Custom Search

Tuesday, March 31, 2009

Picking Up The H&S Theme

Kenny showed the H&S pattern. I show a slightly differing variation but downside targets are the same. I think though that this H&S pattern would be a battleground for several reasons. 1) The H&S neckline would be forming on the all important Primary wave 1, Intermediate wave (4) C-E line. 2) A breakdown of this neckline represents a move back into Primary wave 1 parameters and trendlines and 3) of course a loss of the neckline would mean a lower SPX H&S target in the 730's around the 62% Fib mark or lower depending on where the breakdown would occur. Basically calling the rally into question (which is what a wave 2 is supposed to do.)

So I favor the H&S neckline staging a false breakdown to 757 and then it reverses and recovers and smokes some bears who piled on at the neckline break. Sounds like something the MM's would do.

But mostly I do not favor this rally getting stuffed back deep inside old Primary wave 1 trendlines. There is much support at 750 area. But these are some things to look out for. A neckline that cannot recover means the lower retrace targets for wave 2 will likely be hit.

VIX and SPX in agreement

This VIX chart has been on my public charts lists for a while. What is interesting is that a Minor wave 2 down to sub 768 would likely mean a move up in the VIX to where I have "e" on this chart. Then the SPX would reverse hard on a wave 3 up and the VIX will reverse hard down after hitting a long winded triangle "e" wave. Then the VIX would finally lose its 200 DMA support and closes an open chart gap in the 30's that has been open for a LONG time.
Its nice to see that the 2 charts would agree as that would strengthen the likelihood of the move.

Blog Organization and Comment Replies

I have never run a blog site and I am good with computers but blog code makes me ill. I have a 6-3 dayjob and my time is limited at night.

I love making charts and posting them but I get disorganized due to lack of time mostly. I have no system for checking and replying to comments and I post frequently enough that it gets confusing checking. The other part is anonymous posters are hard to reply to because I don;t have a reply setting for individual posts. Also someone said they were having problems posting because I have illegal URL or something...

Anyways, I just want to let you know that I wish I could check and monitor and answer every question but its not possible due to lack of time and being somewhat disorganized LOL. So I apologize. I do however have email that I look at at night and if you have a question that could wait a day maybe to get answered, I almost always reply to emails as they are quicker anyway.

I cannot answer every question on every wave count as it is just too much time that I'd rather be charting. Sometimes questions are asked in such a broad manner that there is no simple reply or a reply would just invite more questions. Bottom line is a I like answering your questions but I need better organization. I should also put up some kind of "FAQ" for the current count or whatever, but I don't know how to organize a "favorite posts" list.

So what I am saying is that I need to get organized so I can make better use of my time and get a better comment system going. But unfortunately I cannot comment often during the day hours. At least until I get laid off heh (kidding - I hope not!)

But I have plans to make things more interesting and organized. Its just gonna take a bit of time.

Elliott Wave Update ~ 31 March

Primary Count: SPX is tracing an ABC down to sub 768 for Minor wave 2. Wave [b] topped today it appears. Tomorrow should be downside. Targets are on the 30 minute chart. A brief dip below the C-E line I have been showing on my longer terms charts will likely happen. This would make sense of the 768-772 gap is closed, breaking stops should take it to 757 which is also support. A very bearish wave [c] could possibly extend all the way to 724, but I would not count on it. But certainly anything between 724 and 757 is also possible. Just count 5 waves down! And then go long.
Alternate Count: SPX has already started Minor wave 3 with 779 as the Minor wave 2 low. This would be based on minor 2 tracing an ABC expanded flat (EWI's pirmary count). Me and Kenny don't like that count, but we have to mention it because it is a valid alternate count strictly just looking at the waves.

Monday, March 30, 2009

SPX 1 Minute

EDIT: 8:45 PM: This count I have is interesting because Black wave i only traveled 17.41 points. Since Black iii was VERY extended, we can expect Black V to only travel maybe .618 x Black i. 17.41 x .618 = 10.75 The *price* top of my black iv is 790.45

790.45 - 10.75 = 779.7

Today's low was 779.81

EDIT: 8:30 PM Also I think that since black i was only a small drop, and black iii was a very extended drop, labeling today's low as black iii may be asking too much. That would be asking black v to drop even more to close a gap at 768. So that is also why the B wave may be starting.

I hadn't had time to look at the intraday until now and the little finishing wedge makes me think a B wave is starting and the (a) wave finished at the low today. How high would a B wave retrace before we can consider its still to be a B wave and not something else? Guideline is 38% for starters but of course it can go 50% or more. It also should *look* right. Resistance should kill it somewhere. If not somewhere in the 790's then 803-804.
There is one other interpretation of the 1 minute SPX and that has black iii ending at the low today (I just shifted the 3's and 4's and 5's over one which might make sense) which means (a) hasn't even bottomed yet. But the little wedge at the bottom today makes me think (a) might be over. I really cannot be sure. I am trying to dissect the 1 minutes and this can be hazardous although this structure down has very nice form. We shall see by morning.

Elliott Wave Update ~ 30 March

Primary Count: SPX is tracing the (a) wave of an ABC 5-3-5 zig zag of Minor Wave 2. Eventual lower target for wave 2 would be at least a 50-61% Fib retrace or 730-749. Based on the (a) wave length, 725 is possible. You can see I only have subwave iii of (a) of 2 ending at today's low. That means subwave iv up is tracing out in A/H's and tommorow's open perhaps. But after resistance is hit, it should selloff down to close the gap on a final subwave v of (a). Then the (b) wave should bounce back toward the previous subwave iv spot (wherever that is - maybe 790+) or a 38% retrace referenced from the subwave iii start of 825.

