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Tuesday, August 2, 2011

Elliott Wave Update ~ 2 August 2011 [Update 9:50PM]

[Update 9:50PM: Finally we still have a bullish count, albeit its not a triangle but a close cousin - the double three corrective.  flat - zizgag - zigzag.

After all, we still don't have a large 5 wave structure down just yet. We have only three waves from 1356 high.  So if we get a bounce and it stays below 1295 SPX, and then makes a lower low, we probably have a 5 wave pattern down as outlined on my revised squiggle chart here 

So the key wave marker to watch is 1295 SPX. If we get a solid 5 waves down from 1356 prior to any breech of this price level, then we can say the market direction probably has turned down long-term.

[Update 8:16PM: Bonds really draws my attention at this time. The debt deal debacle is fascinating from a social mood perspective.

I mentioned after today's big drop in yields and rise in prices, likely bond bulls daily sentiment was near or over 95% as EWI reported it as 93% last night.

Another chart is the stock/bond ratio via Sentiment Trader updated with today's price changes.  Its approaching levels seen in the Sep - Nov 2008 panic.   This does not necessarily make stocks attractive. You can see in 2008 - early 2009 how the stock/bond ratio rose from that panic low and yet the SPX finished in prices well below at 666. And finally, bond sales can go straight to cash. Hence the dormant dollar could take off big-time.

[Update 7:48PM: Barring a flashcrash, I revamped the squiggle count a bit. I'd really be surprised if the market were to crash in a point of recognition so soon. I suppose we'll know by morning what futures intentions are.  However barring any overnight dramatics,  I can see weakness to 1249 SPX and then buyers should come in.

1249 SPX is a target based on:
1. 1249 SPX  where (iii) = 1.618 x (i)
2. 1249 SPX horizontal price support.
3. 1249 SPX = fulfillment of base channel #1 on chart below.

If we get a bounce there, look for a move back to backtest base channel #2.
Overall I still would like to see some overarching 5 wave pattern down even at small degree as above.

[Update 5:52PM: Well our alternate count was P[3] down in the event Minor 4 triangle is violated.  Will Benny announce QE3 sooner than expected?  Now that they have to issue $350B $660B? http://www.zerohedge.com/news/treasury-issue-331-billion-debt-fiscal-q4-660-billion-gross-expects-debt-ceiling-be-raised in treasuries over the next quarter or so, I don't see who the hell will be buying all that.

The leading diagonal off the top is one good reason to mark P[2] right there at least on the Wilshire5000.
ORIGINAL POST
The Minor 4 triangle count is officially out as there was a price violation of  [c] on both the Wilshire 5000 and SPX. So we'll assume the market is in an impulse down at least from the recent 1356 high or even the 1347 high. Some have either 1356 or even 1347 as an orthodox, truncated top. I certainly wouldn't argue with that as prices have pretty much collapsed non-stop since which is one key follow-through result of truncation.

At the moment chart patterns are useful to include the widely watched H&S. Cannot rally without the banks. Transports are now leading downward.  Tech is cool but in the end risk off = selling.
The long term trend line from 2009 has been broken under.
Also using basic Fibonacci targets comes in handy.
Short squeeze on bonds. What a perfect contrarian day to do it when its announced another bazillion will be added to the pile?  I do look for a reversal sooner rather than later as bond bulls must be above 95% daily sentiment as they were 93% last night.  And thats pretty high.
Monthly prices back to the middle channel line.
Here is the severely truncated count. I don't know if it is correct, but we have certainly have had a collapse in prices since which is one trademark of a truncated top.

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