we are looking for is a 5 wave move for pink (a). Then a (b) wave pullback that is likely shallow, and the another 5 waves to (c) somewhere higher. Variations and mutations are more than possible but if this is a wave [ii], a sharp 5-3-5 zigzag up is again our best guess.

This is just a sketch based on Fib expansion of 1.618 and channeling techniques along with resistance zones.
The squeeze going on in afterhours seems to support a gap up open tomorrow as it stands.]

[Update 5:15PM: For now I'll keep the 1065 low as a Minor sized wave 1 for convenience sake. I theorized over the weekend that time may tell it is merely a Minute-sized but no need to change things just yet I suppose.

 Looking at a "map" of the SPX and using cold calculating wave logic of an algo, there is one bearish down candle with a 74 down volume ratio and 19:1 decliners that the market must reconquer to "prove" this is not just a subwave [ii] retrace back up.  The magic spot is again 1113 or so.  This is the level the market fought doggedly in November and December to break above and then again on the February-March rally again it fought at that area.

The map also shows us that clear horizontal support is now in place. In fact the H&S pattern is in place and today seemed like a false breakdown.

So thats it in a nutshell. The market must rally above the extreme bearish down candle and its gap down produced last Thursday to prove it can go higher than that and prove its not a wave two.

This is the nature of any wave two: To "prove" it can be a bull wave and not merely a wave [ii] retrace. And to prove that, it must reconquer the point of recognition zone that broke the market in the first place.   Primary wave [2], using the Wilshire, had its one close above "Lehman day" http://danericselliottwaves.blogspot.com/2010/04/battle-of-lehman-day.html  It was then slapped down after trying to re-conquer that spot to prove it was a new bull market and now we theorize it has morphed into its natural wave [3] mode.

So this subwave [ii] is no different than Primary [2] in that respect. It must prove to the world its not a wave [ii] and it can only do this by reconquering, and holding as support, the most bearish spot and candle in the previous wave [i] down.

Wave twos of any degree wish to be true bull waves.  But alas, they never can be. There is always the challenge spot that trumps them on the head and the wave two gives up. It then transmogrifies into a wave three.

Its as simple as that. I am betting it fails to reconquer 1113. If it can , well then its on its way to disproving its a wave [ii]!

The structure from 1173 to 1040 is very nearly a perfect Elliott Wave 5 wave structure. Lets review:

1.  Initial 5 waves down forming a wave (i). Sharp retrace to almost 61.8% Fib forming wave (ii).
2. Subwave 1 of (iii) advancing the price low in a stair-step fashion. Small rally ii of (iii).
3. "Third of a third" extreme bearish down middle portion with the worst internals. "virgin zone" no retrace prior or after area created at this spot. (My "blue box" spot)
4. Wave (iii) - or at least b of (iv) expanded an exact 1.618 of wave (i)
5. Subwave iii of (iii) produced an RSI low on the hourly - right where we'd expect it.
5. Wave (iv) stealth triangle that retraced a Fib 38 of wave (iii).
6. Massive thrust out of the triangle for a nice wave (v) that "looks right".
7.  Everything channels nicely and orthodox ends of wave (i), (iii) and (v) connect on a trendline and wave (ii) and (iv) on a trendline.
8. Weaker internals on wave (v) that also produced positive divergence on many indicators indicating a turn for a wave [ii] of next higher degree is coming.

So all in all, we have mapped a fine wave structure down.

The rebound back up seems a reversal. First bull order was to close the gap down today and next will be to break sideways out of the steep down channel.

So if this is wave [ii] of 3, it is free to retrace an expected 40-72% of the move from 1173-1044. I prefer a retrace to the virgin zone at least.  A touch of the 200DMA seems inevitable at 1101 or so.

And a challenge of the big gap down above 1110 seems doable.  But to "reconquer" and hold as support the most bearish down candle that produced that gap down, I believe will be nay impossible.

So we have a range area for retrace now lets see how much the market decides.

Things are decidedly bearish and finally the media and everyone is on the bear bandwagon so it may be time  for a multi-day rally to wash it all back out and shake out the oversold.
I'll have more later.