Alternate Count: SPX is tracing a (c) wave of an ABC expanded flat for wave 2. (This is EWI's primary count). That would imply once the 768-772 gap closes, then the market gets all bullish again.

Sunday, March 29, 2009

Here is the Bearish Option

Ok I promised a bearish option this weekend and an alternate count. The bearish option is that my count on Thursday calling the top to wave 1 based on an ending diagonal that played out on Thursday holds up. The market then gapped down Friday and traced some "rope-a-dope" waves that looked like "threes". So I suggested that perhaps end-of month window dressing means that it was not quite finished its last few ending waves.
However, someone mentioned that window dressing actually ended Friday because the books were closed for the quarter then so maybe I have that assumption wrong that it lasts through the end of month. I just am not that knowledgeable on that stuff.

The CPC is also heading back upwards which usually means stocks will follow down. So I failed to mention that was also bothering me. I don't have a move down other than to 804 based on Friday's waves. So for this to be a wave 2 deep correction, perhaps we are only seeing the opening stages.
But I thought I'd post this /es minis chart which includes A/H's. Sometimes looking at things in a different light adds credibility. The ending diagonal is not perfect by any means, the wave 2 is supposed to retrace deeper. That could be the deal breaker perhaps. The ending diagonal wave 2 only retraced like 24% and guidelines say it should be 66-81%.
Thats the best I can do for a bearish option is by saying my wave 1 top call on Thursday will hold true and looking at this chart, that could very well be the case. I would guess that if this is Wave 2 down, I think the gap at 768-772 gets closed at least soon enough.

A look at the NASDAQ

The NASDAQ is playing a similar structure to the SPX with only minor variations. Particularly of note is the expanding wave [iv] triangle is very much identical to the SPX. There is no ambiguity here. Each leg is a clear ABC substructure. Both even had an "e" wave overthrow which surely indicated to many at the time that a new downtrend had started.

I included the advance/decline volume ratio numbers for the many permabears out there that insist this is just another quick rally and then its off to new lows once again. The total up volume has been strong as you can see this on the daily. So in that regard, it is great evidence of trend change (for how long we can only estimate), indicating that sellers are exhausted just as EW theory predicts at the end of Primary wave 1 when bearish sentiment was registering extremes. Greed is kicking in.

Elliott Wave theory is really not about waves and retraces, et al. Its about social mood and sentiment first and foremost. The waves are merely the measuriung device on where we are in the overall pattern.

So those that insist they can see a giant ending diagonal from the 943 top and it may indeed be following a general "look" to date, doesn't mean that it is a good interpretation. Those same people really are ignoring all the other factors that go into EW theory.

Saturday, March 28, 2009

The Ending Diagonal Scenario

Since I posted an "ending diagonal" count on Friday's update, I figured I might as well zoom in on the SPX 1 minute and see if I can read the tea leaves on how that move may play out. The ending diagonal is based on 2 assumptions: 1) The gap at 828-832 gets closed likely Monday (maybe Tuesday). 2) Window Dressing keeps the market above 803-805 support at least until April 1st. What I find incredulous is that the bulls worked so hard to fill the 819-827 gap and then go and create another huge 4 point gap down basically at the same spot! How convenient. So upside surprise might be the theme once again. By the way, the market doesn't have to go down Monday for the ending diagonal to play out. I just added a down move just in case I have to account for a bearish open. The beauty of it if its bullish open or even flat, the ending diagonal can still play out as it is tracing "threes" within the ending diagonal and there is a lot of freedom of movement in that. Key thing is that it pops higher in the end.
The second chart shows a zig zag retrace for wave 2 that assumes wave 2 will close the 768-772 (which I think it will) gap and plays on my theme that Primary wave 2 wants to maintain key trendline support in the near term to allow the market to strengthen and avoid getting trapped back too deep inside Primary wave 1 trendlines. I charted it under the assumption that the ending diagonal plays out to a somewhat higher high than 833.
So buyer beware. These are charts based on an ending diagonal over the next 2 days. If 803-805 support breaks before these moves happen, then something else is likely going on.

Friday, March 27, 2009

Elliott Wave Update ~ 27 March

I agree with Kenny the market is tracing "threes" for the past few days. I called yesterday's intradays waves as an ending diagonal for green Minute [v]. Perhaps having minute [v] trace its entire wave in one day was kind of hasty (even though the market did indeed drop today). Looking at the larger picture, it could morph into a more proper ending diagonal. And that means a move up Monday to close the gap that the market failed to close on Friday. That would be about 1-2 more days of upward, actionary (impulsive in spots) waves to a peak somewhere north of 832.

End of month and end of quarter "window dressing" could account for keeping the market propped for a few days to fulfill the ending diagonal. Just speculation of course.

There are good Elliott Wave reasons to keep the market in an elevated (above 810+ or more) state for a few more days. I have discussed the apparent need for the market to want to prevent from getting trapped back into Primary 1 down trendlines. It can do this by price advance and/or time. Right now it is tracing upwards and sideways using time as an escape. The further in time, the more the market moves from the trappings of the old trendlines. Doesn't have to be this way, call it a hunch though.

