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Friday, January 20, 2012

Elliott Wave Update ~ 20 January 2012 [Update 5:14PM]

Update 5:14PM: Update on the apex situation. It is met today. These things are usually accurate within 1 day if they work. So we'll know by Tuesday if its valid.

Also note the SPY chart down in the original post shows the 50 DMA crossing the 200 DMA in a "bullish" manner.  No doubt this is viewed as a universally bullish event. A pop up Monday would "cross" the lines yet with the 200 DMA in a "flat" mode at best, you never know how the algos will react.

Price action is cementing bullish sentiment to extreme levels on various indicators as was expected.

Last few weeks it was suggested that the resistance zone from 1295 to roughly 1307 would be the "breaking" area for Minor 2. After slicing through resistance in a low volume melt up this week, prices have indeed managed to stay above this zone and use it as support for a day or so.  Price finished near the high this week for maximum punishment to bears.   Now the bulls are looking to keep plowing prices higher.  A continuing melt up will only end bad in my opinion.

Market internals are indeed waning and getting weaker with each stab upward.   We have seen this before and what takes the market 6-7 weeks in gains is wiped out in less than 1 week or even a few days. Recall the flash crash in May of 2010 was under similar melt up situation in which sentiment was extreme, volume was low, and everyone was just "watching" after a certain point.

Only this time around the "authorities", in their infinite wisdom, have implemented circuit breakers which will only aggravate the situation should it happen again. Imagine a 1200 point DOW plunge and they stop trading.  Part of the reason the market recovered that day was the roller-coaster effect.  Imagine a roller coaster that is purposely stopped at the bottom of a drop-off. When its turned back on what energy will it have to make it up the next incline? Stopping the market may induce an even greater liquidity lockup.

But I am getting ahead of things and thinking out loud here.

Lets go to the best squiggle count:
SPY gap is closed:
VIX closed beneath its BB and challenging the open gap. Thats good to have those pesky gaps closed.
A follow-up on yesterday's MUB chart. Bearish engulfing on high volume.  Its a bearish setup. A severe municipal bond sell-off will probably not be a viewed as a "bullish" long term event. 
Now the DJIA has closed above its BB. How many are convinced the DJIA is making a higher (intraday) high than 2011 soon? I would bet that sentiment is now widespread and very high in that it will. My take is that it won't and will still be a wave 2. 

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