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Thursday, June 16, 2011

Elliott Wave Update ~16 June 2011 [Update 11:50PM]

[Update 11:50PM: An example of one chart that is not at an extreme at least in the context of the larger picture.

[Update 10:32PM: One reason that supports a possible very bearish outcome for equities (i.e. - third of a third down) is the dollar chart. Note that the dollar is at double resistance, horizontal and declining trend-line, yet it has some technical strength suggesting it will break break over.

This is the same setup  - albeit in reverse - that equities are situated at (at a major trendline at support)

However the dollar weekly shows a volume surge off the bottom and the 3 red weeks were on lesser volume which is a sign of a pullback. Now we have a pickup on volume again and if the dollar heads into a third wave up that means the Euro is likely to head the opposite direction which would mean the Greece situation would be coming to a head.  Which likely means bad news for equities.

So we have a dollar chart that may be technically ripe for its own third wave surge above resistance and major trendline that would align with an equity third wave surge below support and major trendline.

So its not that I am off my rocker here - we have supporting players suggesting an equity washout.
[Update 7PM: Here is a closer look at 5 waves down from another perspective.  Would it be an expanded Minor 4 flat? Would it be wave 1 down? If this occurred it may turn out to be both and we have divergences between indexes in a summer rally.  In other words, we would have a deep retrace up in many indexes and perhaps a new high in others to create a DOW theory local non-confirmation (on top of a long term divergence).

The key, as I have shown, to a 5 wave structure down is a "virgin wave space" or blue box area I place on the chart. This usually marks the "third of a third" and gives us the approximate 50% Fib for the entire 5 wave structure.
[Update 5:45PM: FTSE shows a truncated wave 5 in comparison to the DJIA. A truncation is evidence of market weakness. And we have the FTSE closing under its up trend line and its 200 DMA. It seems to be leading and has divergences at its 2010 and 2011 high in comparison to the DJIA.

The DOW counts well as 9 waves up within (C) which is considered a completed pattern.
Not much to add. The market is setup for a nasty third of a third wave down or "point of recognition".  However the market is very oversold at many levels. (But to be fair - there are indicators that are not oversold.)

I like the bearish setup as it would cause panic selling with the uptrend line breaking and the lost 1250 pivot support and the 200 DMA.  In other words there are a ton of stops, both real and mental on the underside of the up trendline and such.

There certainly is reason to sell - a sovereign default of Greece is several orders of magnitude to Lehman and more importantly they would have set a precedent thats likely to be repeated. In other words, if Greece defaults, in effect, so has Portugal, Ireland and Spain in a matter of time. (No citizens of those countries will put up with the banker overlords.) Iceland didn't for that matter either. This is why the ECB is trying to draw a "line in the sand" with Greece.
The VIX did not close within its BB just yet - so in theory - there has been no "buy" signal triggered just yet.

Squiggle chart may be rushing things with the wave two's as tomorrow is quad witching.   

One can also argue (and very strongly I might add)  that we have a very bullish setup with sentiment indicators very bearish yet the market is well above its 1250 pivot support.  We have 200 DMA support and major trendline support.

A view of the weekly chart. 
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