Custom Search

Tuesday, May 25, 2010

Elliott Wave Update ~ 25 May [Update 9:40PM]

[Update 9:30PM: Its always good to look back and see fundamentals following the waves as they generally should. As goes social mood and hence economic activity, so goes the fundamentals that follow. A site I check every day has an interesting commentary update tonight.

Social mood is not getting better. It is getting worse.  This will translate to going into full hunkering-down mode and economic activity will continue to shrink.

But worse yet, if the stock market loses another 20-30%, its "lights out" for America's pension system that is already deep in the red.  And hence budgets will be busted even further. Eventually government support will falter as the debt load is already too high.  The government will cut jobs, pensions and support. This will further deflate things drastically.  It won;t take much to produce a viscous cycle and that will ramp up social mood even more to a precarious state.

The FED can print all the money all they want. But if they are not giving it directly to the people (they kind of are in certain subsidies, but what they are giving to the people is being far outpaced by other massive deflationary forces),  there can only be a devastating deflation. With wages and jobs being cut, how can there be inflation?

Oh sure companies and utilities and governments can raise prices, add more endless fees, and tax the hell out of you in an effort to make more profit and keep the system propped up, but this is not true inflation. What it will be however is discretionary spending deflation on the part of the individual.   

I really don't see any way out of this. Social mood is the key, and if anyone thinks its getting better raise their hand and show me how, cause I just am not seeing it.

[Update 8:38PM:  The pathing the market takes seems to be playing out to a crash scenario very well indeed. The 2008 crash is a good learning wave lesson for how a market builds up the energy in a series of wave ones and twos and then the bottom falls out.
My last update was worded poorly.  Heavan's no, 1150 is not a target. The blue box area is, then the 200DMA and of course the big gap down above that. That would be in the realm of a 50% retrace which is normal for a wave two. However being that the market may be stuck in a magneto drawing prices lower, one is taking chances in holding longs in my opinion at this stage.

Ultimately the big blue box virgin area should be created in the big "third of a third" and this will be the really big panic spot. VIX should explode possible to the 2008 high or higher.

For now, many pundits are oddly bullish. Me? I am waiting to sell any further rally short again.  
[Update 8:20 PM: I think I worded what I said in the last update badly. I stated that someone mentioned 1150 as a target (in comments). In comments I responded that 1150 is highly unlikely because it would have to reconquer the 74:1 down day.   Sorry for the confusion.  I think the blue box area is the first target, 200DMA a possible second target and the big gap down a third target area. The "bounce" wave [ii] should fail at one of those areas. 1150 again, is highly unlikely.

(I had called 1150 a "random target" in the sense that I wanted to shoot that notion down and why - I now edited my comments to better reflect that.)

[Update 6:07PM: The SPX squiggles Look at this through the eyes of a cold, calculating market technician or computer.  For now the blue virgin area is the first zone that wants to be challenged. And then that big freaking gap down.  If all that happens, then we look at the waveform and structure and internals and go from there.

The 74:1 down volume ratio day is the key. Perhaps that can be squeaked above to be sure, but to regain and "hold" it means the market is virtually erasing all that bad down mojo. If this is P3, that shouldn't probably be happening.

Most market technicians use moving averages. So the still-rising 200DMA at 1103 is a highly eyeballed spot obviously .  A close or break above will be considered bullish but only closing the big gap down and holding that as support, will allow this market to go higher than that.

All this of course is presumptuous and assuming the market is in a healthy wave [ii] of 3. Heaven knows it could reverse whenever it feels and head south and rip everyone's face off.

After all, after a [ii] of 3 comes [iii] of 3 of (1) of P3, and that should be a barnstormer.
[Update 5:45PM: Squiggles shows a possible path. What we are looking for is a 5 wave move for pink (a). Then a (b) wave pullback that is likely shallow, and the another 5 waves to (c) somewhere higher. Variations and mutations are more than possible but if this is a wave [ii], a sharp 5-3-5 zigzag up is again our best guess.

