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Wednesday, November 30, 2011

Elliott Wave Update ~ 30 November 2011 [Update 7:50PM]

[Update 7:50PM: The overall health of the markets is reflected by the health of the financials. Both from their peaks years ago, to their peak this year.
And on closer inspection...the BKX

[Update 6:40PM: The Wilshire5000 is a key chart at this stage. This is the total market pretty much. It also has a clear resistance line overhead at 13775-13800. Aligned with the neckline of the topping Head and Shoulders pattern of earlier this year, then you have a formidable spot that will be tough to break.

(But perhaps thats looking too far ahead. Lets just get through the rest of this week first!)
And same chart with all the waves technicals we love to wallow over.
[Update 6PM: The DJIA is still giving off the best wave counts since the early October low.

Lets analyze the structure and deduce what we may expect based on tenets and guidelines of EW theory:

1. We have 3 waves up from the October low to the high. It counts well as a 5-3-5, (a)(b)(c) zigzag.  So its probably a solid "three".

2.  We have three waves down from the high to last week's low. It also counts as an (a)(b)(c) zizgag. Its a solid "three".

We have 3 up, and then 3 down. If the 3 down had come within 90% retrace of the 3 waves up, we could deduce a 3-3-5 wave corrective flat pattern. However the 3 waves down did not go nearly deep enough for a 3-3-5 flat pattern. Therefore we must deduce that the market is tracing a "double three" corrective for Minor 2. And since this is a wave two - Minor 2 - sharp zigzags are the norm.

We had 1 zigzag up. We had a zigzag down. The best projection for now is that the market will repeat the original October bounce pattern of another zigzag up to form a double zigzag for Minor 2.

3.  If the market is in the second zigzag pattern, then today is likely the "third of a third" of merely wave (a) of that zigzag pattern.  Therefore near term we are attempting to count our way to the top of wave (a) of the final zigzag up.

After wave (a) up , we look for (b) wave pullback. Then 5 more waves would fulfill wave (c) to the top of Minor 2.

4. Time factor is a guess for the final zigzag. Form is what matters.  If [y] = [w] in time or less, then you can see Minor 2 will top prior to Christmas most likely.
A few weeks back I was fretting about Minor 2's time ratio. How can a market that took 5 months to decline correct in under only 1 month and be "done" since it only took 3+ weeks for the market to trace 3 waves up from 1074 - 1292?   It appears the concern about a time ratio between 1 down and 2 up being too short was well founded.

I mentioned that 1219-1220 SPX was a key resistance zone and that if the market can recapture this and use it as support, then a lurch toward 1300+ SPX may be in the cards.  Well it appears the market smashed through resistance with about as much force as can be dealt. I assume price action is telling us that this will hold as support for the near term thus setting the market up for another challenge toward 1292 resistance.

Hence, today's price action has forced us to flip Minor 2 back on as the primary count. Market internals from Friday and today do not fit into anything else at the moment.
Squiggle count.   Solidly today was a "third of a third" up. Key wave marker is yesterday's high of 1203. Any Breach of that to the downside signals a reversal.
Again, I'll show the weekly. Next big resistance is 1292 to 1300.  One good thing if the market gets higher than 1292, there will be a clear "three" wave pattern on the weekly which is preferable. Also the time ratio between 1 and 2 - or (1) and (2) if you prefer - will be ideal.
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