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Monday, June 7, 2010

Elliott Wave Update ~ 7 June [Update 8:20PM]

[Update 8:20PM: Gold's weekly shows a double negative divergence so far. This is reflected in its MACD history also. Now I am truly agnostic on Gold sentiment-wise.  I realize that people can get downright sycophantic about it like Apple fans. I respect that. Gold goes back to the beginnings of civilization after all.

However approaching this from an EW standpoint (and this is an EW site!) and even a straightforward technical standpoint and sentiment standpoint suggests that there is more risk in buying paper gold at these levels more than not if you have a longer time horizon.

I have discussed gold many times in the past. My bottom line is I think paper gold will collapse in price like any other Ponzi fraud that makes up the markets (which I largely suspect paper gold is) when primary [3] gets moving for real. But maybe on the "street" physical fetches more in price. But somehow I think physical will fall right along with paper.

It seems counter-intuitive to the casual observer that when a paper gold fund trades at 100 times what it has in physical backings, that somehow that will make demand skyrocket even more in price. But the opposite will happen. But when you look at gold it is just another investment, at least at this stage of the game, and as an investment, it is subject to investment sentiment shifts in mood and extremes.  If gold exhausts sentiment-wise after a decade long boom, the shift down to the opposite extreme could be long and drawn out. See the no overlap blue box area? Thats the minimum price target years down the road.

Now wave (5) certainly has the freedom to stretch its legs some more in a blowoff move, but being it looks and counts nice as a wave five....better hope for an extension.

Anyways, technically, gold has some negative divergences going on. If it can manage to ignore these technicals and overcome them or whatever, hey, maybe gold is in a 30 year bull, who knows?  But if we have devastating deflation, this gold chart is likely telling the truth.

Just saying.

[Update 7:30PM: The US dollar count has obviously broken upward out of a barrier ascending triangle.  Now the question is, is this barrier triangle a subwave of Minor blue 3 or is it actually Minor 4 itself and we are working on Minor 5 of Intermediate (1)?

This count is also EWI's count and I agree with it for a few reasons:
1) You can only put a barrier triangle in the fourth wave position. So its either Minute [iv] of 3 or Minor 4 itself.  I tend to agree its Minor 4 as it aligns with base, acceleration and deceleration channeling techniques.

2) You can see the dollar does not make perfect wave counts as far as EW 5 wave structures.  Take a look at Primary [1] in 2008.  This would seem appropriate here too.

3) As reported by EWI, dollar bulls is again at 96% DSI which is elevated to say the least.

Again, the primary count is that the dollar is in Primary wave [3] higher and it is merely working on subwave Intermediate wave (1) of [3]. As the discussion I have been making lately, a subwave one of three should carry prices higher than the next higher degree wave one. So we should see a higher high on the dollar above Primary wave [1]. And actually it already has beaten the "orthodox" price peak of that spot so we can say that has been fulfilled although it would "look better" if the squiggles struggled even higher here and rounded out a bit.

What really bugs me is that if equities is supposed to be in a massive "third of a third" down, you'd expect a continued demand for dollars. Perhaps this still happens but having a well-developed triangle in a wave four position and a 96% bulls does not suggest the dollar will be making a massive up move right at this moment.

After all, equities have been in lockstep with the big Euro/dollar currency moves. I am not about to suggest that will stop on a dime. However, if the US "debt" is the next market scare focal point, we could see equities and the dollar sell off. So there is no guarantee of market relationships in all phases of selling.

The dollar chart and an impending potential Intermediate wave (2) retrace on the dollar suggests that the alternate leading diagonal count for equities is what will turn out to occur.

My blue box area would be a good retrace spot. And recall that these currency retraces can occur very quickly again look at the whole chart.
[Update 6:08PM: The squiggles are a tough call for the moment. But looking at the Nasdaq, it has an unambiguous recent top from which to start a clean count.

Again, the underlying purpose of a "series of ones and twos" is that each wave one of next lower degree is meant to advance prices (in this case lower) along further than the previous wave one of next higher degree.   This doesn't always happen but it should come close in principle.

So the theory behind my "squiggle" wave count is that the market is trying to advance under the recent low and this would be true when viewing it in either the primary or the alternate count. The NASDAQ, as it stands at the moment, may count best as an extended wave v of (i) of [iii] of 3 occurring.

The alternate count has simply a Minute [v] of Minor 1 in a leading diagonal occurring.

Both counts require the market try and achieve new lows. The alternate count requires it by rule. 

Note also, that the alternate count of a big leading diagonal from the April market high requires that wave five end on a new price low. A leading diagonal cannot be truncated.  So a new market low or not is very  important in helping to determine what may be happening in the larger count.
And here is an even smaller breakdown. Note the expanding triangle and the thrust down out of it. Then the apparent extension that may be occurring in wave v.
Both the primary and  top alternate count I showed on the weekend post both requires the market advance to under the 1040 recent low. Today followed through in that direction.
The daily charts shows that 1071 is a very important specific resistance line.  Recall this is the spot where the market gyrated around for days trying to recapture in February after the plunge to 1044. Today the market barely made 2 attempts and slithered lower toward the close.

So ironically the best chance for the market to recapture 1071 might be to go lower first , build some bounce energy, and attempt a violent short-covering rebound. This would basically describe the alternate falling wedge count that would have a new low under 1040 SPX as the bottom of a Minor wave 1.

The big problem with the alternate count is that it supposes a Minor wave 2 should ideally take good portion of time in a retrace wave.  And time is something the market may not have. With new revelations each day about some other sovereign debt lie, the Ponzi grows that much closer to a larger level of awareness. P[3] is a potentially viscous wave at most times.  Looking at the market decline from 1930-1932, it was pretty much a non-stop trouncing with brief rallies.

So the primary count lives on until it proves its not.  There really has yet to be a decisive "point of recognition" since the 1220 SPX top. Sure there have been subwave spots where this has occurred, but there hasn't been a true throwing in of the towel.  The overlapping waves of the falling wedge pattern reflects this. Sentiment can go lower/

But technically the SPX has some positive divergence occurring on its daily RSI. We can look at it in two ways:   1) The divergence means the RSI daily has plenty of room to get deep oversold and "crushed". This implies the positive divergence will be wiped out.  2) The divergence will be true and the falling wedge will result in a good rebound Minor 2 that takes some time (few weeks)

1071 is an important level and a rally backtest to this neckline wouldn't be surprising.

But first we need some kind of low to mark either (i) of [iii] of 3 or [v] of 1.

Leading diagonals such as the one I have marked as an alternate are not allowed truncation. So a new low under 1040 is required.  If a violent bounce were to occur prior to a new low under 1040, it may be supportive of the primary count (third of a third after the violent bounce -perhaps a neckline backtest)

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