There are plenty of reasons to be bearish. The market is overbought, there has not been a 38% retrace and resistance is bearing down. So it would be easy to just say the market is more than overdue for a pullback and indeed there are some wave possibilities for a deeper pullback but I have no great deal of confidence in it at this moment as the waves are not behaving in any kind of definite form on the shorter minute charts. But I will post alternatives this weekend on the more bearish possibilities derived from the wave structure and trendlines.

The other chart I have is an XLF chart. It is in either a bullish-type contracting or ascending triangle formation, both bullish types. The only problem I have is the upslope bottom line seems a bit steep. I have plenty of notes on that chart so need need to repeat them here.
So one key this week will be the financials and its triangle pattern. Its failure or success will very much determine market direction.

Thursday, March 26, 2009

The SPX upper channel ~ duh!

After posting this chart tonight in my update and stating that the move up was likely over near here in the 830's, I just noticed the channel I drew corresponds exactly with my upside surprise target of 856 or so. And since futures have not been selling (the red candles are light volume) and show some staying power, perhaps today's ending diagonal is just a 1-2, 1-2 wave of the last green [v] up to 856 or so (this is where my green wave [v] = price move of green wave [i] - a normal occurrence when wave [iii] is extended). That's the problem with intraday 1 minute charts that start moves, perhaps you are only seeing half the move.

The deal breaker is 839. Any move above that mark is signalling perhaps a move to the upper target of 850-856. And accordingly any move over 839 would invalidate my intraday chart showing an ending diagonal. I guess it would make sense to rally to this channel. I thought of it before but it grabs my attention now.

But 839 is also very significant resistance and it hasn't even moved past 833 yet. So that, along with the intraday pattern I suggested the move up takes a break. I just cannot see it powering thru 839 first try but...."upside surprise" is the Spring/Summer theme for Primary wave 2. I think EWI used that term and I kind of like it.

Elliott Wave Update ~ 26 March

Wave 1 appears to have topped today. Nice Fibonnaci relationships and an ending diagonal. Main Green Minute wave [iii], as I have my chart marked, expanded 1.682 of wave [i]. This is very near 1.618 Fib. Also today's high was where green Minute [v] = .639 x Minute wave [i]. Also Minute wave [i] and [v] connect on a channel along with [ii] and [iv], also a very satisfactory relationship.
These are very satisfactory relationships and the subwaves also work out very nicely in form and price structure. If there is any upside surprise I am looking at green [v] = green [i] at 856.5
But all in all the negative divergences, the very overboughtness, and now that the gap has finally closed at 827 and today appeared to trace an ending diagonal means that Minor wave 1 (blue) has finally reached its peak. (I think LOL)
What would the retrace look like? Well, my theme of late has been the market is trying to maintain support outside of some key Pirmary wave 1 trendlines. So perhaps the market manages to retrace a large expanding triangle. Metsrules of Stocktock social also played with this theme.
It is based off the 1938 market which follows this one in form very closely. Also I showed a recent chart of the 2002 low and how it traced complex expanding triangle to maintain support and key trendlines. But this is all just a guess. For everyone expecting a nice clean harsh bear leg deep back into the bowels of old Primary Wave 1 trendlines may be disappointed and find that the trendline *may* keep getting bought. So anyways, I am thinking out loud. But its something to look for. More violent swings may be the order of the day.
Finally the CPC (put call ratio) is definately turning back toward put heavy which is likely blowing a headwind into any further rally advance. Also the VIX feels its important to maintain above 40 although it closed for the second time under its 200DMA. Last time it spiked hard the next day. So we'll see what tomorrow brings. But there is no need for further upside that I can see in the waves although there may be some small unfinished waves finishing out the ending wedge move. Any break over 838 or so, is indicating something else is going on and perhaps heading to that 856 mark I was talking about. That would be another upside surprise.

Wednesday, March 25, 2009

Ascending Triangle in the $DJUSFN

I never dismiss ascending triangles, particularly when they develop over a period of time. They are reliable patterns. Its pure price action creating the triangle and the targets are usually easy to set. When a price continuously bumps up against resistance and has orderly retreat/advance under that resistance, it will form an ascending triangle. What makes this pattern so potentially powerful is that it is easy to recognize and if your running a trading desk how would you react to this pattern? My point is that shorting it at the breakout point poses more risk than one should perhaps be taking.

I have been scalping FAZ within this triangle (kind of a waste of time so far - I win and lose), but after seeing the price action today, I think I'll stop playing with fire. I might even buy FAS on the dip to "e" if it happens.

The "stop" is easy in this case: you place your stop somewhere below point "c" or do a mental stop. But give it a bit of room "e" can overshoot the trend line making you think the triangle failed. Then it reverses hard and shoots over the upper borderline.

This is the pattern the SPX traced in December to break above 920 for a bit.

The ascending triangle target would place it under its next serious resistance and it would mange to close an open chart "breakaway gap" that is still open. Then you could short it and perhaps get a very nice ride back to test the ascending trend line.

But buyer beware, I am not suggesting you buy them banks! But I am showing you the pattern that is developing. Just follow the price action and we can see what comes out of all this. Set your stops accordingly and take profits accordingly like any good trade.

Fibonnaci Calculations for the Move Up

I have reason in EW terms to label the move the way I did in tonight's update. I could have seen this relationship yesterday but I overlooked it and missed it.