This is just a sketch based on Fib expansion of 1.618 and channeling techniques along with resistance zones.
The squeeze going on in afterhours seems to support a gap up open tomorrow as it stands.]

[Update 5:15PM: For now I'll keep the 1065 low as a Minor sized wave 1 for convenience sake. I theorized over the weekend that time may tell it is merely a Minute-sized but no need to change things just yet I suppose.

 Looking at a "map" of the SPX and using cold calculating wave logic of an algo, there is one bearish down candle with a 74 down volume ratio and 19:1 decliners that the market must reconquer to "prove" this is not just a subwave [ii] retrace back up.  The magic spot is again 1113 or so.  This is the level the market fought doggedly in November and December to break above and then again on the February-March rally again it fought at that area.

The map also shows us that clear horizontal support is now in place. In fact the H&S pattern is in place and today seemed like a false breakdown.

So thats it in a nutshell. The market must rally above the extreme bearish down candle and its gap down produced last Thursday to prove it can go higher than that and prove its not a wave two.

This is the nature of any wave two: To "prove" it can be a bull wave and not merely a wave [ii] retrace. And to prove that, it must reconquer the point of recognition zone that broke the market in the first place.   Primary wave [2], using the Wilshire, had its one close above "Lehman day"  It was then slapped down after trying to re-conquer that spot to prove it was a new bull market and now we theorize it has morphed into its natural wave [3] mode.

So this subwave [ii] is no different than Primary [2] in that respect. It must prove to the world its not a wave [ii] and it can only do this by reconquering, and holding as support, the most bearish spot and candle in the previous wave [i] down.

Wave twos of any degree wish to be true bull waves.  But alas, they never can be. There is always the challenge spot that trumps them on the head and the wave two gives up. It then transmogrifies into a wave three.

Its as simple as that. I am betting it fails to reconquer 1113. If it can , well then its on its way to disproving its a wave [ii]!

The structure from 1173 to 1040 is very nearly a perfect Elliott Wave 5 wave structure. Lets review:

1.  Initial 5 waves down forming a wave (i). Sharp retrace to almost 61.8% Fib forming wave (ii).
2. Subwave 1 of (iii) advancing the price low in a stair-step fashion. Small rally ii of (iii).
3. "Third of a third" extreme bearish down middle portion with the worst internals. "virgin zone" no retrace prior or after area created at this spot. (My "blue box" spot)
4. Wave (iii) - or at least b of (iv) expanded an exact 1.618 of wave (i)
5. Subwave iii of (iii) produced an RSI low on the hourly - right where we'd expect it.
5. Wave (iv) stealth triangle that retraced a Fib 38 of wave (iii).
6. Massive thrust out of the triangle for a nice wave (v) that "looks right".
7.  Everything channels nicely and orthodox ends of wave (i), (iii) and (v) connect on a trendline and wave (ii) and (iv) on a trendline.
8. Weaker internals on wave (v) that also produced positive divergence on many indicators indicating a turn for a wave [ii] of next higher degree is coming.

So all in all, we have mapped a fine wave structure down.

The rebound back up seems a reversal. First bull order was to close the gap down today and next will be to break sideways out of the steep down channel.

So if this is wave [ii] of 3, it is free to retrace an expected 40-72% of the move from 1173-1044. I prefer a retrace to the virgin zone at least.  A touch of the 200DMA seems inevitable at 1101 or so.

And a challenge of the big gap down above 1110 seems doable.  But to "reconquer" and hold as support the most bearish down candle that produced that gap down, I believe will be nay impossible.

So we have a range area for retrace now lets see how much the market decides.

Things are decidedly bearish and finally the media and everyone is on the bear bandwagon so it may be time  for a multi-day rally to wash it all back out and shake out the oversold.
I'll have more later.
blog comments powered by Disqus