E-minis

A wave (v) violent thrust or something more bearishly sinister that lasts longer than a few days and heads much lower?    Good luck today.

Monday, May 24, 2010

Elliott Wave Update ~ 24 May [Update 8PM]

[Update 8PM: There are only so many ways to count the dollar.  I'm open to other possibilities as its unfolds.  So using base channels and acceleration channels, it is starting to take shape.


However one perhaps important thing I thought about since this weekend is that since we suppose the dollar is in a primary wave [3] higher, then, as I mentioned this weekend concerning the stock market, the first Intermediate wave (1) of [3] would be to reach a new price high over the previous Primary [1] peak.  It seems to be headed that way.
Long term I only say that if the market can go back to 1984 stock prices, than the dollar is capable of going to its 1984 price too.  At the very least, the 2001 high certainly seems reasonable.


[Update 5:30PM: Possible variation on a triangle which means today's highs would stay intact regardless. The e-minis don't support this as they are breaking further down as I type.]




The high today maintained within the rules of a contracting triangle.  So the primary count that this is a wave (iv) or iv, is intact.  A wave five should be less intense than wave threes, so if new lows are achieved under these conditions then expect a sharp rally. The 200 DMA and/or the gap above could be a rally target. But that might be getting ahead of things.. 
If the market makes new lows under 1055, we would look for less intense downside market internals (expected since it was so intense on Thursday) and most likely some positive divergences in a lot of indicators including the NYMO to confirm a wave five of some degree is occurring. Then a retrace up of the entire 5 waves down from 1173 high should be next.

If in fact any selling matches Thursday's downside intensity, then something else may be going on.

So we are looking for a new low under 1055 prior to any higher high above 1095 (if that were to occur).
The e-minis is channeling nicely. The wave (iii) down also breaks down nicely into a 5 wave internal structure. Just need that one more low...

E-minis

No new Sunday high in the e-minis. Good luck!

Saturday, May 22, 2010

Weekend Charts and Stuff [Update Sat 9:30PM]

[Update Sat 9:30PM: Sometimes trying to get the odds of a market direction can be found in one chart on one indicator.  For instance take my "ALL IN" chart below. Not only did it trace excellent EW patterns, but it gives us clues on how long the market can go without corrections, both major and minor.

For instance look at the Ultimate Oscillator indicator. I made some comparisons with some previous periods on the timeline to see what is possible or probable.  What we found is that P2 did indeed produce a miraculous rally.

The first instance is the Ultimate Oscillator above the 53 line for an extended period of time. P2 set the record. It appears to be finally breaking beneath.

The second instance is the period of time until Ultimate Oscillator hits the 30 line. P2 also produced an amazingly long elevated time.  Even in the previous two times, the Oscillator dipped beneath the 50 line twice each. P2? Not once!

What can we gleam just from this simple look at things? That the market is due for more selling.  It is due to work its way down to the 30 line on the UO.  So we have the odds stacked in our favor and history stacked in our favor. And we have a 5 wave pattern to boot.

So how can anyone call for a "new bull market" just looking at this chart alone?  It seems to me a historic correction is rather due first.

Now granted, I only looked at the last 19 years or so, but hey, thats the time that matters.

[Update 7PM: In keeping within the spirit of the previous 5:50 update in proposing that Intermediate (1) of [3] advance the price low under 666, or at the least take back the majority of P1, we must have some map plan to achieve such price action in reasonable amount of time for an Intermediate-sized wave.  Now in P1, Intermediate (1) took around 5 months to complete. Prechter thinks P3 should last longer than P1 so we can assume that (1) of P[3] may last a bit longer than (1) of P[1].

Hence, I made a time and price target box for Intermediate (1).  It is a wide-ranging box for now and I doubt the market will achieve the perfect waveform but you get the idea of what I am trying to roughly project. There really is not much time for pause in the rate of decline.

And hey, we don't have enough evidence of anything just yet to make these kinds of predictions but I'm bored.

[Update Sat 5:50PM:  In Bob Prechter's most excellent (free) Elliott Wave Theorist April newsletter, he stood by his forecast that the ultimate bear market low would be under 1000 Dow and likely under 400. This is not some wild guess.

