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Tuesday, January 3, 2012

Elliott Wave Update ~ 3 January 2011 [Update 8:54PM]

[Update 8:50PM: Someone asked for CMG. I happen to have one.  Its an interesting chart. Don't know if it has a blow-off up move coming or not. A new high was set today which was required for the ED pattern count.  ED pattern suggests price collapse - ala NFLX.
[Update 5:10PM:  DJIA chart. Touching under the neckline once again. And the Breadth Thrust indicator is showing some negative bearish divergence. Volume was nothing to write home about today.
Tuesday morning futures represented a 20+ point gap up on the e-mini S&P futures. As of this moment the open gap is still 17 points wide.  This gap is both a blessing and a curse for bulls at this stage of the wave count. It helped the bulls get over 1267 resistance, however the open gap shouldn't be closed under or it can be considered a reversal.

Market internals ended at about 80% up volume ratio and advancers on the NYSE and about the same on the NASDAQ100 with only 73% up issues.   Very nice, but well short of a "wow" factor. There are divergences occurring such as the VIX which is not at its previous low of last week.  See the INDU chart below for a VIX indicator at the bottom.

There are a few wave count possibilities but all are still within the realm of finishing wave (c) of [y] of Minor 2 up.

SPX VARIATION 1:  This count suggest wave (c) is over or nearly over. SPX cannot go higher than 1288.49 or wave iii violates EW rules in that wave iii can never be the shortest.  This count cannot work on the DJIA.
SPX VARIATION 2: Ending diagonal count. This count has a lot going for it if there is weakness tomorrow and then a rebound up thereby creating overlapping wave iv with wave i.   The moves from the recent 1202 SPX low look "zigzagish" so this count has some merit.

This is the hardest count to "call a wave five top" as the herky-jerky nature of ED moves do not lend themselves well to easy counting.  This makes this structure a market favorite.
INDU VARIATION 1:  This is a straight-up, non ED count.  Our INDU count from last week does not work as today's price move up was too much to be wave v and wave iii cannot be the shortest.
INDU VARIATION 2:  This is the INDU variation of an ending diagonal. Again, the waves do kind of have an "a-b-c" up look about it at the moment which is how you count and recognize an ED pattern. An ED pattern is an overlapping  structure that loses its overall 5 wave sub-structures within each wave one, three and five.   Thats why its counted as [A]-[B]-[C] within each wave i, iii and v and waves iv and i will overlap also giving indication that the entire structure is losing impulsiveness as a whole. 

Beware ED patterns call for dramatic price reversals after they exhaust which is why we are always keen to try and spot one either up or down.

Tomorrow will give some key wave marker clues.
Overall, today's massive futures gap up is more a curse for bulls rather than a blessing. A gap that large nearer the end of a trend (Minor 2) can indicate exhaustion.  Price-wise a close beneath the gap can be considered a bearish event.  
So how do the bulls close the gap up without it being a bearish triggering event? Thats food for thought. My answer is that it would probably at least stay partially open for bulls to keep price momentum for the near-term if thats what the market chooses to do. 

The SPX is still below major resistance of 1292-1295. The DJIA is poking well above its October highs but the Wilshire5000, NASDAQ and SPX are not.  So the market is a bit fractured and thats not healthy.

The key wave marker price point has now moved up to 1257.60 SPX (last Friday's low). Any close below this represents a bearish reversal in my view.  

Again, here is the primary count for Minor 2:

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