In impulse wave relationships, wave 3 is usually the strongest and usually is the wave that extends. It seems to be the case here. A healthy extended wave 3 usually expands the price of wave 1 by a Fibonacci relationship of 1.618. This chart has nice Fibonacci relationships between all the subwaves of an extended 3rd wave (which is labeled as green Minute [iii]).

So I took all the noise off my 30 minute chart and now you can see wave relationships. What works nicely is where I have black iii labeled is the highest volume of the rally so far which fits into a "third of a third" wave which is where the power kicks in. So if this labeling is correct, the bounce off of 791 is just part of a subwave 1 to a higher spot. Once again, if my labeling is correct and green [v] = length of green [i] then the upper target is 858. If green [v] is .618 times green [i] then your looking at about 832 tops.

So we'll see. But that was why I labeled the wave the way I did.

Elliott Wave Update ~ 25 March

What seems to be occurring is that the market wants separation from the Primary wave 1 trappings. In other words, if the market were to be pushed back underwater from this fragile point, it would be back in Primary wave 1 parameters. Back inside the old trendlines, RSI resistance points, etc. It apparently isn't ready for that. The "breakdown point" out of the massive Intermediate wave (4) triangle was the huge 819-827 gap. It is *almost* closed but closing it does not mean it is reconquered. It can only be reconquered by trading above it, even if for just a while. It has to be wiped out as a breakdown point.
The sellers are exhausted. The advance/decline volume ratio has had a couple of 10:1 up days along with a 20:1 and...40:1! There are no overwhelming sellers to push it back into Primary wave 1 parameters apparently. Short sellers can get the ball rolling a bit but then they have to cover. The "dips" are being ferociously bought at this juncture. And why wouldn't they be? If even EW analysis predicts a rally to 940 (or even 875) or more, why not just buy and hold at these levels? Or you could buy here and hold until the 200DMA is hit.
But Elliott Wave theory isn't just about trendlines, RSI, its about sentiment and social mood. And when that mood shifts to positive, it will power this market. Springtime is a season of uplift and growth. And the market is ruled by greed and fear. When social mood is on the upswing, greed kicks in. They are buying the dips.
The one thing I will repeat is that you have to be prepared for upside surprises in this Primary 2. Today was no exception. I am having to adjust my *expectations* of wave counts, etc, because there has been a trend change.
As far as wave counts are concerned, there are numerous ways to label the structure up. I changed it once again. There are countless chart patterns going on from bull flags to inverse head & shoulders, possible ascending patterns, to trendline backtests to DMA strikes. And they are all bullish.
But to keep it simple, I will say this: This market appears to want to erase the breakdown point of 827. And it can only do this by trading above it. A break above leaves the door open to 850 and then possibly 875 as a peak [edit:I like 858]. If this is a Minor wave 1 still, Primary wave 2 will be a huge rally indeed. I am not positive it is wave 1. But for now, we'll keep it that way.

Tuesday, March 24, 2009

Looking Ahead

A primary wave 2 rally is supposed to be a "sharp" correction. A sharp correction typically retraces 50% or more of the previous down wave. Primary wave 1 dropped from 1576 to 666.79. Do the rough math and you can see that's a big rally if it takes back 50%. That's 1121 on the SPX. This is the guidelines of Elliott Waves. Will it rally that high and what form would it likely take?

Well, a sharp correction can really only be some form of 5-3-5 zig zag. 5 waves up to "A", some kind of ABC correction for the "three" and then another 5 waves to a rally peak. If wave 1 of 5 of (A) of [2] topped today at 823, you can see that is a huge wave 1 and there is many more waves to go! What would wave 2 and 3 look like then assuming wave 3 is the strongest since it almost always is?

Well I made a chart. And interestingly enough we would have a massive inverse head & shoulders with the minor wave 2 forming the right shoulder. A breakout would take the markets toward an eventual hit of the 200DMA which hasn't been visited since May 2008 (it was a kiss goodbye back then). This time around, there will be likely momentum to rally above it a bit either in wave 3 or wave 5 of [A]. The target of the IH&S would be around 1000 or so depending on what should transpire on how it forms and where it breaks out.

What would cause this superheated wave 3 rally? Well, I can think of a few things: Mark to market rules changes. Even if minor, the market would go berserk as this is the heart of why the bear has been so harsh (asset deflation). Maybe throw in an uptick rule change or 2 to boot.

The government hasn't played these cards yet. If the market starts tanking on a pullback for wave 2 (even if 1 peaks somewhere higher than 823) perhaps they pull the trigger. Or perhaps not and the market just rallies hard anyways.

What is also interesting is that this next Minor wave 3 will have a good shot at hitting the 200 DMA. Maybe a 1 year anniversary and it does it in the middle of May again. Don't rule anything out on a Primary wave 2 and be prepared for surprise moves to the upside. That's the nature of the beast. Permabears will have to adjust. Yes its hard.

And yes this whole chart is very presumptious. So buyer beware. But.....thats the theory of EW so thats what I do.

