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Friday, December 30, 2011

Elliott Wave Update ~ 30 December 2011

I guess we'll see what Tuesday brings.

E-minis


Thursday, December 29, 2011

Elliott Wave Update ~ 29 December 2011 [Update 5:15PM]

Update 5:15PM: SPX Yearly DOJI candle in the making.  Year of indecision and a potential topping candle.
Update 5:06PM: If the market is in wave iv of (c) there are of course variations on how wave iv actually unfolds:

Variation one - a triangle for wave iv:
Variation two - [W]-[X]-[Y] complex combination with a triangle in the final position. Pretty similar to the variation above but more confusing and this fools a lot of people so its a market favorite.


ORIGINAL POST
Today saw the rebound as expected in yesterday's post due to the extreme oversold TRIN readings.  The market wasted no time in relieving the oversold.  Primary count of wave v of (c) of [y] of 2 still works.

In the Wilshire 5000 (and SPX) wave iii was shorter than wave i, therefore wave v cannot go higher by rule than wave iii as wave iii can never be the shortest wave.
Technically, the SPX wave iii is also shorter than wave i, therefore the maximum price range is limited to 1288 SPX for wave v of (c) of [y] of 2.
Daily shows another close over the 200 DMA.
INDU count. Megaphonish looking.
TOP ALT COUNT:
Top alt count has today as merely an oversold wave ii bounce.
INTERMEDIATE TERM SENTIMENT MEASURES:


Via the excellent Sentiment Trader:


Latest Investor's Intelligence survey shows the Bull ratio is higher than anything registered in all of 2008, that last time a multi-month wave (2) occurred of this size.
Bullish % hit 50%. Thats absolutely incredible considering the credit markets in Europe are seizing up and the United States just has gone over a 100% Debt-to-GDP ratio.
Minor wave 2 was supposed to relieve excess bearishness. It has done its job. We await Minor wave 3.

E-minis

Overlap in the futures between wave i and yesterday's drop suggest the up move may have peaked.

Wednesday, December 28, 2011

Elliott Wave Update ~ 28 December 2011

The TRIN on the NYSE ended today with at an extreme oversold 5.29 reading.  The NASDAQ ended oversold at about 2.57. Based on that alone, one could surmise an oversold bounce was due.

If it weren't for the severe oversold conditions today produced and the light volume week in store, one could strongly lean toward calling yesterday's 12,328 DOW peak the top of Minor 2.  And perhaps it is on the DJIA. But the wave i of (c) price was not yet breached on any index (DJIA, Wilshire5000 and SPX specifically) so we can give the wave count the benefit of the doubt and call today's pullback wave iv of (c) of [y] of Minor 2.

Under that count the market has one more small wave up to complete Minor 2. But these "final waves" rarely seem to complete so I won't hold my breath.  Regardless, I wouldn't be surprised at an oversold bounce "effort" just based on the oversold closing TRIN.
TOP BEAR COUNT:
The top bear count has Minor 2 topping out yesterday at 1269 on the S&P500 and 13,315.36 on the Wilshire 5000. The Wilshire just missed my minimum target of 13,336 but it was sure close. The SPX reached my minimum double ZZ target of 1269 SPX.

Top bear Wilshire count simply has Minor 2 finishing a second zigzag that not only truncated from the first zigzag, but truncating on wave (c) of the second zigzag in regards to wave (a). If this "double" truncation is true, it portends a very bearish Minor wave 3 down should occur almost immediately.
This would be the Wilshire squiggle bear count: Wave i price was not yet breached so today could be wave iv low. But it needs to rally quickly to prevent a wave i price violation.

CONCLUSION:
Overall, intermediate term sentiment measures have recovered more than enough to complete Minor 2.  The  market seems "tired" and ripe for Minor 3 down.  Whether or not that happens immediately or after one more lurch attempt higher above 1269 SPX in a final wave v of (c) of [y] of 2 remains to be seen.

But it is time to start taking a very bearish stance since the primary count has us on the verge of Minor 3 down with a target well below SPX 1000. I was cautious in early October due to the "time factor" of  Minor 2 being so short as compared to Minor 1. But the time factor has now been met very adequately.

And to be fair, when I posted "lets call Minor 2 high at 1292 SPX and see if it can be beat" has actually also held up well. Certainly 1292 hasn't even been challenged on the SPX although the DJIA did manage to make a new price high above its October high.

E-minis


Tuesday, December 27, 2011

Elliott Wave Update ~ 27 December 2011

Update 5:12PM: Dow Utilities. Big wedge ending diagonal?
ORIGINAL POST
The Fiboannci wave price relationships displayed on the DJIA at the moment tells the story of Minor 2.

