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Thursday, September 6, 2012

Elliott Wave Update ~ 6 September 2012

Some thoughts on today's price action:

1. The Wilshire 5000, by making a new P[2] high, has confirmed the wedge shape of the smaller S&P500 index. This is somehow important and I think bearish overall. Yes new 4 year highs on the Wilshire are bearish because today's new high confirmed what I think is a bearish wave pattern - the ending diagonal triangle wedge.

2. Today was, despite the huge gains, not a 90% up day (combination of advancing issues and up volume ratio) on neither the NYSE - 79% and 92% respectively, nor the NASDAQ - 77% and 87% respectively.  There has not been a true 90% up day in all of 2012 by my calculations.  With that said, it was obviously a strong up day. But not scary strong by any means.

3. Last night's update we showed the Wilshire5000 triangle count and after suggesting that a wave i impulse up was identified, the count implied that wave iii was to follow.  Today confirmed it.

4. The triangle pattern of the last few weeks was of a decent size. A triangle is a last corrective pattern in a wave count and this up move should be a "final" move. It certainly fits our scenario of a final move in the overall count.

5. Today was a "key marker" day.  Therefore a close under yesterday's closing price (1403.74) will be considered a bearish reversal. Lets just say a close under 1400 will do the trick.  Now the question is when will that occur?  Today's thrust move out of a triangle suggests it shouldn't be too long before the market exhausts.

6. Big SPY gap up today. The market will have a tough time closing it without violating a bearish reversal as outlined above.

7. The Wilshire wedge pattern has a bit to go before hitting the upper trendline again. So prices could therefore run away until this line is hit. And then there could be "overthrow" of the upper trendline which is a false breakout and a final lunge of prices and - ultimately - an exhaustive move. Not many shorts left that can hold through such a potential back breaking price event.

This final "runaway" in prices to create overthrow (if it occurs) can be perceived as a new strong bull move and can get sentiment very, very excited. We shall see in the end.  Compare it to the final "runaway" panic in prices that took the market below 700 SPX in early 2009. Prices did not stay there  long and sentiment was completely washed out.

8. Once the final wedge move occurs, exhaustion is supposed to set in and therefore expose the market to a potential huge price collapse. Look, I didn't invent these guidelines folks. The market has.

9. You can count the waves since 2009 any way you prefer. I show 3 such potential counts below. Note that neither one counts as an overall impulse 5 wave move or a portion of such. I simply cannot find an impulse count and I think the notion of a "third of a third" huge wave up (to supposedly 20,000 DOW) is going to prove disastrously incorrect)

10. Obviously the DJIA has not confirmed the S&P500 and Nasdaq Composite.

11. Interestingly Obama will accept the nomination tonight for 2012. Is this a top tick day for social mood and his Presidency?

The simple count:
A double zigzag:
A triple zigzag with each successive zigzag diminishing in size and time:
I prefer the simple count of an ending diagonal wedge with a price collapse somewhere in the next week(s) to month.

Wilshire 60:

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