Elliott Wave Update ~ 24 March

Main theme(s) that TA's are trying to answer:
1. When will the market produce a bonafide Minor wave 2 pullback (at least 38%)?
Answer: When it is ready. The waves appear extended and a solid structure is in place to say its about "ready". It could not close the 826 gap which is bearish.
2. How deep will the pullback be? Wave 2's are normally 50-62% or more. enough to question the entire up move. The bulls should be doubting.
3. What is some likely spots for a wave 2 target? Backtest of the 6 month trendline. Depending on how long this takes, the lower it can go to backtest.
4. Will the 4 point gap at 768-772 get filled on a wave 2? You betcha it *should*.
5. Will the gap at 826 get closed first? Not sure. It was half closed and they gave it a go today and failed. The NASDAQ filled its gap so the market may lack incentive to do so. Also it is *perfect* in the sense that it is now *expected* to get filled and setting up as bearish.
That's the gist of it. If the market makes another bullish move to close the 826 gap, it would a wedge move likely which is bearish. But I am not betting on it.
7. Where will the market find support? Many, many places to choose from. From the 20,50 and 200 DMA's to backtesting trendlines and filling gaps and support zones, there are a lot of places.
The SPX was buried at the end of today right on breakout support of 805 so that was a bearish move. And to add to that this is a huge minor wave 1 and I can count a perfect number of extended waves so if it needs to add one more subwave I will find it hard to count at this stage into the overall structure as it has already retraced past expected wave count points. So that is good evidence the initial move up is over.

Monday, March 23, 2009

A look at the SPX daily Chart

Lots of stuff going on in this chart. So read all my notes on it. Bottom line is the market is close (I think LOL) to a wave 1 peak. Main point: The 6 month downtrend line from September has been broken along with Primary wave 1 RSI downtrend line. Sooner rather than too much later, these lines are normally backtested as support. (what was once resistance, now becomes support). EWI pointed out the trendline break in their update tonight, but its been something a lot of TA's (edit - actually EWI has the trendline referenced against something else - I like mine better) types have been looking for.

Until the market broke this trendline, I had no confidence in any kind of 38% or more pullback. it just didn't make sense that the market obeys its Primary Wave 1 resistances and goes into a deep correction prior to breaking through and confirming a trend change. Now that the trendlines have been broken, perhaps some distance might be put on them to allow a decent pullback. But not TOO many days, because the longer the market waits to backtesting, the deeper it has to travel to touch them...but the market will do what it needs to do.

Also 804 is now support so that will be tested too sooner or later. Also, the prominent gap at 768.51 -772.31. Thats a nice gap.

Also the "apex" of the previous Intermediate 4th wave triangle is perhaps pointing to a short term top.

Elliott Wave Update ~ 23 March 2009

Still no 38% pullback, so still no wave 2 down. As I suspected last week, the 826 gap is a bull target. Its half closed. I relabeled the structure and it seems ok to me. Extended 3rd wave. Notice how the 3's and 4's overlap which is normal in a finishing structure for an extended 3rd wave.

The SPX 1 minute appears to be the last 5th subwave is itself extending which leads me to believe this move up has almost peaked. Of course I am playing with fire on a 1 minute chart with that. But it *looks* right.
Also I have provided an e-mini S&P futures chart (all sessions - including A/H's on a 1 hour scale and you can clearly see its still in a channel up. You'll also see that it is nearing the topside of the channel which should be a pullback spot. Depending on when that hits the upside.
839 is a the next hardcap resistance area and should slow the market push on first strike at least. The gap will have been closed and another nice profit taking area. If 839 is breeched, 850 should stop it cold.
Somewhere in here, a 38% move back is gonna happen. Because a nice gap up was created in the 760's. But.....If I had to guess, window dressing week will keep the market somewhat bouyant if not continued bullishness. I think it sells hard a bit April 1st.