Note the tight Fibonacci target range band just overhead. Also note that January 9th is the 34 month Fibonacci anniversary of the March 2009 low.  Time relationships of this length have room for + or - a week or more.
Squiggle count shows we are trying to confirm the top of wave iii of (c):
SPX count. (c) has topped (a).
SPX 60 minute shows prices have met the minimum target of 1269 as explained in last Tuesday's update.
Conclusion:
All is going according to the EW primary count. The SPX has met the minimum Minor 2 target range of 1269 - 1310 SPX. It appears we are missing waves iv and v of (c) , so the completion of each should signal the top of Minor 2. An ideal range would be 1293-1310.

E-minis [Update 2:20PM]

Update 2:20PM:
Still inside the tight upper channel (shown in blue). Therefore, we have to assume its still in wave iii of (c).  A break of the blue channel could be the indication that wave iv is playing out.

Dollar chart looks constructive

Friday, December 23, 2011

Elliott Wave Update ~ 23 December 2011

The DJIA crept above its early October high today confirming at least an almost 3 month double zigzag pattern for Minor 2 up.   The SPX, Wilshire 5000 and NDX are lagging.

Last night I suggested perhaps we get a series of ones and twos to the upside in order to get over the down-sloping trendline. The other thought of course was that there would be a "sluggish" rally that just simply works through. The sluggish, slow and steady has won that debate.

Industrials. Best guess is we are looking for the top of wave iii of (c) of [y] of 2.
Potential squiggle count using the Wilshire 5000 for form.  Its still on the upper underside of a rising trendline so until that tight channel breaks, we must assume its still in wave iii of (c) up and give it room to run.
The Wilshire5000's Minor 2 target box is 13336 to about 13845 with a preferable target range of 13606 (beating October high) to 13845 (Fib 78.6% retracement).  We are almost at the minimum target.  After minimum target is met, and all the squiggles are in place, we are looking to mark wave 2.

You can see the down-sloping trendline was pushed through today:
The Wilshire weekly shows where big time horizontal resistance is at 13770-13800.  Combined with a potential double back-test neckline resistance, this price is truly the line in the sand for the Wilshire.
SPX Daily. Yes, a solid close over the 200 DMA. The 50 should come close to crossing over the 200 DMA in a "bullish" crossing but I actually think its going to be a very bearish event even if it happens.  Why? the 200 is sloping down pretty good and the market would have a tough time to bring it back up due to the nature of the price plunge during the late summer 2011 which is weighing on the average still.
Best guess SPX count:


E-minis

Update 3:15PM: Best guess stab at the squiggles.
Update 1PM: I think we can safely say that the Industrials has indeed performed at least a double zigzag Minor 2 pattern. As a long term bear, my cautiousness over the past 6-7 weeks as outlined on this blog has been justified. 

We are getting closer though to completing the minimum wave pattern and having all subwave squiggles in place.   
Update 10:15AM: Prices may have run too high to form a series of one's and two up. Rather this could be wave iii of (c) directly.


Thursday, December 22, 2011

Elliott Wave Update ~ 22 December 2011 [Update 8:19PM]

Update 8:19PM: Futures probing the big down trend line.

Update 7:49PM: I haven't looked at bonds and the dollar much lately. Bonds have done quite well this year obviously.  In fact all forms of debt have done well in the United States as opposed to some European countries.

But what happens when these debt run up trends are over?  Will money all of a sudden rush into stocks?  My opinion of course is that a great financial storm is coming and U.S. debt instruments will get hammered along with stocks and create what I call a "rising yield deflation".

Think of whats happening in places like Greece. You have bond yields that exploded and of course their stock market has gotten hammered at the same time.   You have an economy that is not functioning well (to be kind) and Greek assets are surely not soaring in prices in anticipation of some kind of wonder recovery.  Economic destruction tends to deflate the value of things.  You can say it is experiencing rising yield deflation. This phenomena is now nibbling at larger countries than Greece.

What I propose will happen in the U.S. is that debt instruments of all kinds will also explode.  Its only a matter of time and we are much nearer the end of a long trend (we reached a Fibonacci 34 year debt bubble in the making) than anywhere at a beginning. This is a mathematical certainty.  Will selling of debt instruments cause people to rush into stocks?  I doubt it long term.  If debt yields blow up and defaults begin (as they should have all along) will there be a great risk aversion across the board?

