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Tuesday, January 3, 2012

Evolution of a Wave Count

I won't rehash what we call primary wave [2] up of cycle wave c down. All I can say is it looks like a big (A)-(B)-(C) "corrective" and thats what matters. I'll be the first to admit the market rebound from the early 2009 low was longer and stronger than ever imagined.

In some ways the rise from 2009 low is better suited as a cycle-sized "x" wave as has been suggested several times recently. But for continuity and confusion sake, I hesitate to alter the current primary count of Primary [3] down of cycle wave c down any time soon.  Also known as "P[3]" for short.  We have time to considering tweaking that in the future. For now its a moot point as the opening major moves down are practically the same in form and structure.

What I do want to review is the general wave thinking since the beginning of August 2011.

1 AUGUST - 2011
Regular readers may recall that my primary count since the May 1370 SPX high was typically a wave 4 triangle with a suggestion that wave 5 up may truncate. This was the primary count as of August 1st although the close alternate was that the market had topped.  In retrospect, the Minor 4 triangle was so huge in time and price it was bound to be wrong.  But the market was given the benefit of the doubt and the wave "control" was the price low of proposed wave [c].

When wave [e] of the previously proposed Minor 4 triangle violated wave [c] price, the count was quickly switched the primary count to wave [iii] down of Minor 1.

Wave [iii] down turned out to be a nasty affair.  Once the neckline broke of a head and shoulders pattern we could only just keep counting and guessing at squiggles and using larger Fib targets kept us on our toes.  The wave [iii] was hard to count and some all-time records were set on selling volume on one day of the downturn.

By the 9th of August, after numerous squiggle musings and recounts, we just about had a handle on the proposed wave [iii] price low.

By now the primary count had been looking for a Minute [iv] price peak since the Minute [iii] low.  The market was extremely volatile and all one could do is keep general EW principles in mind: Wave [iv] could not violate wave [i] and wave [v] would eventually have to make a lower low under wave [iii]. Each day's squiggle count was indeed an adventure.

By now the market had rebounded more than sufficiently in time and price to mark wave [iv] price high. I wondered if we had one more small push, but 1230 SPX proved to be a price high.

By the 9th of September, enough waves were in place that we could confidently mark the wave [iv] price high and starting counting waves down for Minute [v].

The market proved very stubborn. A lot of price moving compressed in a such a few short weeks resulted in a roller coaster. Yet we did not waver on the thought of Minute [v] to lower lows under 1100 SPX and indeed has started to imagine a choppy ending diagonal affair.

Seeing that a significant intermediate term low was nearly at hand, a Minor wave 2 rebound count was beginning to be imagined.

In that night's update, the squiggle count was pretty much spot on imagining one more lower low the next day thereby marking Minor 1 low. That proved to be the case.

Technicals and the wave count of an Minute [v] ED pattern suggested the Minor 1 low was set.

Indeed we even had the first subwaves up of Minor 2 counted.

By now, the market thrust had been powerful enough to trigger a Zweig Breadth Thrust event which I took seriously and cautioned that it was a sign of market internal strength.

Since Minute [v] of Minor 1 down was labeled an ending diagonal triangle, it was warned numerous times in updates that a rip-your-face rebound up was called for.  The strength surprised at times even when expecting it. But by the 18th, we had probed and marked what was best labeled as wave [a] of Minor 2

By the 31st, we had a very pretty [a]-[b]-[c] pattern on the DJIA.  We marked this Minor 2 since this met the price requirements (by far).

This is the day I made the statement "The primary count is that Minor 2's price high occurred at last Thursday's 1292 SPX. We'll go with that and see if the market can "best" it."

Ironically, that statement has held remarkably well.

It was at this time I was cautioning Minor 3 down was not likely in play. This was due to Minor 2 being so short in time (1 month) as compared to a 5 month Minor 1 decline.  It is then when this blog started to imagine that the market was probably not yet done. It was not yet marked as a double zigzag.

By this time I had retooled the count to a double zigzag Minor 2. We were looking for an [x] wave low at this time and I felt that prices would not get lower than say 1170ish max.

In the week since the 9th, I started to waver and flipflop on the call of Minor 2 double zigzag and flipped counts to the alternate. I felt prices were falling through major support levels and would not regain them.

This big up day regained major support for the markets. Minor 2 double zigzag was back on the menu as primary count

Probing for the top of wave (a) of [y] of 2.

After wave (a) of [y] peak, the price pullback was again dropping back further than we anticipated. However this time I recall holding fairly firm in calling this wave (b) pullback

Still holding firm on (c) of [y] of 2 up

Obviously I got to pick some of the very best charts for this narrative. But all-in-all, the last few months has been working according to an overarching Elliott Wave pattern and guidelines.  No matter what happens from here, EW theory successfully navigated us to this point in a rough market that has traced thousands and thousands of DJIA points the past 5 months.

From a daytrading perspective one could say EW theory is "bunk" and when you are looking at squiggles extremely up close, it can be a tough slog sometimes.  But in a "zoomed out" view as presented above, its not bad at all.

Minor 3 down will not be put on hold forever if this count of Minor 2 up is correct.  The market may "hold up" some more this month, but sooner or later, if this is a Minor 2 up, Minor 3 down must logically come next.  We await exhaustion and over-exuberance which is in abundance.
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