[SIDE NOTE:
<------Sign up for FREE "Club EWI" and get a lot of wave stuff and analysis for free if you haven't already done so. Do it via my link and I get $3 and a small commission on any future EWI product you may choose to buy (there are no obligations or gimmicks in signing up).  His April newsletter is still offered for free.]

It is using the guideline of wave theory in which prices of a wave four, in this case Grand Supercycle wave [IV], will at one point travel within the price range of the previous subwave four's territory. The previous subwave four happens to be the Supercycle wave (III) peak of the 1929 stock market at Dow 400.  Hence, if this is correct, then that low price should be achieved  in its supercycle wave (a).

Who can doubt that the world is on the brink of a financial deflationary collapse of epic proportions? We have basically a system in which the world borrowed its next 100 years of output for the sake of the current couple of decades in promising a superior standard of living for civilized society.  Can this be sustained? Of course not.

What will be the result of a multi-trillion dollar bubble popping? We'll find out. So Prechter's theory of DOW sub 1000 is not insane.  What is insane is that we find ourselves in such a pickle to begin with.

And if we make it to DOW 1000, why would 400 be out of the question?

Regardless, I too am proposing something based solidly on wave theory that ties into a deep price drop (which I largely concur with).  What I am proposing is the fact that Intermediate wave (1) of Primary [3] should advance prices lower than Primary wave [1] price low. Simply put, the end of 5 Minor-sized waves should, in theory, take the market below 666 SPX.

What does this mean? This means that my original mappings  http://1.bp.blogspot.com/_TwUS3GyHKsQ/S-HvX1gCRbI/AAAAAAAAFG8/_RfYAD7mvE0/s1600/spx.png from peak show a Minute wave occurring could be correct.  The "flash crash" made me bump it up to Minor wave sized because...well...just because it seemed the right thing to do because the large price move seemed to warrant it. (At the same time, EWI had bumped it all the way to Intermediate sized and since bumped it back to Minor sized as I have)

However, if the DOW is going to get very low on the charts to ultimate DOW 1000 or 400, then it doesn't seem so strange afterall.  Remember, we must use log scale because we'll be ranging very far up and down the scale!

Below is a basic EW pattern and you can see that on a wave three, the first subwave advances prices higher than the peak of the first wave degree higher.  This is not always the case on a day to day pattern, but on a very large scale, its more probable.


We can actually since this phenomena within Primary wave [1]. Notice that Minor blue 1 of Intermediate (3) advanced prices lower than the previous wave (1) of next higher degree. Hence Intermediate (1)'s price low of 1256 was bested by Minor 1 of (3)'s price low of 1200.]
Henceforth I am again going to change my wave degree labels back down a notch to Minuete level. Which means the market is working on Minor wave 1 low, not Intermediate!

Here is what that looks like. Also note that we see again how the first subwave of the next wave advances prices lower than the previous higher degree low. So wave (i) of [iii] should be lower than wave [i], which if I am correct, is a true statement. You can also see how red [1] is lower than black i.  

So again, if we are to follow wave theory to its absolute limit as Prechter does, than we must accept the fact that Intermediate (1) of Primary wave [3] will likely result in a price lower than 666 SPX. At the very least, Intermediate wave (1) should take a majority of P2's rally away. So in that respect, Minute level looks correct.

[Update Sat 12:55: Ponzi (and funny video!) awareness exhibited by the mainstream media http://www.abc.net.au/news/video/2010/05/20/2905304.htm

Soon, they will do this kind of "skit" with the United States. Imagine something like this: "hey California needs to borrow $20B from the rest of the country". Except the punchline is every other state is broke too, and the Fed, and the US Treasury.

For now, we can still get away with "We'll borrow it from China and Japan". Yet no one has made the connection that China is now in a bear market and bubble(s) likely  popping (and the fact they are communist duh!) and Japan is deep in debt itself. We really cannot say we're getting it from Europe anymore can we? Nor can we say we are getting it from the "oil rich countries" (Dubai)

There is no upside surprise in a Ponzi. Time is ticking....

