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Wednesday, October 26, 2011

Elliott Wave Update ~ 26 October 2011 [Update 10:30PM]

[Update 10:30PM: e-minis on the move. Note the down move does not look impulsive (there is not a clean 5 waves down). The up move kinda does.

[Update 9:20PM: Look, I am certainly not jumping up and down screaming that the market must head much higher, if it all. Lets face it, the DJIA has already retraced a nearly perfect Fibonacci 61.8%. That has not been lost on most obviously which is probably why I don't even bother charting it.

However, I do like to see if certain favorite indicators have tipped their hand. One such is Breadth Thrust which I have spoke about in the Zweig Breadth Thrust event that occurred recently. I like to see a bit of negative divergence to tip its hand that an uptrend is getting tired and, at the least, due a correction (or an outright trend change). It does not have to of course, but often it diverges. (And then picking the correct divergence is always tricky). But in this case we don't have any negative divergence at all yet.  Well, maybe a little if we extrapolate.

[Update 9PM: Lets take a look at some sentiment data via the excellent Sentiment Trader site.

Minor wave 2's job is to relieve excess bearishness that wave 1's low produced.  Since this sentiment data is on a multi-month time frame, we need data that scales correctly. The trick is trying to determine what is  enough of a rebound. Since we are coming off the P[2] high, we expect a decent sentiment rebound.  At lower portions of P[3] down, the data likely will not rebound so robustly. But for now, its expected. My 2 favorite are:

Composite Model. A composite of a myriad of technical sentiment measures (such as put/call data), surveys, and proprietary measures.  Its just what its name implies a good composite of a lot of stuff.  This chart works very well for multi-month time frames.

You can see it has rebounded nicely.  Is it enough? Well, the indicators are pretty much still "headed up". There is no struggle yet indicating exhaustion nor any negative divergence. The 21 day average may be a bit too low still. Again, its a judgement call here. The market is never wrong though.
The next is another mish-mash of data compacted in one chart. Its similar in nature to the composite chart above.  Conveniently they call it the "intermediate-term score" chart.  It too has rebounded quite sufficiently.

So we can see, wave 2 is doing its job.
 But is it enough of a data rebound?  Here is a direct survey chart. Investor's Intelligence Bull Ratio. Fresh out today, it shows a rebound in sentiment yet is it enough?  Well, probably not for the first big wave two of P[3].  And whats the only thing that can make advisors more bullish? More price combined over time of course.
Here is one reminder why the market will likely struggle to make it much higher than 1300 SPX (if it does) and why we propose P[3] down is upon us: Mutual fund cash levels. Unless you think mom and pop are ready to  go back in the markets - (hint: they cannot - either they are broke and /or scared and/or ready for retirement) there is simply not much firepower other than leverage and margin. And we know how the market likes to punish high levels of leverage.
[Update 8:17PM: The only reason I propose wave (iii) of [c] up could be underway is that the wave count supports it.

The move from the 1256 high to the 1221 low is not very impulsive (5 waves down) and you guys and gals should know me by now - I can be very creative with the counts and imagine an impulse move when its not really so. But in this case, in all honesty, it doesn't count well impulsive down and yet it does count well as impulsive up. The market "quietly" advanced 25 SPX points off the 1221 low. That's not too shabby. So even if we turn out wrong, the premise of support at 1220 was correct for today.

Market internals looked pretty good today.  Fairly robust.

So that's what we have to go with for now. I'll post some sentiment data in a short while.
[Update 6:45PM: GDOW still has work left to do to reach its ideal wave 2 target.
Primary count is wave (iii) of [c] of Minor 2 up has begun.
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