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Wednesday, May 16, 2012

Elliott Wave Update ~ 16 May 2012 [Update 7:10PM]

Update 7:10PM: Here is today's Investor's Intelligence Sentiment Survey via Sentiment Trader. Still at 63% Bull ratio, this shows just how complacent the market still is.   Yes Bulls have fallen off but Bears are still only an incredibly low 22.3!

Bull ratio:  Note: BULL RATIO = % BULLS / (% BULLS + % BEARS)
Bearish Percentage:

Where is the excess bearishness despite 75+ point loss in the SPX? Not here yet. It is, in fact, still in the excess bullishness (above the red line) territory. This of course suggests severe selling is required to shake the market back into a state of excess bearishness (or at least more bearish)
Bullish Percentage:

The "correction" category spike explains why bearish % category is still only at 23%. Basically the bears have been thoroughly converted to closet bulls and are merely only anticipating a "correction".  When using the "corrective" response, you therefore anticipate higher prices than 1422 eventually after the "correction" is over.  This is what the 3+ year rally has done: Kill the bears even when the overwhelming evidence finally falls into their favor. 

Yes folks, a bank run on Greece is something you should be paying attention to. Yet somehow we have a belief in the higher powers of the FED.

Universal FED worship is in itself , a bearish trait that needs to be sold. (even I mentioned last night a possible FED-induced liquidity pump - clearly I too have been corrupted by Fed worship) When 100% believe that you "cannot fight the Fed", you in fact would be better off taking the other side of that trade, at least in the long run (beware short term pain).

CONCLUSION:
These sentiment charts very much support the notion that if this is indeed an impulse wave down as we suspect, then we clearly have not even reached a "concern" spot let alone the "panic" selling of a major decline.  

ORIGINAL POST
The analysis of tonight is pretty much a repeat of the last two updates: That the market is giving strong evidence that it is soon headed for a "third of a third" wave down of strong panic selling.

The charts below have added a "base" channel. Prices have broken though the base channel which can indicate a 3rd wave plunge is occurring.  And soon the most panicked portion and strongest selling will be upon the wave count (i.e.-third of a third wave). Prechter calls this the "point of recognition".  We haven't hit it yet from what I can judge.

Note that the break below the base channel gives weight to the primary count that this is an unfolding impulse wave down and not an A-B-C correction from the top.

Question is do we have a last subwave small ii or (ii) violent bounce up prior to a strongest price move down? There are no overwhemling indications yet that this must happen although if it did, watch how it reacts to the underside of the baseline which should act as first resistance.  The H&S neckiline would be second resistance

Technically the slow meltdown and widening of the bollinger bands has not created a "must-buy-all-in" short term oversold.  As Racer29 in comments likes to point out a slow "meltdown" can occur just like a slow "meltup". This is where prices work off extreme oversold readings within the daily price action yet prices advance (down in this case) all the same.

So bottom line there is no overwhelming compelling contrarian sentiment evidence to make a large bet against the trend which seems clearly down.  But more importantly there is no compelling wave evidence either because if this is a Minute sized wave [iii] down, at some point selling pressure should get more intense.
SPX Daily. The market is in search of some hard support.
CONCLUSION:
Sometimes a wave counter anticipates that wave evidence will turn in the favor of the count and thus we rush the count and things don't work out as we wished. In this case we have been patient letting the evidence build upon itself.   There is no rushing the count here as the wave, sentiment, credit spreads and technical evidence points to a market pressure buildup prior to an intense selling period or "third of a third down" rather than not.

So if we are wrong, it won't be because we anticipated wave evidence that did not materialize. In this case the evidence is staring us in the face: 1) The impulse patterns down. 2) a certain "complacency" and non-panic (so far) in the price decline  3) The long period of time of non-confirmation between 10+ indexes over multi-months, weeks and days  4) The head and shoulders topping pattern  5) The solid break of the neckline  6) The subtle break from the base channel  7) the intraday working off of extreme oversold as prices dribble down and the 8) Fundamentals: yes bank runs (Greece) can and do occur.

EDGE: Da Bears.
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