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Saturday, July 9, 2011

Weekly Review ~ July 1 - 8 2011

Weekly reviews will likely be an evolving format until I figure out what is effective and what is not.  I plan on making these posts on a Saturday or late Friday night. I will include the previous Friday update and exclude the recent Friday update. For the sake of limiting scope to a manageable level, I will not include any e-mini intra-day update charts unless it is something that stands out as important to the counts.

STOCK MARKET INDEXES:

SPX - WILSHIRE 5000:
Last Friday http://danericselliottwaves.blogspot.com/2011/07/elliott-wave-update-1-july-2011.html the primary counts were Minor 4 triangle or Minor 5 wave up  http://2.bp.blogspot.com/-jFncuA1-KIw/Tg4rlwX3JNI/AAAAAAAAJb4/zURF-XOTMEA/s1600/spxtriangle.png

After Tuesday's http://danericselliottwaves.blogspot.com/2011/07/elliott-wave-update-5-july-2011.html sideways consolidation, the count was leaning toward Minor 5 up and not the triangle due to price action and the fact that wave [d] surpassed its target of 1332 SPX (.618 x length of wave [b]) http://4.bp.blogspot.com/-30j43Eg9xj8/ThN7uxntESI/AAAAAAAAJcU/MaknZZDGrU0/s1600/spx60.png

On Wednesday http://danericselliottwaves.blogspot.com/2011/07/elliott-wave-update-6-july-2011.html there was an attempt to take the market down in the morning but it was a clear impulse up and reversal off the morning low http://1.bp.blogspot.com/-ZtgXnSg8S1Q/ThTLHeqx9xI/AAAAAAAAJco/ucAjTP1FGi4/s1600/spx1.png   That same update the primary count was switched to Minor 5 and started to project the top of Minute [iii] in the 1350+ range http://2.bp.blogspot.com/-mslvSjMNcOM/ThTJEnszaVI/AAAAAAAAJcg/3JB83QGsgbQ/s1600/spx30.png and Wilshire http://4.bp.blogspot.com/-aZ3f7DzB__s/ThTR8-CqXdI/AAAAAAAAJcs/9_fnhV7or8E/s1600/wlsh5.png

Also note the chart of the weekly Wilshire showing that the top of the BB might make a nice Minor 5 target http://4.bp.blogspot.com/-90ysBqzgTu4/ThTt-xZFetI/AAAAAAAAJdE/-4Qh4kOwBIs/s1600/WILSHIREWEEKLY.png

On Thursday http://danericselliottwaves.blogspot.com/2011/07/elliott-wave-update-7-july-2011.html  the squiggle count was tweaked for aesthetic reasons and proposed we likely had found the top of Minute [iii] and started to project a Minute [iv] low toward 1333 SPX and calling that target "ideal" because it would maintain prices above the previous subwave (iv) low. http://3.bp.blogspot.com/-72RUDZ1uSSI/ThY3YCs-acI/AAAAAAAAJdo/iNg-1y3zqms/s1600/wilshire5.png

WHAT DIDN'T WORK:
The Minor 4 wave [d] triangle did not stop at an expected .618 x wave [b] = 1333 SPX.  Upside momentum was much too sustained to be considered a [d] wave at the time. So therefore we pushed it aside as an first alternate to Minor 5.

WHAT WORKED:
Once it was accepted that this was a Minute [iii] impulse, we quickly honed in on an effective squiggle count based on RSI usually peaks on the subwave (iii) and projected a Minute [iii] top somewhere north of 1350.  Early intra-day on Thursday I had it projected to 1356-1358 range and closing the open chart gap in this area based on a projected completion of 5 sub-minuette waves from the 1330 low.

The pullback was projected Thursday night and 1333 SPX was targted as "ideal". We of course hit this target on Friday.

