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Monday, September 17, 2012

Elliott Wave Update ~ 17 September 2012

Last Thursday it was proposed that the primary count was that the market was in one giant 2 year long ending diagonal triangle count and that the market had experienced "overthrow" of the upper wedgeline which is normal.  On Friday's update it was stated that price-wise, the overthrow had been quite ample.  The one factor that was a guess was the time factor - how long can the market remain above the wedgeline before it exhausts or we can throw out the wedge count as being invalid?

The best guess to the question is about a week or less. But thats a guess. Since the wedge was 2 years in the making, we can give the market some leeway in this regard. 2 years to build the wedge, we can allow for at least a week to stay above it before exhaustion sets in and prices collapse. That is we can allow more time. Its price that we cannot allow much more if it all.

Our squiggle count - using the Wilshire5000 for form (consider S&P500 in the same counts) - shows that either the final squiggle occurred last Friday or it has one more small push up (likely to the same price level).
Overall the wedge count's bigger picture:
SPX daily shows the wedge count: A close under 1434 SPX would constitute a reversal. In other words a close under "QE3" day (Thursday) will be the bear trigger.

TOP ALTERNATE COUNT

Friday we delved into the top alternate count scenario

The top alternate count does not allow for the SPX for a short term reversal under 1434. The top alternate count is the double zigzag as shown on the DJIA.  The top alternate count suppose the market is in wave (C) of [Y] of cycle b or x.  This means that last Thursday was the "third of a third" up of that wave (C). Thus under this scenario, the market will manage to maintain relatively above the wedgeline and continue on for another 4-10 weeks until the cycle top is complete in a choppy, yet steady price advance.

Top alt count.
A breakdown of the final wave (C) implies the time factor means the market is not done yet in price nor time. A close under 13300 would negate this count. Thats approximately where the heavy red/green horizontal support resides.

CONCLUSION:
We can draw 2 logical conclusions from the preferred count (rising 2 year Primary wave [2] wedge) versus the top alt count of a cycle wave double zigzag.

1. The first EW conclusion is that the rising wedge count demands a price reversal and preferably this week if it has not already started at last Friday's high already.  It must not have any more significant price rises above last Friday's high and must close under 1434 SPX very soon for a reversal.

2. The top alternate count is that the market is in wave (C) of a double primary zigzag resulting in a cycle wave b or x wave at a higher price. This count implies that the "third of a third" of wave (C) occurred last Thursday and that the market will remain above the upper wedgeline pushing until the wave (C) is completed and the cycle wave has topped. The time factor for this would be approx 4 - 10 weeks of choppy rallying. A new market high above 2007 may or may not occur. Neither are required in this count.


FINAL WORD
The primary count of this blog is the ending diagonal wedge. It may have one more small wave up this week, however prices have more or less topped. We are waiting for exhaustion to set in and watch the fireworks begin as the market cascades downward swiftly trapping bulls.  This trap should cause a panic which will waterfall the market crashing back through the bottom of the wedge and down.

Sentiment supports the notion. Via Sentiment Trader, the "smart money" indicator was at 29% and the "dumb money" was at 68% a spread of more than 25 which is extreme caution. The amount of extreme bullish (market bearish) indicators were at 37% versus 1%.  A reading above 35% is extreme caution suggesting an imminent top.

But being as it may, I thought I would explain the top alt scenario of the double zigzag,    Thus we have our key markers for delineation between the two best counts. With Sentiment extremes being registered as I explained in the previous paragraph above, I cannot imagine the market working off these extreme levels of overbought - while maintaining prices above 1434 no less - and powering on for many more weeks to finish a cycle wave top. However we all know the market can remain "irrational" longer than we can remain solvent.

So one count will win out soon.

But really the end result of either count is of course bearish regardless: End of the bear market rally from 2009.


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