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Monday, June 13, 2011

E-minis [Update 2:17PM]

[Update 2:17PM:  Again the competing count is a Minor 4 bullish triangle and the market would be seeking a significant [c] wave low. 1265 SPX is still within the realm of a [c] wave low. And now we may have a falling wedge situation.  
[Update 12:29PM: 
And here is the same SPX daily charted from a P[3] perspective. Specifically we are looking for down volume and volatility to pickup in this count.  

Lets talk more of intermediate type sentiment and technical indicators. As I mentioned before, Sentiment Trade is showing a slew of Intermediate-type indicators reaching extremes.  One thing about longer-term sentiment measures is that they take time to repair.  Therefore expecting a bottom above 1250SPX AND expecting the indicators to repair themselves would take time and price.  Hence the triangle count.

And if the market is in P[3] down? Then we need to see a 5 wave pattern down at least at Minor degree.  Then and only then perhaps the longer-term indicators have a chance to repair themselves somewhat without making new market highs.  That all makes sense from the way sentiment picture fits into wave patterns. They wax and wane accordingly.

But what of the short term count? Every 5 wave pattern has a "third of a third" so-to-speak. A "point of recognition" that reveals the power of a third wave down.  The market has not really had that point since the 1370 high and the VIX confirms this view. 

Here is the simple EW logic at work:  

1. If Intermediate-type sentiment indicators mean to repair themselves with only a 3 wave pattern down AND without a panic spot, THEN we are looking at possibly challenging the 1370 high eventually. Hence the possible triangle count and holding above 1250 SPX support or so.

2. If Intermediate-type indicators have more extreme coming, AND we mean to have a proper 5 wave structure down, AND we have our typical "third of a third" still coming THEN massive decline from here, possibly another 140 SPX points to the bottom of Minor 1 based on the fact we haven't yet even seen the middle part of the down structure! (third of a third). Remember the "third of a third" often marks the middle (using price) of a 5 wave structure down. I have shown this time and time again. 

The market is ready to make one count or the other look quite foolish.  EW logic states that if the bear count prevails (5 waves down at least at Minor degree), it will prevail in a big way and we have a possible very bearish mini-crash right around the corner. 
[Update 8:20 AM: 
Another look at the SPX daily with more indicators thrown in.  The triangle count sure looks appealing still. I think the key is the VIX. Either we get that panic and confirm an even bigger third wave down, or we won't and we rally in a [d] wave. 

It was always suggested that P[3] would push things to record extremes (sentiment, technicals, price action, etc.). 

Friday we had signs of expanding down pressure in volume ratio and declining stocks. The market seemed on the verge of a possible waterfall or even a flash crash but it caught itself at around 1:30PM.  We have had no new lows in the e-minis since. 

As a member of Sentiment Trader, the data sure looks oversold on an Intermediate time scale after reading everything from Friday's closing data.  Hence that too would suggest a triangle [c] wave low.  During the triangle C wave high in early 2009 (when the market topped at 943 SPX or so) we had the triangle technical extremes occur at that point. This situation would be similar.  Long term indicators would be the most extreme during this [c] wave low which may be happening.

VIX is obviously being watched by everyone. The bears looking to force some panic selling, the bulls looking for a massive short squeeze. Should be an interesting week, good luck.]
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