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Thursday, June 23, 2011

Elliott Wave Update ~23 June 2011 [Update 6:57PM]

[Update 6:57 PM: Using Prophet, it arguably produces the best long term Supercycle channel lines:
And here is the local interaction. Is there one more lurch for the Industrials back to the underside of this line and while doing so diverge with the Transports producing a local divergence along with a gargantuan 3 year divergence?  Curious, we'll keep an eye on things.
[Update 6:51PM: Dow Theory local divergence non-confirmation watch. Its already diverging at this rate.
FTSE
[Update 6:27PM: CMG is losing its impulsive look over a long period of months while maintaining an advancing price pattern.  Seems destined to touch $300 first perhaps. (At a 50 P/E and not exactly in a "wide-moat" business - a freakin restaurant - just who is buying this stuff?)

This seems like a great opportunity to catch some cheap puts at the right moment and perhaps catch a huge downward quick move if this is exhausting which I think it is.

ORIGINAL POST
Here is a quick review of my thoughts on price action, waves, sentiment and market internals over the past 2 months and a "weighting" on whether it is bullish (challenge the 1370 highs) or bearish (P[3] down has started and 1370 will not be directly challenged)

WAVES:
1.  We have 3 waves into the 1370 SPX high - Neutral to Bullish weighting.  It would be better to finish  with a "five" into a high.

2.  We have a contracting price action for many months = possibly a continuation "running" triangle (I call Minor 4) = Bullish weighting for now considering price action (will change if lower low under 1258 SPX prior to 1311)

3. We have 3 waves down from 1370 high = Bullish for now. (will change if lower low under 1258 SPX prior to 1311)

4. Intermediate wave (C) does not currently relate to Intermediate wave (A) neither in price nor time. If the market topped in August, (C) would match (A) in a Fibonacci 13 months time. = Neutral.

5. Wilshire again closed within the bear down base channel. Bullish.

6. The only blue box virgin wave space (marking "third of a third") has already been closed intraday = Bullish.

PRICE ACTION:
1.  We have what appears to be a bottoming process over the last 2 weeks +. Seller may be diminishing = Bullish near term.

2.  We have a "higher high" breaking the downtrend in conjunction now with a "higher low". = Bullish near term.

3. We had one more bout of selling after the higher high but intra-day price action was very bullish and closed on buying = Bullish near term.

4. Bears had a chance to reverse Tuesday's "kickoff" day and in fact traded under it today but the market did not close under it. = Neutral weighting.

5. NASDAQ had a intraday-non confirmation early today signalling today's spirited rally. = Bullish near term.

6.  No index made lower lows.= Neutral.

7. We have had 2 solid tests of the 200 DMA and both responded with bullish price action = Net neutral.

8. Market has obeyed and bounced off the uptrend line from the 2009 lows. = Net Neutral.

9. Market had a high-volume hammer candle today. = Bullish potential - but could be churn.

INTERMEDIATE SENTIMENT LEVELS:
1. We have many Intermediate term sentiment indicators and surveys near or at bearish extremes yet all the bears have accomplished over 2 months is to get the market back to its 200 DMA in a 3 wave move. = Bullish Intermediate Term....but from what price low and wave count?

MARKET INTERNALS:
1.  We have signs of decreased selling over the past 2 weeks and now that is in conjunction with a higher high and higher low. = Bullish near term.

2. VIX is not recording any real panic = Neutral. Depends on how you look at things.

3. Volume has not been terribly heavy for 2 months = Neutral to bullish.

4. NYAD count supports a move higher.  Also NYAD in accumulative mode generally has not declined much to speak of since the high. Still a lot of accumulating going on = net bullish.

DOW THEORY:
1. We have no localized DOW theory non-confirmation. We have a long term non-confirmation, http://1.bp.blogspot.com/-YJ01VMTmC_U/TeaplXY8PNI/AAAAAAAAJPw/lJ_IF8QpXIg/s1600/trans.png but the theory would be better if we had a more localized non-confirmation divergence.  Not required.

MORE BEARISH CONSIDERATIONS:
1. We have signs of beginning to have potential liquidity lockups in various world markets:


Although price action, long-term sentiment  and near term wave action all potentially support the Intermediate term bullish case of possibly challenging the 1370 highs sometime in the next few months, credit stresses need to be taken seriously.  It is a sign of an underlying deteriorating market in danger of a liquidity lockup (and hence flash crash maybe even).

2.  Resistance levels.  Even though the bulls have maintained above the 200 DMA, they haven't re-conquered the "brekadown" resistance of 1300 area.  And they have further resistances above that.  Any rally can be looked upon to possibly open the floodgates of stock supply.  So even though price action can be viewed in a positive manner the past few weeks, the bulls haven't accomplished a whole lot for their efforts. 

One could say all they have done is stave off DOOM for a few days at best.

DESPITE THE NEAR-TERM BULLISH PRICE ACTION WAVES TRUMP ALL
Should we get a lower low under 1258 SPX prior to breaking our proposed Minute [i] low of 1311 SPX, we have 5 waves down.  5 waves down is required to confirm a trend change and in my opinion we have not yet had that happen.

Yeah here is the triangle count again:
And the longer term trendline:

The bears need a lower low prior to 1311 being violated. Its that simple and it can be done.
Arguably 5 waves up, but definitely counts well as only 3 waves down = Bullish near term.
CONCLUSION:
There has been a net balance of bear and bull forces over the past few weeks. This can generally be viewed as a Minute [iv] corrective wave period. All we need is a lower low to confirm under 1258 SPX.  

Despite this, the bulls have shown vigorous spirit. Its as if they know another low under the 200 DMA spells long-term doom and a potential trend change. Not to mention there is likely a gold mine of stops, mental and otherwise, residing under the up trendline and the 1250 SPX mark.  A cascade downward may be induced if prices can get there. It is being heavily defended.

It comes down to who can win the next "follow-through" day.  If the bulls can squeeze toward 1311, they can wrestle control back in the Intermediate term perhaps. If the bears get a lower low under 1258 SPX, they have a 5 wave pattern down and arguably a trend change.  
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