Saturday, March 21, 2009

A Look at the SPX 1 minute

I have 2 charts I'd like to discuss:
1. SPX 1-minute: This chart appears to be a "double three" playing out. From a 5 or 10 minute chart, it looks like a 5 wave pattern is playing out downwards which would give an indication of a 5-3-5 zig zag correction which would easily interpret to a much farther downside target once the entire pattern would play out. But is it really a 5 wave playing out down? A look at the 1 minute SPX reveals a more complicated structure. The market always likes to fool us. Although on indicators such as McClellan's and the daily $tick suggests a nice correction is in order, one has to wonder, that if this is a trend change, will it correct as far as many seem to think or that I suggested just last night in my Friday night update based on an assumed 5 wave down pattern suggesting a 5-3-5 zig zag that goes much deeper down?
The 60 minute RSI and stochs are on the downside due to the correction already taken place from 803. The popular 15 minute trading chart also shows the RSI on the lower end of the range. The 60 minute chart also has a bullish 50/200 MA crossover that just took place (first time in 2009) on Friday. Does that mean SPX is up and away? No, but it does make you pause if your apt to be very bearish.
A trend change will produce numbers on indicators that will not make sense. We are used to 18 months of viscous Bear, so when we see the usual "topping patterns" we usually assume a nice downleg is in order. But if this is a trendchange, a big downleg would suggest that it is NOT a trend change. Afterall, if the market falls back under 742 in any way, which was the breakdown spot for that last bear waves of the previous downside, why would we assume it will bounce at some magical spot?
I guess what I am saying is the rally is on the edge of a knife. If it is a trendchange, we can expect something different than big downside action perhaps. The 1 minute SPX suggest that what has been playing out since 803 is NOT a 5 wave structure of some sort but actually a double three. And that would imply that the downside target is around 757, not some deeper spot say 734 or 715. This would imply that any head and shoulders that may form will indeed HOLD instead of breaking down. It also implies a correction of LESS than 38% from top as referenced from the 666 low.
I did find a nice reference for something perhaps similar: The 2002 lows. It rallied HARD before it ever retraced 38%. That is my second chart that I have provided. Although that is a nice comparison, there is a big difference: it is much more dangerous fundamentally in 2009 than in 2002. After all the SPX, collectively had NEGATIVE earnings in the first quarter. Also the financial system is on the verge of self destruction and the sheer amount of government intervention tells a story of woe. The drop from Oct 2007 was much more vertical than the drop from March 2000. Its actually a wonder the SPX is still in the 700's if one stops and pauses....
However, the waves always tell the story along with accompanying TA and sentiment indicators. The SPX 1 minute suggest 758 is in order, than after that, the market will determine. There is such a thing as a "triple three" corrective so lower than 757 is certainly capable. And perhaps I am reading this entire chart wrong anyway. But any hardcore Elliott Waver would tend to agree with my interpretation, its a pretty straightforward interpretation nothing too fancy.
As far as complex corrective such as "double threes", it seems the market corrects first in a basic pattern and then finds out it is not enough. So it morphs into more corrective patterns. that's the best way to explain it. The market said "OK, I'm at 803 and I need to correct back a a bit, let me trace out this nice 5-3-5 zig zag to 782. What? That's not enough? OK then , let me just wiggle a few more waves in some kind of triangle fashion and then when that's over, I'll slice it down in another zig zag. There. How's that? Do we have buyers here? Yes? Lets go up! No? ok I can do one more correction or 2 but THAT'S IT BUDDY!"
So ok, now I am surely digressing. I admit, I don't have a clear thought process at the moment on the market. Its not behaving in a predictable way that it was before so yes, I think its a trend change, i.e.-Primary Wave 2. However fundamentally NOTHING has changed much...the country, nay indeed the WORLD, is in a very bad way fundamentally (I never ignore the fundamentals) and that won't change anytime soon it seems. The only way the fundamentals will change is if they tamper with mark-to-market rules (M2M). So in that sense, a high rally Primary wave 2 actually PREDICTS they WILL change M2M. To me, that would have to happen for me to imagine an SPX rally back to 950 or 1000...Hell even 875 seems high....
In the end, I'll be relying on every piece of info we have available and trying to mix it up the best way and weigh all the factors as best I can. Before, it was easy to say " hrmmm, this indicator and that indicator reached "X" level, and the waves traced "this pattern" so a pullback or advance to target "X" amount should easily take place, after all we are missing wave "blah, blah blah". Well, if Primary 1 is over, then Primary 2 will not always be an easy read.
And about that 5(5) EW theory, if a 4th wave traces a triangle (intermediate 4 of Primary 1), then expect a 5 wave "thrust" move to occur out of the end of the triangle. Indeed since the 875 high, we have had a nice 5 wave move with an extended 5th wave. We all called it 3(5) but actually 3(5) contained the whole 5 wave thrust structure to 666 bottom. Those that have been following my blog posts over the last 4 months know that I have spoke of, and tracked the 4th Intermediate wave triangle and pondered on its many times. It does not surprise me that there will not be a 5(5) as I have suggested. the market fooled us I guess is all I can say. Yes the SPX does not look like a "perfect" triangle, but its internal waves behaved like one. And the NASDAQ traced a very nice triangle. The DOW? Well what can I say about 30 stocks and how reliable is that index for EXACT wave structures? That's why I mostly don't track the DOW.
Anyways in the end, for this upcoming week, I'll be looking for a move down to 758 or so on Monday. And then I'll be looking for a large H&S formation to occur (with 803 as the head). And then we'll monitor volume and the neckline for any breakdown potential. If the H&S does not form and any more significant bearish downside action on Monday below 758 occurs suggests that something else is in the works and that my rambling tonight and dissecting of the 1 minute SPX was mostly a waste of time.

Friday, March 20, 2009

Elliott Wave Update ~ 20 March

The market likes to fool us. When it impulses down like it did last week for a pullback, it reverses hard. When it meanders at the top in corrective waves, you might think there is more bull to come. But alas, it was a likely distribution pattern playing out.

774 support area broke and backtested from underneath and fell back yet again. The retrace is deep enough to confirm wave 1 up (or A) has topped at 803 resistance. I look for a H&S pattern to perhaps form. The move down from peak appears to be a 5-3-5 zig zag playing out and the initial first half 5 waves maybe are not quite finished. Then a B wave should play out in some fashion. This B wave would likely form some kind of right shoulder, even a weak one. Then any break of the Head & Shoudler neckline will set the downside target for the C wave to near term low for wave 2. Thats about as simple as I can get.

The weekly candle is a shooting star, so that suggest 803 will not be breeched next week.

Thursday, March 19, 2009

Dark Cloud Cover On the SPX

UPDATE 10:30AM 20 Mar: As jejegig pointed out in comments, technically it isn't quite dark cloud cover. It has to open higher than the previous day. XLF did produce dark cover though as Kenny pointed out.

I use candlestick patterns often enough particularly in key situations. Perhaps today is one of those days. I overlooked it earlier but there is a classic "dark cloud cover" potential candlestick showing. Of course with candlesticks they must be confirmed by some kind of followthru action. So placing bets just on the candle can get you killed. However more often than not, they are reliable.

