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Wednesday, March 25, 2009

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.

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