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Wednesday, October 12, 2011

Elliott Wave Update ~ 12 October 2011 [Update 5PM]

[Update 5PM:  mtr in comments mentioned today there was probably a rare "Zweig Breadth Thrust" signal had fired. The last time this happened was March 23rd, 2009. And before that was August 3rd 1984. Each can be said to have signaled a robust bull market.

A Zweig breadth thrust fires when below 40% to above 61.5% in a 10 day time frame.  Clearly it was below 40% but today ended at almost exactly 61.5%. The final reading was 615769 so technically you can say a Zweig Breadth Thrust has occurred since its only been 8 days time.

I  very much respect this signal.   It indicates, at the least, a very robust wave 2 event is going to occur. It seems to suggest that 1300+ will again be reached.  If that happens, we'll go from there.

The bottom indicator is the ZBT.  8 days time.
Bearish sentiment is still very prevalent

Minor wave 2s job is to shake out this extreme sentiment and turn it more neutral at the least. It need not be outright extreme bullish, but it should't be extreme bearish by the time wave 2 is done.  It takes a combination of price and time to achieve a sentiment change from an extreme back toward the other way depending on the wave degree you are referencing. At the moment the SPX rallied some 145 points in less than 8 days and still bearishness is very prevalent.  Its going to take time.

The primary count has us looking for the top of wave [a] of Minor 2 up.  The SPX has come less than 2 points shy of retracing a complete 50% of the entire decline from the 1370 high. An impressive [a] wave and certainly a violent opposite reaction to the ending diagonal pattern of wave [v] as I had warned about prior to the low coming.

Yet even so the market has not topped wave [iv]'s price high of 1230 SPX.  I suspect eventually it will require a breakout of 1230 to produce a sentiment swing of significance. However there still lies formidable resistance between the 1220 and 1230 range. I would really be surprised if it was taken so easily. I suspect it won't be so easy.

If wave [a] tops soon in this expected resistance range, there could be a long protracted wave [b]. Wave [b]'s job is to consolidate the price gains, absorb selling that the resistance overhead range brings about, and eventually set the market up for a [c] wave that takes out the resistance range. This takes work. And it may take time.

Now if it does occur in a lengthy time manner for a wave [b], that net sideways effect can actually increase bullishness (or more specifically in this case relieve bearishness). Maintaining an elevated price that was gained can relieve excess bearishness. So by the end of wave [b], there could be a more neutral reading in sentiment rather than still extreme bearishness despite not gaining any more price.

So to recap here is my general read of things of the market at this moment: The [a] wave was sharp and fast and has traveled back to 1220-1230 resistance. Eventually a [b] wave consolidation/pullback (which may be complex and choppy since [a] wave was straight and simple) may be needed. Then after [b] has chewed through enough selling, [c] takes the market up over resistance to a wave 2 peak in another 5 wave impulse pattern (or an ending diagonal pattern).

Squiggle count always being refined. We have come to the bottom of resistance range.
SPX60 shows the impressive rally:

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