Stockcharts has an excellent "Chart School" and thoroughly explain chart patterns and Candlesticks. Its really my base reference.
The "shooting star" which is usually a reliable topping candle printed nicely last week and is one of the reasons I continued to go with the 5(5) down to new lows. Well, it certainly didn't work out. It got absolutely crushed the next day. Perhaps the worst violation of a nice shooting star I have ever seen.
So today printed yet another very bearish candle daily pattern. So all in all, being that the market is on the short-term overbought still, perhaps I should give more weight to the downside count of things. Particularly the "spiky" top at heavy resistance and finally a flirt with the 50DMA. Also the daily BB is sitting at 808 or so. But maybe it needs to puncture this a few times.
Also in my update tonight I was lookking at daily e-min volume which was indeed on the light side as compared to the last few days. However re-examining the SPX cash index (stockcharts dont print volume candles right away at end of trading hours) it was indeed high volume on the cash index.
I am not playing any longs here by the way (except my 401K I bought at sub 700), although I have a valid potential interpretation of the wave structure, this is new territory somewhat. So confidence is not real high that this market can get over 800 on fumes.
In fact I bought more FAZ on the 800 spike this morning and I still hold half.
I just wanted to make sure I got that out and I am giving slight odds to my alternate count as compared to the primary hyper-bull wave that eventually closes the 826 gap. So if a very bearish pullback is in order more than already occurred, 750 is a good spot for starters if 775 support breaks. 775 pretty much has to hold as support if any kind of hyper bull wave to above 800 is to occur. The wave structure would be "broken" if indeed it retraced to far. That would imply wave 2 of some sort has started down.
So 775 is a battleground area.

Elliott Wave Update ~ 19 March

Primary count: Continued bullishness until at least the 819-826 gap is closed.

Alternate count: A 5 wave pattern completed today and a distribution pattern is playing out and the market is rolling over.


Primary count: The 1 minute chart today appears to be 3's which implies correctives and consolidation (although it has an outside shot of forming a bearish leading diagonal in a first wave postion down - but its way too soon to say that) From afar it also appears to be a falling wedge or a classic bull flag forming (with the 749 low as the base).

The waves can be counted as "finished" afterall everyone can see a nice 5 wave structure. But to a wave-guy like me it just doesn't seem quite right to count 803 as the peak at this stage. The wave appears to have classive extension signs of its 3rd wave which is normal for a bullish wave such as this. The bullish spike to 800 Wednesday *appears* to be part of a third wave push. Volume declined today on the pullback which is a sign of consolidation.

Yes the market is really insane, but this is no ordinary bear rally. If this is a Primary wave 2 which I think it is, it tends to crush all bears on the first push. Indeed it already has. Each day brings little pieces of the puzzle and I don't feel too silly projecting this up structure because it is based on sound wave counting. As a wave counter, I am taught to start trying to identify extended structures as early as possible. My green [iii] spot is a 1.618 expansion of my green [1] which would be 819 which is just under the gap lip. A green [v] would close the gap to the 830's or a bit beyond.

Yes it seems insane to get more relentless bull but its at least sound reasoning based on accepted EW principles and counting techniques.

Alternate Count: I can count a 5 wave structure. It may be rolling over in a distribution pattern. The key is if 775 gets smashed through to the downside I think.

Wednesday, March 18, 2009

Lets Suppose the Bull Target is the 826 Gap

EDIT 8:30 Changed the chart to more realistic trendlines and timelines. Notice that the big selloff comes in the new quarter after window dressing. QQQQ's sell hard. Deep retrace for wave 2 but by then a backtest of the main down trendline holds.

Can the wave structure support that move? You bet. In fact today was quite a high volume breakout of not only 780 resistance but a main down trendline that has defined this bear market since September 2008. I charted a chart with the "assumption" that perhaps this up move will close the 826 gap. Its another "gee whiz" wave structure that is more practice than anything.

Green [iii] would stop at the bottom lip of the 819 gap and would be a 1.618 Fib extension of green [i]. Then follow-on green [v] would ultimately close the gap and finish the move above 830. And of course the hyper-bull move spike today was the "third of a third" in the wave structure on high volume which could indicate the most bullish part of a wave 3 structure.

In addition, you can see from my wave structure that the last run to 830+ is no smooth walk. There are some mandatory down move corrections smattered in between. Perfect for OPEX Friday.

What would this structure accomplish? A couple of obvious things: 1) achieve closing that HUGE gap at 819-826 which just begs to be closed as the market is gaining ground of it. 2) Achieve separation of the main downtrendline and break above the down RSI bear market Primary wave 1 trendline (weekly shows a break, daily does not yet quite).

Any retrace from the 830's could then be achieved and "settle" back and backtest the main downtrendline rather than getting stuffed back under it this week and next. There are simple things that define this is as a Primary Wave 2 and breaking the main down trendlines, backtesting and holding is the most defining thing.

But this is highly speculative and only based on a few things and assumptions. The market is certainly overbought, but....and that gap beckons the bulls....

Elliott Wave Update ~ 18 March

Wave 4(5) is a dead idea. This is Primary 2. My bullish scenario chart I posted last night pretty much happened although it happened rather quickly to say the least. The inverted H&S target has been met. It appears the last subwave to peak is required to play out to call this initital up a finished five wave move.

