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Tuesday, April 10, 2012

Elliott Wave Update ~ 10 April 2010

We got the SPX pullback to the 1355-1360 range as suggested last Thursday night and again in last's update.  If this is wave [iv], it should hold above the previous subwave (iv) of [iii] which is 1340 SPX. But the selling pressure seems to be intensifying so the count of Minute [iv] is suspect (even if we get a hard market bounce due to short term oversold).

The market is certainly oversold short term as looking at McClellan's Oscillator it ended negative 103.

The bottom line is, if this is wave [iv], then stocks need to bounce real soon.
Wilshire hourly has formed a perfect channel and hit the pullback spot as sited. The pivot support is key. Obviously more intense selling will negate the upward channel and likely break the pivot and support. So again, its now or never for a bounce if its Minute [iv]. We have navigated here but now that we are here, what happens next is the most important.

Note the overhead red line is resistance.
The problem is some indexes have already broken beneath their previous support pivots such as the DJIA and RUT. So the technical damage inflicted is quite significant.
The tight NDX channel has been extremely violated.
The market is certainly oversold on a short-term basis and it can be easily argued is due a big bounce, even if its merely a wave two up bounce that dies at overhead resistance.  If a bounce comes, we'll have to see the nature of it to determine if its a Minute [v] back to above 1400 SPX or merely a wave two that dies at some Fib retrace.

A potential danger however is that short term oversold in combination with long term overbought bullish sentiment could be a deadly recipe for a severe selloff (or crash).  We just don't know how its going to play.  The reason is is that longterm bullish extreme sentiment suggests buyers are played out and short-sellers are slim and far between. Therefore liquidity can lock up if there is a lack of bids.  And the HFT machines can go bonkers.

However history tells us that bear markets are swift as in the May 2010 flash crash and the severe 2011 selloff and of course 2008 and the NASDAQ collapse in 2000, etc. And certainly if this is P[3] and the 7 - 71/2 year up cycle is out of steam, that implies all current cycles in play are aligning heavily to the downside. So dip buyer beware.

Here is the Rydex (mutual funds) ratio chart (today's data not included) via Sentiment Trader that shows just how extended this market is long term.

If this is Minute [iv] pullback, there is not much more room for prices to drop.

Credit spreads are wideneing again in Europe. So this selloff is not without serious meaning.

The French CAC is telling a story here, and its a bearish story. Managing only a 62% retrace back to its 2011 highs, it seems to be again leading the way downward. I don't have today's data yet on it and it closed at 3218. So it seems to be in the middle of a small third wave down. Which implies selling is not over yet.

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