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Wednesday, September 28, 2011

Elliott Wave Update ~ 28 September 2011

Yesterday's 60:1 up volume ratio opening was closed under.  That is bearish price action for the near term. The market used up its "bullets" so-to-speak in that juiced opening and its hard to generate that same bullish enthusiasm near the same price levels in such a short amount if time. In other words, the price action is discouraging to say the least for anyone who bought and wanted to hold yesterday for a multi-day rally.

So, in a general sense to generate the same buying enthusiasm will now probably take lower prices. And this market is a herding market so if selling begins to rule again we may finally get our required lower low under 1100 SPX.

Because in some way, shape, or form, the SPX is required to make a new low under 1101 SPX as per rule in Elliott Wave theory. 

The "form" below shows some kind of overlapping wedge move down for wave [v]. It need not take that form. It could begin to impulse down if it so chooses.  All we can say is that we require a lower low under 1101 SPX if we are to have our 5 wave move from the 2011 price high.  That is the best and simplest way to count things at the moment and usually we are served best in EW theory by taking the look of things and keeping it simple.

If that new lower low occurs, we can take into account of how it occurred and go from there.

Sentiment obviously comes into play. Yes things are skewed to the bearish side to be sure. But the trick is figuring out how bearish we need to be to form an intermediate low.  So 1130 may look like good prices, but if the market breaks 1100 and plunges toward 1050, you no longer have great prices. Such is the nature of wave fives. They can cause capitulation of all the "buying and holding" done in a wave four.  

After all, the market has now - despite the volatility - traded "comfortably" (I say that lightly) in the 1100 - 1230 range for some 6-7 weeks.  So complacency can actually set in. You get used to the monster rises and falls.  Yet one can assume there are a lot of stops to be taken out just below 1100 both real and mental. So a small panic can again set in if 1100 is lost solidly.  

We cannot be sure what is going to happen. All we can say is that EW theory prepares us for the probability of 1100 SPX to be reached to form a minimum price for a wave [v] of at least 1.  If 1100 fails spectacularly we can have a mini-panic selloff and capitulation at the end of wave 1. What price that could  be is a best guess. 

Thats my opinion on things in general. So unless 1230 gets breached to the upside, we still are looking to at least 1100 first.

Wave fives at this degree are weaker internally than wave threes. We had record bearish down volume days in wave three so unless it becomes worse we can still presume this is a wave five. Maximum VIX price may also not breach wave three levels. We shall see.  However bearish sentiment can and often does become more bearish in wave fives.  This causes capitulation on a big scale. 

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