BONDS:
Not much on bonds this week although we have a nice wave count on the 6 month bond http://1.bp.blogspot.com/-IYn7e0EG_9w/ThZCHI8KNJI/AAAAAAAAJd0/TOIBLxJApk4/s1600/6+month.png

GOLD:
Still suggesting GOLD is not quite finished its Primary fifth wave. We have it in [v] of 5 of (5) of [5].
http://4.bp.blogspot.com/-z8SWFkNgkLE/ThTmWiOaL-I/AAAAAAAAJc8/1dIhtjSfyKE/s1600/goldweekly.png

Shorter view:
http://3.bp.blogspot.com/-Hl4ZxDiZjWg/ThTmQ-nCyyI/AAAAAAAAJc4/ztIEk58KdXY/s1600/GOLD.png

Nothing has occurred since to suggest these counts are incorrect.

CURRENCIES - DOLLAR
We had still projected a possible Intermediate wave (4) triangle on the dollar http://3.bp.blogspot.com/-xgN-uOUVZkE/ThTmCwHqzDI/AAAAAAAAJc0/rnzY1MrnvDI/s1600/Dollar.png.  This count did not quite pan out and it is not yet eliminated although it can be observed that the dollar may be in a sideways consolidation prior to a move lower. We shall see - at the moment I have no strong conviction either way.

SENTIMENT:
Sentiment was discussed again extensively this week last Friday http://danericselliottwaves.blogspot.com/2011/07/elliott-wave-update-1-july-2011.html  again on Wednesday http://danericselliottwaves.blogspot.com/2011/07/elliott-wave-update-6-july-2011.html, particularly in the context of Intermediate-term sentiment indicators that track multi-week/month.

The important points being made:

1. Intermediate-term sentiment data had reached extreme bearishness during the pullback from 1370 to 1258 SPX.

2. The move down did NOT count well as impulsive which implies corrective and thus 1370 was likely to be challenged again.

3. Intermediate-term sentiment data should head back toward extreme bullishness in the event this is Minor 5.

4. Many or most may diverge from the extremes registered in Minor 3 so it is acceptable and normal that they may reach previous top extremes.

5. Sentiment shifts are a function of  PRICE and TIME. It takes positive price to produce bullishness. Time is a factor also. For instance if you are tracking a 21 day moving average, it simply takes time to move.

6. In conjunction with wave counts, we use these data points to help us determine if Minor 5 is "finished". If Minor 5 appears to have five Minute subwaves AND intermediate-term sentiment indicators AND data reflect a sufficient bullish extreme, AND technical data does not strongly disagree, THEN we can label a "top". That is EW theory in a nutshell.

7. These indicators are moving toward bullishness again, but are probably not yet sufficiently extreme.

The extremes have indeed been strengthening as we suggested they would with higher prices. For instance the AAII survey bear % is back to only 25% bears versus 47% a mere few weeks ago. My favorite intermediate-term indicators on Sentiment Trader are sharply correcting back up toward bullishness. These are an integral part of the count at this stage.

WEEKLY CONCLUSION AND COUNT CONFIDENCE LEVELS:
Count confidence is fairly high at the moment. We have an excellent squiggle pattern and they appear to be "aligned" with our sentiment indicators both short, intermediate and long term.  We have good Fibonacci and time targets (C) = (A) in time. We have a solid "base" channel in which to monitor any further pullback in price http://2.bp.blogspot.com/-JMAVufolncE/Thdqj9QBoHI/AAAAAAAAJeM/X7JbnqHJxfw/s1600/spx5.png and we have identified our major support in 1317-1318 in the event Minute [iv] shows more weakness. We have a solid alternate count still in a Minor 4 triangle should we get a nasty "unexpected" [e] wave.  This [e] wave would likely breach the wave [i] high of 1298 if it occurred.


INTER-MARKET RELATIONSHIPS
It has to be repeated that often a wave count in one sector or even stock is based on a wave count in another. For instance, could we have a sharp price spike down on the dollar without a subsequent price spike higher on the SPX? Of course we might but lately that has not been the correlation. So getting a count wrong in stocks for instance may end up effecting all counts in the short squiggles.

Would we have a collapse in IYR if the stock market is in Minute [iii] of Minor 5 up? No of course not. So it must be said that the overall SPX can be the overriding factor on all wave counts and markets due to the high correlation factor the markets have exhibited for many years now. Get the SPX wildly wrong in the short term and everything could wind up looking pretty stupid.  This is one aspect of my personal wave counting I am striving to get better at.
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