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Thursday, January 5, 2012

Elliott Wave Update ~ 5 January 2012 [Update 7:20PM]

Update 7:20PM: Oil
Corrected oil count:

Technicals seem to be waning. There is an RSI negative divergence on the hourly SPX.

Sentiment indicators have reached levels that are to be expected for a wave 2 of this size and even more so.  For instance AAII bull ratio reached 74% with today's survey.  That level of bullishness is rare in the past 6 years.

Lets go to the squiggle counts. There are 3 competing counts.  They all basically warn of the same thing: Minor 3 down is knocking on the door.

This count still gives the benefit of the doubt to wave [y] topping wave [w]'s price of 1292.  Wave (c) is forming an Ending Diagonal.  This count supposes the unemployment figures tomorrow will pop the futures for a possible gap up open.
This count is interesting in that the market traced what appears to be a very nice leading expanding diagonal triangle from the price peak of wave 2.  This can occur at the start of significant declines and indeed there was such a pattern (on a slightly larger wave degree) at the beginning of P[3] down in May. But this count allows almost no room for positive prices tomorrow which implies a possible breakaway gap down tomorrow at the open.
A variation on the wave counts and allows a Minor 2 high up to 1288.5 before rolling over.
Each count implies practically the same thing: Minor 2 is coming (or has come) to an end.

I'll post a few intermediate-term sentiment charts tonight.

Various indexes and its still fractured. SPX and NASDAQ still has not confirmed the DJIA move higher.
SPX hourly chart. Extrapolating a negative divergence.
And one of my favorite indicators is the Breadth Thrust (basically McClellan's) as charted with the DJIA.  Double negative divergence showing.
Remember back in October when it was said that it would "look better" if Minor 2 showed a 3 wave move on the weekly? Well it looks a lot better. As a bonus there is nearly a perfect 5:3 Fib ratio between time length of Minor 1 down and Minor 2 up.

All in all, I am pretty bearish considering the wave pattern is complete or almost complete. Sentiment is more than ample bullish, in fact its almost scary bullish considering credit lockup(s) occurring in Europe. Technicals seem to be waning and diverging.  And there are a lot of non-confirmations.

The market is struggling with underside neckline and horizontal resistance. This is the way wave 2's of this size are supposed to end.  Or else if they could conquer all resistance levels - they wouldn't be wave 2's!

Fibonacci-wise, we are coming up on the 34 month anniversary of the early March, 2009 low.

So everything is "in place" for a major imminent downturn Minor wave 3 which could be as big in size as Intermediate (3) that collapsed the markets in 2008.

Does the market have another spasm higher? If it does, my guess is it will trigger a flood of selling as it hits resistance layers.

Combine heavy selling + waning buyers + lack of shorts = a swift price downturn.
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