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Thursday, November 17, 2011

Elliott Wave Update ~ 17 November 2011 [Update 7:25PM]

[Update 7:25PM: One of my favorite wave constructs is the W-X-Y complex combination corrective pattern with a triangle in the final wave Y position.  If we imagine Minor 2 was at the 1292 SPX high, then the entire sideways construct counts well as a w-x-y wave (ii).   I'd rather label a bearish count in this manner than a series of 1-2's.
Wilshire used for form. A backtest of the broken barrier line would not be out of the question. One thing that cannot be denied is the bounce from the early October low sure looks like a "three" corrective no matter how  the sub waves are labeled. Therefore the even larger degree is down.

On the October 31st update, it was stated that:

"... the primary count is that Minor 2's price high occurred last Thursday at 1292 SPX. We'll go with that and see if the market can "best" it."

A few trading days later, even though prices bounced back above 12K DJIA pretty much as predicted, this blog doubted that the full force of Minor 3 down would kick in and that Minor 2 up may still be in progress. 

It was then suggested that a [b] wave pattern, later labeled as [x], may trace out a bullish triangle.

Indeed the market has held up in volatile trading and, in general,  a triangle pattern did emerge. 

But in last night's excellent Elliott Wave International update they mentioned that the Wall Street Journal had an article titled "S&P Forms Potentially Super-Bullish Triangle Pattern".   I so badly wanted to also mention that article and present it as evidence that the triangle was likely to go bust but I couldn't out of fair-use violations toward EWI. Simply put they had found it and posted it, I had no right to post it the same night.

After all, when even mainstream newspapers see the triangle, then its likely wrong. This is contrarianism at its simplest and it proved to be true.  

However there was some pretty good technical evidence yesterday that failure of the triangle was a good possibility and I therefore mentioned the high volume hourly selloff bar of yesterday afternoon.  If it had been a bullish (e) wave, selling volume should not have been that intense. Selling volume should have been drying up.

A natural reaction and emotion is to just once again simply state what this blog stated back on 31st of October 

(paraphrasing here): Lets just slap a Minor 2 at the 1292 SPX high and see if the market can best it.

And to be quite honest, that is how I am positioned in general with my swing trading account.  I went non-leveraged weeks ago above 1260 SPX and that was probably good since the triangle would have chewed up a leveraged position regardless.

But all in all, major support between roughly 1190 all the way to 1215 SPX has not been yet smashed through.  The market is now a bit oversold to be sure short term so we could bounce.

As I mentioned last night, no matter where 2 ends up, Minor 3 is predicted to take the SPX well under 1000SPX and likely under 900 based on Fib expansion ratios of wave threes.  

Daily shows the 50 DMA hit which was due:

Again, slap a 2 at 1292 and see if the market can maintain support, and eventually move higher to challenge 1290ish again. 
Read Zero Hedge and Mish daily and you will realize why Minor 3 is winning out: Credit markets are deteriorating.  Keep your eye on the ball.
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