(found this via Karl's most excellent The Market Ticker http://market-ticker.denninger.net/archives/2339-I-Think-Its-Called-Laughing-As-You-Sink.html )

[Update Sat 12:30PM: Ok as if I haven't scrambled your brains enough this morning, here is a chart that some have said could be possible current count and that the 1055 is a Minute wave [i] low. That would mean we are now in wave [ii].

This count doesn't have the "right look" and mangles some EW guidelines but its a possible count and in the end, if we need it to be we can certainly make it so.  But at this moment, its not the top wave count.  We would have to see a lot of waves over the coming week(s) to say this is what is going on. But for now, it just doesn't have the right look.

Again, arguably it counts better as 7 waves down (which is considered a corrective pattern) than a 5 or 9 wave structure (which is considered impulsive).

[Update Sat 12:07PM:  Here is a chart for the super-bullish amongst us.  It would be the Minor wave two  3-3-5 flat or expanded flat.  Is it probable? Heck No! Why? because the technical damage incurred is very great (much greater than any other correction in P2).

But suppose the gummint bans shorting and there is a squeeze and one last euphoric blow off? I dunno why I even ponder these things.

But you can see why us wavers get obsessed sometimes with that "one more low required".

Incidentally I  show the primary count pathing. Again, as I stated this morning, a new low under 1055 is required prior to any price move into or above 1114 SPX (or more likely lower than that). The next hit on the blue down trendline would be in my estimation Minute [ii] of Minor 3 of Intermediate (1) of Primary [3].

(Update note: Ironically, for those who favor outright new market highs above SPX 1220, they should actually wish for one more new low under 1055 so that a proper 5-3-5 zigzag from 1220 peak would form!)


And after Minute [ii]., we truly head into the abyss. Gear up, it should be a wild summer.

As much as an immediate drop come Monday heading to a new low would be a prefect fit for the bearish impulse pattern off the 1173 high, the impact of futures trading on the cash index rarely allows for the "perfect" wave form over a short time span. We have gaps up and down which distort (or sometimes hide) the subwaves and the channeling.

Regardless, the waves still must follow only 3 simple rules.  And one of those rules is that wave four must never enter the price of wave one.  (and yes we allow exceptions for this rule on leading and ending diagonals but this is not one of those cases).

So the bottom line is that a wave (iv) cannot retrace into 1114 SPX, or the bottom of wave (i) territory or else it cannot be treated as a wave (iv).

A strong "guideline" to wave theory is that it has to have the "right look". Yes that is subjective and that makes this more an artform than science but it is also the fun part about wave charts.

Another key part of wave chart is that one must use a logical approach to its construction.  You look for relationships between waves and particularly on an impulse the expansion ratio of wave (iii) to wave (i).  A "perfect' ratio is often that wave three in a structure expands 1.618 longer than the price length of wave one.

As per yesterday's update http://4.bp.blogspot.com/_TwUS3GyHKsQ/S_b5xcsC5fI/AAAAAAAAFYk/XToYYC7lSNY/s1600/wlsh5.png  using the Wilshire5000, wave (iii) expanded an almost perfect 1.6078, just .01 from being a perfect expansion. That is powerful evidence one cannot ignore.

Also using logic, the hard rebound signals that this wave (iii) is likely over. We had the worst down ratio volume on the middle third of the wave and that also fits. We also had a clear zigzag trace from the 1055 low to a bounce of 1090

 Ok back to my main point:  We are still looking for a wave (iv) high if it has yet to find its peak. Yes, 1090 would be "perfect" but if the market has other short-term pathing plans then we cannot argue with it. We can however anticipate some possible variations on how the market can still achieve a wave (iv) and break no rules, nor butcher any strong guidelines to pieces.


So here is one such variation that would allow a bullish Monday bounce to the 200DMA at 1102.89, yet still fit the wave pattern of a wave (iv). The subsequent wave (v) would end beneath wave (iii) low and would be less powerful in selling pressure as was the "third of the third". There also would likely be divergence on the NYMO that yet another bounce is coming.