In theory it should then retrace to at least 38% to major support at 750. If any retrace backwards is a wave 2 down of some sort or even a B wave, potential exists for a deeper retrace although I wouldn't bet the farm on it. But 750 is reasonable considering this is first challenge of the 800 resistance. But this is no ordinary bear rally. This is a Primary 2 wave rally.

People are anxious to buy back in. I have confirmed this informally at my work. Major resistance was just broke at 780 so holding onto that zone, for now, is a bullish objective. The other bullish objective is the massive gap at 819-826. I am satisfied with the count and chart. Now we'll see how it plays out.

Tuesday, March 17, 2009

50/200MA Hourly Crossover and APEX Tuesday

Two things on this chart:
1. The 50/200 crossover on the hourly chart really can only be stopped by an immediate hard down move starting tomorrow. A crossover of the 50/200 of course would be bullish. That usually results in a pop at least.
2. Tuesday marks the end of the apex for the SPX (and DOW). The NASDAQ APEX marked its LOW a week or so ago. Perhaps this APEX will mark a significant HIGH.

Elliott Wave Principle, page 52"..we propose that often the time at which the boundary lines of a contracting triangle reach an apex coincides with a turning point in the market. Perhaps the frequency would justify its inclusion among the guidelines associated with the Wave Principle."

So there you have it: You have an APEX peak occurring tomorrow. You have the threat of a 50/200 crossover. In order for this NOT to happen, a severe down move would be required. Also you have pre-OPEX Wednesday, which is the fun day for bears on OPEX week it seems. You have a stretched market that, quite frankly, probably could use a healthy correction to keep things real. You have negative divergences on the 30,60 minute charts.

If a severe correction does not occur tomorrow, well, then I will be surely stopped out on a (second) helping of FAZ as of late (I sold premarket today - and bought back in this afternoon - and doubled down at end of day.) Its the only trade I have at the moment. Busy this week at my 9-5 job and cannot monitor things too well.

PS - I often watch wave moves using the NASDAQ website. They show premarket waves in real time. It works well for timing premarket sales (or buys). More often than not, premarket traces VERY clear and simple EW patterns. Try it sometime. Anyways I seen a wave 5 to peak over $43 occur in premarket so - I sold.

Just something i always wanted to point out. The NASDAQ website is good for wave trading during the day, real time, for any stock or ETF...

Elliott Wave Update ~ 17 March

I present 2 charts: A bear case and a bull case.
I can honestly say the evidence of a wave 4(5) now looks rather weak. Have I bailed on it 100%? In my heart, I bailed on it last week when I was doubt due to the breadth and volume of the rally. But for wave-sake, 780 would be the maximum for 4(5) I would think. (Of course you would have to ignore the NASDAQ - it broke 1456). If 780 resistance is broken to the upside, your looking at a run to 796, probably a touch into 800. This would fulfill the inverted H&S pattern I have shown a couple of times lately. That is the spot a nice pullback would likely occur.
If wave 4(5) is to have a chance of surviving (and hence 5(5) to new lows), it would have to start immediately tomorrow pretty much. Today finished on the high. From afar, it looks like a 5 wave move up so far from 749 to today's peak, but it ended rather bullishly so..... The inverted head and shoulder neckline was never really tested by the SPX. So I respect that upside target of 800-804 if 780 breaks to the upside.
The bearish side of the case has a few things going potentially:
1. The VIX is still holding above 40. (In danger of tracing a 5 wave move down - bearish)
2. The banking index is holding below 27.95.
3. There is a "legitimate" (I don't like it though) wave count for 4(5) to peak
4. OPEX week, Wednesdays are usually the brutal days.
5. 780 is tough resistance.
6. The friggin market is due for more than a 24% correction.
7. Negative divergences showing up on the 30,60 minute charts big time now that a new peak has taken hold.

Bull Side:
1. Breadth and volume is very good.
2. Key support areas have held solidly. 742 then 750.
3. Broken above the upper channel lines.
4. Wave structure looks more bullish and solid than a failed bear rally wave we have been so used to seeing.
5. NASDAQ has violated all known wave 1(5) possible lows - RED FLAG situation for the bears.
6. Its Springtime - the long winter is over and mood is probably shifting somewhat.
Here is my thinking (out loud): The inverted H&S has an upside target of 805 max. 796-804 is a WALL OF RESISTANCE that will not likely be cracked on this initial move up.
So the first MAJOR pullback of more than a 24% correction may in fact occur after a touch of 800. That would fulfill the IH&S pattern. Then late this week or early next week the bears would absolutely SHRED the rally back down to some critical support area, perhaps even 742 or maybe a tad lower. Then that area reverses and holds and Primary Wave 2 continues into the Springtime.
But beware, I am just thinking out loud here. Tomorrow will be a key day.

Monday, March 16, 2009

Quick Look at Support Resistance

I never claimed to be an expert at figuring out support/resistance but its not too terribly difficult to spot what will be solid and what will be weak. The above is a chart of a wave 5(5) support/resistance layers. The first point I'd like to make is that this trading zone below 742 is fairly fresh obviously. Second, its has went almosty straight down and then straight up. So there are only a few solid pockets of support from 750 down to 666.

A long squeeze is just as painful as a short one. Of course if the SPX only touches its toes in this sub 742 zone and can manage to consolidate and pull out then your looking at Primary Wave 2.