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Wednesday, June 16, 2010

Elliott Wave Update ~ 16 June [Update 8:15PM]

[Update 8:15PM: Here are the squiggles.  Now instead of just throwing them up there, allow me to walk through the entire thinking and reasoning behind the labels on where they are. I think its a useful exercise should it prove correct.

I use the Wilshire 5000 because it gives superior form.

1.  The truncated Minor 1 low on the SPX and Wilshire5000 by mere points was caused by a final failed squiggle wave [5] of v of (v) of [v] down that failed to materialize.  (Count not shown)

2. The Minuette (i) was sharp reflecting the truncated nature of the Minor 1 low. Clear and classic five subwaves within Minuette (i) can be seen.

3. A dastardly a-b-c pullback Minuette (ii) that closed leaving us wondering if the market was "done for". Taking most all profits of the bulls and causing massive pain.  The truncated wave at Minor 1 made it look like an a-b-c- up. Classic misdirection.

4. The huge opening Minuette (iii) wave. Now remember what conditions the market was under. It was battling under huge resistance so prices got up quickly then had to do some work. But the day was clearly the best up day for internals. So that marks wave iii of (iii) the third of a third. Where are subwaves i and ii of this opening?  Buried in A/H's and premarket the open was just silly. (go ahead and relabel it anyway you like, you're still missing those waves hehe)

5. By the way, Minuette wave (iii) is officially not the shortest wave as (iii) managed to work itself a few points more than Minuette (i).
SIDE NOTE: This near-equality of wave (i) and (iii) also is supportive of an extended wave (v).

6. Minuette (iv) is a contracting triangle. Even all subwaves stack up so well as zigzags, that to label it as anything but is not right in my book.  It was chewing and working on the down-sloping trendlines. It had to maintain price and take out the bid just what a triangle is excellent at.

7.  The next day open and peak  would have made a fine wave (v) top.  But the structure hadn't achieved its purpose of higher prices above key support.  A bearish retrace left a massive shooting star candle that day. We thought the wave was over and a retrace would occur. The market had other plans.

8. Next day was an up opening - ok nothing unexpected there - yet prices chewed through the bid and just kept going.  This wave structure now started to extend its wave (v). Notice the lesser up volume ratio and advancers compared to iii of (iii) down lower yet the bullish day still indicated it was a subwave iii nonetheless of (v). Seems appropriate.

NOTE: Why not just label the ii of (v) as a wave (iv)? Because it lacks the strong guideline of alternation with wave (ii) so I must  assume its not wave (iv). It is more a trait (and personality) of a wave two.

9. Final subwaves are filling out we suppose. Is has a bearish wedge shape and we get excited about an ending diagonal triangle possibilities but no! hey there was no overlap so its not "official". What might this mean? Well it means the wedge could portend a deep price retrace but the lack of an ED means that the price retrace may hold at support.   (remember one trait of ED's is a price collapse back to below from where the ED started).

So that is the thinking behind this structure. It has a blue box area for good measure although we usually find this at the middle of the thirds. But you can see this structure is not so easily labeled as such so I like my labeling just fine. I won't argue either way if you have something different.

This structure may not be over yet, but it counts well at the moment.

[Update 6:47PM: Ok, here's a mass of charts that I am keeping an eye on to help interpret the overall count:

First the dollar. A 50% Fib back toward the Minor wave 3 -4 area seems appropriate. I figure a Minor B on the dollar will concur with a Minute [b] in the equity markets.
Ok so how can an intermediate wave retrace so deep so fast? Well we have an example from 2008.   I reconfigured the count on this chart to show also an extended wave (5).
The advancer chart makes excellent little waves. Beginning of a pullback helps identify that the market may be ready for Minute [b] pullback of Minor 2
BPSPX also is behaving in tune with the overall count of Minor 2.
Yes the credit markets are straining, but even they need to work off short term overbought. The TED spread has fallen now 2 days in a row.
Keeping in theme with overbought, the NYMO is working off overbought also.  If everything works out in a Minor 2 zigzag, this chart may show negative divergence at the top of Minor 2 , something I am thinking ahead on potentially.
And finally once again here is Minor 1 off the 2007 top. Also a leading diagonal triangle. Also 30+ days to trace. Retrace sharp in a clear [a][b][c] move even using only daily candles.  Retrace was deep.  Also notice the [b] wave retraced about 38%.  Also notice the top of Minor 2 pushed the BB up some.

Same setup going on today? We'll find out.
SPX hourly shows signs it may roll over into a [b] wave of Minor 2.  MACD history almost going negative and an imminent cross on the signal lines.  RSI shows a smidgen of negative divergence.  These small negative divergences should work much better as compared to P[2] in the case of a bear market count. So it will be interesting to observe these phenomena going forward.

Primary count is that we are looking for a Minute [b] wave retrace down to play out. Then a [c] wave higher will mark the top of Minor 2 in a likely 5-3-5 zigzag.   [b] waves typically retrace more shallow than say a wave two so 38% retrace makes a good-looking [b] wave.  Gap support lies at the 38% area so that seems not an accident. The market perhaps intended that.

Its up to the market of course but the new "dip buy" spot (for those looking for one) would be the gap up (if it goes down that far) spot created by yesterday's open.

A close under yesterday's "follow through" 23:1 volume ratio up candle really shouldn't be happening if the market has its eyes set on a much higher retrace target. A close under yesterday's candle at 1089 is bearish.  That would be indications of a potential bearish reversal down.

If the 1089 gap can manage to not be closed under on any [b] wave pullback, then the market can make a run to a higher Fib marker of 61.8% or even higher (1151-1172) if thats what it must do. Thats about how I view things at this moment due to the high price achieved on the [a] wave and the breadth thrust event that occurred yesterday.

All my other indicators and charts I am watching (BPSPX, dollar, VIX, market internals) still support the primary count very well.
On the opposite side, we have the Wilshire again closing above the 19:1 down day red candle twice in a row. That is a bullish development.. It means the market is trying and managing to repair some of the technical damage that day inflicted. Ultimately a sharp wave 2 wants to get over that candle and hold it as support so it can advance even higher. We shall soon see if it can in the coming day(s) / week.
To me it is of no use to get caught up in any news, bearish or otherwise. We know things are "not right" with the world.  Its a Ponzi, do the math. In the end, that will reflect in lower markets.  Markets don't move on news.  Just focus on what the tape and internals are telling us.
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