This would fit into one other final pattern of having the market maintain a trading range  for a while within the May 6th "panic day" that some have pointed out. There has so far been one close above the trading range candle of May 6th. There has yet to be one close beneath the trading range candle. After that one close the market would perhaps bounce again to work off more oversold condtions and sentiment in a Minute [ii] that likely closes or challenges the big gap down on the chart and thus maintaining the trading range within the May 6th candle for a while.

So this is the backup scenario for the moment depending on what Monday does.

Finally wave form is paramount.  We have a zigzag off the 1055 low so far and another move higher would likely be another zigzag to form a possible rising wedge.

And why would the market behave like this? Well we have had the first solid close under the 200DMA in a long time and now the weekend has come and there is time to ponder things. There are a lot of money managers that will "de-risk" (new buzzword) and why would they wait?  A trip back up to the 200DMA would be an advantageous spot to sell at.  So redemptions on a thoroughly damaged market  http://4.bp.blogspot.com/_TwUS3GyHKsQ/S_cmuj987TI/AAAAAAAAFZo/01wCpxPFNVc/s1600/wlshweekly.png  allow a wave (v) to occur.
The futures would support a move higher yet still maintain good form and channeling

Friday, May 21, 2010

Elliott Wave Update ~ 21 May [Update 8:36PM]




[Update 8:36PM: A look at the weekly in a simplified way. I really don't see what the bulls are hanging their hats on here other than hope.]
[Update 7PM:  A detailed look at the squiggles reveals a zigzag up off the low.  Notice the fakeout wave four triangle which rendered the rise from low to high a simple zigzag.   To reinforce this view [C] practically = [A] 
[Update 5:25 PM: This next chart is an instructive lesson on how to apply EW theory.   As much as I'd like to call the move from 1173 to 1055 a big impulse wave, I am having problems doing that.   As it stands now, objectively it counts best as only seven waves down. Seven is a corrective pattern. We need at least nine.

The Fib ratios and structure is pretty outstanding so far as you can see. Just need that new low to call it a done deal. 

You can see my "blue box" area that I marked as the "virgin zone" and in general, no price retrace should enter this area until a wave [ii].  In fact the wave (iv) should be, in principle, lower than the previous subwave iv. So the market pretty much needs to head down first thing and make a new low before up.

Also it is still contained in a channel. A break up into the virgin zone and out of the channel is a bullish development in general although there is no hard rule on that. But experience would tell me something is up.

So there is not much ambiguity here. We have a clear pattern that will resolve one way or another. 

The thing that gives me confidence in the bear case is that the move up from 1055 to today's intraday peak is clearly a zigzag up which is a corrective up pattern. 
I suspected the end of day would pop. Thats why I posted this triangle at 3PM http://4.bp.blogspot.com/_TwUS3GyHKsQ/S_bdkxdAGhI/AAAAAAAAFYE/u2FEw1eiiBE/s1600/spx60.png  This up day helps reset some bearish indicators and such.

As nice as the wave structure counts, it really would be much cleaner if it achieved a new low come early next week.
Its hard to read too much into today's ending being its OPEX Friday.  Someone spent a lot of money squeezing the tape at the end of day.  

Intraday we have solid evidence that the hard 35 SPX bounce from 1055 to 1090 was a simple zigzag which is corrective up. This is important evidence for the moment. Whether of not its part of a larger triangle we'll see come Monday. 1095 is the key.

Everything counts well enough as a triangle complete with one leg being complex (the d wave).  The e broke over the a-c line which is when people get convinced that a new trend (in this case up) is starting.  A hard reversal thrust down will dispel that (if it happens come Monday)

If Monday again opens deep red, it would be appropriate as there is not much room left for the triangle count.

One other thing: Look at the indicators I have below and see how rapidly money was flowing in and out of the market. The day was as much as 10:1 up ratio volume and as low as 1:1 or at the open extremely low. 

The day ended at 9.27 Up volume ratio yet much more weak 3.15: 1 up ratio advancers. That doesn't smack of a particularly healthy reversal that will carry prices higher just yet. But it will serve the purpose of taking some of the extreme oversold out of the market and have people going into the weekend feeling ok about things instead of doom.
Again a new low under today's 1055 next week would be the primary count.


And its just like the market to leave the end of week dangling so everyone can ponder it all on the weekend. I expected nothing less.