Custom Search

Tuesday, January 10, 2012

Elliott Wave Update ~ 10 January 2012 [Update 8:30PM]

Update 8:30PM: FTSE has not confirmed the DJIA.
Update 8:03PM: Via the always excellent Sentiment Trader, here are some updated longer-term sentiment charts that support the notion of Minor 2 beginning a topping process:

"Intermediate"  proprietary:

Composite. Even the 21 day MA is getting more mature. This is one indicator I said probably needed to recover prior to Minor 3 down. It has.
CSFB "Fear Barometer". This is one I watched during the selloff to 1158 SPX. Note how the indicator responded to that selloff.  It was signalling the rally ever since. 
For good measure, here is the Credit Default Swap indicator. Yes, risk on indeed.
"Smart Money Index".  Note how it also went up during the selloff to 1158 SPX. This confirmed the CSFB Fear barometer and also signaled the rally that progressed ever since. But now? The smart money has been selling the rally recently.
And for some variety, here is the SPY liquidity premium.  All 3 moving averages reaching bullish extremes.
And to round it out, the put/call ratio, equity-detrended.
These various sentiment charts taken by themselves do not predict an exact turn, but collectively they suggest there is a great deal more risk for downside for equity prices than upside gains.

Some will surely respond, "But look at how your indicators responded from 2009 to the high in 2011, they just kept getting overbought, etc etc as prices went up."

That is a fair criticism however the market had been breaking out to higher highs particularly the breakout from 1219 to 1370 in Intermediate (C) of P[2] up.  Since then, there was a 5 wave down move followed by a 3 wave correction.  In the context of a wave 2 retrace, one cannot expect the same behavior of ignoring overbought conditions.  In fact, one can expect the opposite. That high sentiment on a shaky technical three-wave "A-B-C" corrective structure foundation is a very good setup for a huge wave 3 down. That is the how sentiment data is supposed to tie in with wave counting.

The "troll" meter also was maxing out today which is another good sign for bears. This despite this was one of the few EW blogs that had a general bias toward topping 1292 SPX again as a minimum ina double zigzag count. I may have wavered a bit from time to time on that - particularly when support was broke on the selloff to 1158 SPX, but generally this blog has stuck to its gun on that principle and was proven correct.

One reason is adhering better to sentiment indicators such as the ones above.  The SMI and CFSB charts caused extreme caution on the selloff to 1158. Even the CFSB chart I posted on 14 December was still too low and was signalling at least a wave (c) of [y] up.  It proved correct.  Now these charts  are hinting that the price runup may soon be over - or is over. 

The SPX finally made a higher high above 1292 and actually closed above it. The Wilshire5000 has not confirmed its high from 2 months ago.

There are enough subwaves in place to complete a double zigzag count to consider Minor 2 complete or almost complete.

There are a few variations on the squiggles but all imply the same thing: Minor 2 is swiftly coming to an end.

If the ending diagonal count is true, then a dramatic reversal to the downside is coming soon likely tomorrow.

The Advancers:decliners indicator support this view on the 10 minute scale:

Wave i peaked at 13 on its "kickoff"
Wave iii peaked at 10 on its kickoff.
Wave v peaked at only 8 today's opening.

So each stab up is less and less internally which is supportive of an ending diagonal.
Of course the alternate is that its not an ending diagonal and the market it free to run a bit more where it must:
Another variation. It channels nicely and i - iii and ii - iv connect on the channel lines. v would end in the middle line.

SPX hourly:
Wilshire hourly shows non-confirmation:
NYAD new highs shows a double divergence. My interpretation is that this is a bearish configuration. And I can quote Richard Russell on this I believe.  This double non-confirmation has been in existence for 8 months which gives it a lot of weight.
DOW Theory:
I'll add some sentiment charts later tonight to support the overall picture that Minor 3 down is fast approaching.

Minor 2 up is finishing up its wave structure. At what exact price level and time is an educated EW guess at this moment. This is why we count the waves.

Internals are certainly supportive of a market that is on shaky ground. Total volume has dried up including today.  Each upward thrust is less than the last.  We have a long-standing double non-confirmation in the NYAD chart and this shows a market that is buying and buying and not having prices confirm this HFT grinding.

In 2007, you had prices floating higher and the NYAD refusing to confirm.  In my opinion the setup for a major down wave in 2012 is a bit different.  Algos are grinding advancing stocks higher but prices are lagging and not confirming overall.

From a sentiment standpoint, many or most of all the short, medium and intermediate sentiment level indicators and such are near, approaching  or above bullish extremes.  Taken in the context of a Minor 2 retrace, this is a bearish configuration sentiment-wise.  I'll show some examples tonight as data gets updated.

If the market is not in an ending diagonal (c) of [y] of 2 - thats fine - it just means it will take a bit longer for Minor 3 to arrive and it may grind out a few more percent up in the next days/week(s).  The Minor 3 count down is my opinion of course. I respect the market and I respect that it is never wrong.

Overall, the thought that a second zigzag [y] - which was dreamed up in October due to lack of time - should finish higher than 1292 proved correct. Now that the market is "here", we have to let things finish out as they always do one way or another.

This blog has maintained a slightly "bullish" bias for the past few months because of double zigzag price guidelines.  Now that it has been met, this blog is on the lookout for Minor 3 down. A close under 1257 would confirm.
blog comments powered by Disqus