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Thursday, November 8, 2012

Elliott Wave Update ~ 8 November 2012

Looking at the SPX daily chart, today's down prices ended in several bearish technical conditions.  Volume was again elevated to the downside.

1. A close under the 200 Daily Moving Average.

2. A close under 1400 SPX and horizontal support at  the1396 SPX pivot.

3. A close under the lower wedgeline in both log scale and arithmetic scale of the 2+ year rising wedge.

We had been discussing the 2+ year rising wedge and on several occasions submitted the technical reasons on why prices can collapse quickly once the wedge resolves to the downside.  Chiefly, hortizontal support is muddled due to overlapping price action in the construction of the wedge, trendline (and channel) support evaporates in a wedge, and open gaps up are huge targets that finally start to get filled.

There are other important reasons why prices can move in a large way. One being that High Frequency Trading (HFT) infecting the market in dubious and unpredictable ways (Re: Flash Crash May 2010) and the other of course is margin calls. Additionally we can get end of the day selling with mutual fund dumping. Both today's and yesterday's last hour/minute dips seem to be end of day margin call volume and of course mutual fund selling.

So far so good for the down price moves.  Trading seems "heavy" and ripe and impulsive.
Best squiggle count may be that we are nearing a heavy selling "third of a third" wave moment down.  A completed impulse since (ii) peak could indicate a bounce is coming, but the rally should be short-lived.
It was postulated that the 2+ year wedge may take time to rollover since it took so long to construct. I originally suggested a week or 2 but it seemed to have taken longer. Yet even so, prices are now below the lower wedgeline, the 200 DMA and searching for support. Things are getting interesting.

So everything is still in place for a continued and protracted - and perhaps swift - decline. Rallies would be sold into in this case.  The target is of course eventually sub 1000 SPX if this is indeed a wedge collapse.

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