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Monday, May 14, 2012

Elliott Wave Update ~ 14 May 2012 [Update 8:11PM]

Update 8:11PM: Corrected 3 mistakes of using "1240 pivot" when I clearly meant "1340". Sometimes when rattling numbers in my head I am off a mere 100 points...I was in a hurry because dinner was on the table getting cold....grrr.

Price action is bearish. As far as the wave count, the market did a "lower low" as was expected out of the bearish contracting triangles that were pointed out in Friday's update. So based on that, we may be due for a bounce wave (ii). However....

Looking at the daily SPX chart, one can see that the market closed beneath 1240 1340 pivot support.  I caution against insisting on significant bounces (such as a wave (ii) or [ii] of some size) if only because there is nothing technically that suggests we need to bounce as we have clearly lost the neckline of a head and shoulders in both the S&P500 and Wilshire 5000.

Logic-wise we have wave reasons to remain bearish. If the 2 April 1422 SPX top is indeed the "start" of the count, then we are clearly in a wave three scenario after having a wave two high of 1 May at 1415 SPX.  And we have not yet hit the "panic" or "third of a third" yet.   But even if you consider the 1415 SPX high as a "truncated" top, then again we must remain bearish because a truncated top indicates great weakness internally.

The market is slowly widening the Bollinger Bands. Laying the preliminary groundwork for perhaps even a harder selloff. Remember, nothing too scary has really occurred since the recent DJIA high. Just a slow dribble down a few percent here - a few percent there and no one seems too interested in buying at these prices.

Key support levels can be seen. The next major support is probably 1292-1300 area and then the 200 DMA at 1277.
DJIA count. Yes, a break out of the triangle usually means a wave low is being set in place.  Overnight futures should tell a story.

Yes, we wouldn't be surprised by a wave [ii] bounce since we just had a break out of a triangle indicating a possible short term low (thereby forming a wave (i) or [i] if you prefer). The DJIA would be a good example of this.  If it occurs, we certainly can account for and label any rebound a wave (ii) or [ii].

However, technically, sentiment-wise (no overly extremes we can rely on) and price action is bearish.  A price move to 1292-1300 area or even the 200 DMA at 1277 seems doable especially since the market signaled it was weak by closing beneath 1240 1340 pivot support.  Edge: Da Bears.

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