Rising yields will beget bankruptcies and reinforce risk aversion which will of course cause yields to rise more and trigger more bankruptcies. Mass bankruptcies and a collapsing financial system as we know it cannot be construed as "bullish" for stocks.  That is the theory of rising yield deflation in a nutshell.

I even think Prechter and EWI are much too bullish on U.S. Treasuries.

Lets look at some charts in a simple way; Overbought or underbought.

First, MUB, or Municipal Bonds. Overbought on the weekly:
MUB is also overbought on the monthly:
TLT Weekly. Near overbought and diverging.
TLT Monthly. Overbought.
JUNK. Cool little trick created with the circle. Right side peaking?
US Bonds:
DOLLAR:
The dollar chart is starting to come into sharper focus.  I believe a series of huge one's and two's are forming. however, the gap up should be closed first to form wave [ii] is my gut feeling.  This retrace on the dollar would in theory support the rest of wave (c) of [y] up in stocks as the inverse correlation between the two should continue in general.

The dollar is in good position long term to accept huge inflows. A swift selling of stocks to under 1000 SPX in Minor 3 down and if debt instruments are also coming to the "end of the line", then King Dollar should be in position to be the benefactor of both.

CONCLUSION:
The general public has shunned stocks for good.  They are seeking returns in other areas, particularly bonds and other fixed income instruments (and flipping junk they find to each other - but thats the subject of another post to come). Yields are being chased and debt is not yielding much so its like running in mud as the charts above suggest there is much more risk to the downside (overbought long term charts) in owning debt instruments then the upside.  Hasn't Europe taught us that?

The public will be crushed if bonds sell hard.  The public will not rush back into stocks if bonds collapse because rising yields cannot be tolerated in a super-leveraged atmosphere that the world has found itself in yet again.  Bankruptcies will be triggered. Eventually a deteriorating social mood will win out.

The Great Millennial Credit Bubble will deflate as credit bubbles have always done. EW theory (social mood theory) tells us so.

ORIGINAL POST
Primary count is the SPX and Wilshire5000 is in wave iii of (c) of [y] of double zigzag Minor 2 up. Preferred price range for Minor 2 peak is 1293-1310 SPX. After Minor 2 peaks, Minor 3 down occurs which is a very bearish and nasty wave down. Target: sub 1000 SPX. But we are getting ahead of ourselves perhaps.

The market is reaching a crossroads. There is sort of an apex formation occurring. Some people are calling this a triangle but in the context of EW counts, it really is not counted best this way.   I could go into a myriad of reasons and guidelines on why not but all I can say is read Robert Prechter's EW Principle to learn about triangles, where they occur, and how they relate to larger wave formations.

Regardless, there is a huge downtrend line that has been again felt with today's price rise. You can see this on many charts. Here is the e-minis in which it is coming up to it:

SPX primary count is highly speculative on the series of one's and two's perhaps forming to the upside as per SPX 10 minute chart below.

KEY PRICE MARKER: 1229  is the key EW price marker to this being wave (c) of [y] up.  Any immediate breach of this price obviously would invalidate the series of ones and twos up and would confirm only a three wave rise from the 1202 SPX recent low.

WHY 1229 IS A KEY WAVE MARKER:
If the market pulls back from here and slips below 1229, we have only 3 waves up from the recent 1202 SPX low.  That could indicate that this alternate bearish count is the true path for stocks.

BEST BEARISH COUNT (ALTERNATE)
We still have only 3 waves up from 1202 SPX. If the market explodes downward, well, then this count could be correct. But as explained below, its still an alternate count only to be considered.

TECHNICALS, SEASONALITY AND LOW VOLUME HOLIDAY WEEK FAVOR THE PRIMARY COUNT OF (c) OF [Y] OF 2 UP.
Lets face it, there will be low volume next week between the holidays. The market is again above technical support (lets call it 1229 SPX) and the plunging VIX seems to still be indicating that even more higher prices will pan out. There are huge chunks of resistance overhead from 1256 - 1292 but if ever it can be slugged through temporarily is next week. So everything favors a continuing and (perhaps merely sluggish) rally.

The 1229 pivot will be key.

Incidentally, if the Wilshire can break over the downtrend line, a target of 13783 is an interesting spot on the  10th of January which is the 34 Fibonacci month anniversary of the March 9th 2009 SPX 666 low. That would probably equate to 1310 SPX Minor 2 high.

E-minis

Update 3:17 PM: Updated squiggles. Hitting the big down-sloping trendline on the Wilshire 5000 and SPX.
Wilshire chart shows a more accurate trendline and its clearly there.