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Monday, May 23, 2011

Elliott Wave Update ~ 23 May 2011

Some thoughts and observations in no particular order:

1.  We now have a series of lower lows and lower highs on the Nasdaq Composite and 100, the SPX, and the DJIA.  There are no non-confirmations.  I guess that makes it a downtrend. There are "five" waves down although they overlap so I wouldn't necessarily count them that way.  Best bearish count would be a series of 1's and 2's. Then maybe a Leading Diagonal count.

2.  The 20th April SPX cash index candle is once again bought, this time at the bottom of the gap (which is actually not quite closed). This candle and the support zone from 1312-1318 is deemed important by the market.  It was the "breakout" push candle and had good internals and a huge gap up on the cash index.

3. The SPX failed to close above the top of the 20th April gap. That can be deemed more bearish price action than not.

4. There was no gap down today on the SPX cash index to speak of via Stockcharts. The MM's painted a nice opening 1 minute continuous candle.

5. The best bullish overall count if you prefer one in which 1370 is again bested eventually would be the market is tracing a huge Minor 4 triangle of some sort and we are likely in the [c] wave down.

6.  A close under 1312 would have been bearish (reversal of the April 20th candle breakout). However the market failed to sell-off after the initial first minutes of down. So all in all, the bulls hung pretty tough today and the bears failed to reverse the 20th April candle, at least for today. Its going to take more work tomorrow.

7. This indicates there is some buying interest at this level still of 1312-1318. Afterall, it is easy to go long at the bottom of the gap. If it "fails" your stop point is just under it for a limited loss.  This leads to my next point in that ironically if 1312-1318 support fails, the market may drive down hard and other "minor" supports will fail immediately.  The triggering of stop losses at a major support level leads to more losses, margin calls, etc. Flash Crash comes to mind.

8. Just an observation in that if higher support (1312) fails, lower supports underneath may fail spectacularly. At first glance this is not intuitive and one would think that lower support will gladly come into force but one cannot be certain in this algo-driven marketplace.  That is why I made the statement last Friday, "The market perhaps cannot afford to lose the 1312-1318 SPX support".....But this is just thinking out loud here....

9. Today was at least a 90% down volume ratio day on the NYSE but not the NASDAQ (80%) and the down issues on the NYSE were only 80% down.

10. The markets seems to be flirting with breaking the lower up channel from the July 2010 low.

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