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Thursday, December 8, 2011

Elliott Wave Update ~ 8 December 2011 [Update 6:22PM]

[Update 6:22PM: I was working on this Prophet DJIA chart last night but never got it posted. The slight negative divergence on the breadth thrust indicated that the rectangle pattern was likely to be "won" by the bears. It proved true. I kick myself for not getting this posted last night.

At any rate, there will likely be no second Zweig Breadth Thrust event unless tomorrow is an unbelievable volume up thrust which is unlikely (even if its a big up day, the ZBT wouldn't be triggered).

However we can see clearly where resistance lies on the DJIA and where major support lies.  And total volume was not too high today which at least is not a negative for the bulls.
[Update 6:05PM: Commenter mitchkeller has suggested an expanding triangle. His overall count is not exactly the same as mine, but I like the expanding triangle idea to use as a possible (b) wave. The "e" wave can overshoot the lower trendline as he noted, but it cannot go on forever so tomorrow's price action will either confirm or nullify this pattern.

The confluence of resistances shown last night  proved too much for the market to overcome.  The rectangle pattern  has been won by the bears.

The price pullback so far has not yet reached 38.2% Fibonacci so its still in the realm of a possible (b) wave pullback of final zigzag [y] of Minor 2.

Prices still are above the support zone from roughly 1215-1226 SPX.  The 50 DMA currently resides at 1217 SPX.  If prices can hold above support and rally in a (c) wave then we have our double zigzag. If prices cannot hold, we likely have a Minor 3 down back in full force and the selling should be intense.

One can make a note that in either case, the wave structure calls for Minor 3 down no matter if Minor 2 has one final spasm left in it or not. Its just a matter of timing.
5 minute chart from the perspective that this is a (b) wave pullback of final zigzag [y] of Minor 2.
And the daily again showing the confluence of resistances that has held firm and rejected prices.  The bottom line is the downtrend - as defined by lower highs - is well intact and the 200 DMA is proving to be a tough nut to close over.
Overall total volume was fairly low today so that is at least a positive for bulls considering the DOW was down a full 200 points. TRIN on the NYSE finished at an extreme of 4.0 and cumulative tick was minus  - 5300. So one can make the argument that the market is now oversold even with only 1 down day of a couple of percent.  However down volume ratio ended at 97% on the NYSE so perhaps things are just getting warmed up on the sell side.

So we'll see how prices react tomorrow.  Support - and we'll just call the 50 DMA a key support price marker for now at 1218 SPX - needs to hold for the Minor 2 count to remain intact.  Otherwise, a nasty Minor 3 down is in store for the holidays. 
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