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Monday, October 3, 2011

Elliott Wave Update ~ 3 October 2011 [Update 7:45PM]

[Update 7:45PM: The daily shows an "ideal" EW pattern to include a wave 2 up.
There is a good deal of excess bearish sentiment in the markets to support the notion of a wave 1 low. Via Sentiment Trader we have a plethora of indicators and such in the bearish extreme ranges. Some of my favorite are:

Advisor and Investor Sentiment Model:
Composite Model (showing some positive divergence):
And here is the CSFB "Fear" Barometer. This measures how far out-of-the-money put protections from "zero cost collars" by institutional investors. Generally the higher the CSFB number, the deeper the put protection insurance and hence the "fear" of a decline. The lower the number, the less fear of a steep decline and less put protection insurance required. Anyways I may not have explained that quite correctly but you get the idea.

For instance the plunge to 1101 in early August alleviated the need somewhat for put insurance.  The index rose at the 1230 rebound high.  It is now steadily moving lower again. The Price ROC indicator though is not yet bottomed.

[Update 6:45PM: If this is the final leg of an ending diagonal triangle - wave (v) of [v] of Minor 1 - then each leg, waves (i), (iii) and (v) of [v] should be an a-b-c type pattern. In other words one key trait of an ending diagonal triangle is that the waves begin to overlap badly and the market loses its larger impulse look.

This chart below is based on my Friday chart

This implies that wave 1 low is very near.

The market has made a new low under 1101 SPX to confirm at least a 5 wave move from the 1370 high.  Question is at what price level and what form will wave [v] take? If its takes a falling wedge form of overlapping waves forming an ending diagonal triangle, it may be close.

If wave [v] "stretches" its legs a bit and forms a more solid impulse consisting of 5 subwaves within wave [v], we are looking at much lower prices than that of 1099. 
The e-minis need to make a new low under 1077 for it to form a wave [v] minimum price. Futures have dipped a bit since the cash index closed.  The e-minis can make a new low in A/H's is acceptable also.

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