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Tuesday, October 19, 2010

Elliott Wave Update ~ 19 October [Update 8:10PM]

[Update 8:10PM: Ok, here is another look at the NYAD. I realize the NYSE is no longer a majority of the market. But I still think its is a good proxy. At the very least it seems to make nice waves in accumulation mode.  And you know I like to count.

Obviously if the NYAD keeps chugging higher, than the market is not going lower. When the NYAD stops going up, real selling can come back. It simple. When this chart stops rising, and I propose for all-time (as far as many decades anyway)  then the massive bear market will truly continue. I think its an important chart. It shows the mania has not yet dissipated.

We are still accumulating paper of all kinds in record amounts which I think these NYAD chart(s) capture nicely. When the accumulation of paper tops, it will of course reverse and head the other way.

Here are my thoughts on the NYAD both weekly and daily. In a somewhat random order so bear with me please:

1. An impulse is counted as either 5, 9 or 13.  An extended wave five pattern would have 13 distinctive waves (see Elliott Wave Principles).  In the simplest sense, the NYAD has only 11 waves so far from the March 2009 low. We need one small down, and one up to make it 13.  I anticipate that being the "top".

2. Since my weekly NYAD count shows this as a cycle wave V of some kind, then we can expect to have 5 primary waves.  January 2010 would have made a "nice" wave [5] top in the NYAD count but there was no divergences and it was not to be. I presume the NYAD then started to extend turning the January wave [5] NYAD top into a subwave (1) of [5]. Per EWP, this is how extended wave fives are labeled.

3. The extended wave [5] of V makes sense here. The market was not ready to turn as its still forming a massive right shoulder of a more massive head and shoulder pattern from 2000 - 2010.

4. EW rules require that each particular subwave three should not be the shortest. Each wave three meets this requirement on my chart.

5. An extended wave five may see a bunch of waves of approximatively the same size (yet wave threes are technically longer)., This seems to be the case here.

6. Some kind of divergence should be visible likely. It used to be that the NYAD would stop going up while the cash indexes would put in new highs. This was very true at the 2000 market price highs. It was less applicable at the 2007 highs and it may be even less applicable now. Instead I propose another kind of divergence has developed.

7. The divergence now seems to be the NYAD keeps making new highs but the market does not. This is seen on the weekly where new highs were achieved on the NYAD in 2009 but the markets did not follow up in price (at least not yet!)

8. On a smaller scale, a divergence is developing on the daily perhaps.  So far market price highs were set on NYAD (3) of [5].  The NYAD has led higher but the market is struggling where before when the NYAD led, the market followed quickly enough. SPX prices haben't followed quickly this time around.

9. This negative divergence may be a clue of "churn" by the volume-less market with algo's passing the hot potato.

10. A double negative divergence is always preferable. I show this potential on the daily.

11. The lower channel line on the daily is important I think. expect perhaps an algo-driven bounce there and perhaps a Minor 4 low spot.

12. Note my blue box areas all dissect the wave three's just where they should be.

13.  The "control" for this count at the moment is the Blue 1 of (5) of [5] spot. If this is breached, its very bearish and, I think indicates evidence of reversal. In an extended wave five pattern, this spot should not be revisited until its on its downswing.

14. Per EWP, extended wave fives foretell dramatic reversal ahead. This makes sense if you think of it as the market has overextended itself.

15. For the current NYAD daily, a good wild-ass-guess for a NYAD Minor 4 count would be at least 60 SPX points down to form the NYAD wave 4.  This would be approx 1125 SPX and would fill the 2 large gaps below pretty much or find support in one. Certainly could be more like 70+..I just am educated guessing here.

16. Of course an NYAD wave 4 down means a wave 5 up. This is where a double negative divergence may come into play.  So basically lets pretend Minor NYAD count wave 4 is the SPX to 1125. Then NYAD wave five may be a reversal move higher that challenges the current gap down on the SPX.

17. Since we can "see" the subwaves on the weekly NYAD of cycle wave V, I suspect we will see Minor 4 on the weekly is curling down this week and maybe we get further evidence of such. I prefer to see the wave 4 on the weekly/

18. Perhaps then we see a double negative RSI weekly divergence at the top of 5. There already exists a single big divergence.

19. The NYAD weekly is the longest it has been without the Ultimate Oscillator hitting the 30 line. Overextended? You bet.

20. If the NYAD count scenario I have laid out is decent, then that suggests a market drop now prior to November elections and then perhaps "buy the news" on the FED announcing buying paper come their early November meeting. This would be the final bear squeeze and prices may not make a new high above 1185 (but NYAD would in its wave 5)

21. Again, I am assuming Minor 3 of (5) of [5] on the NYAD is "in" (we had a negative divergence last night I mentioned).  So if Minor 3 is not over, we can take all I have said and just move it forward so-to-speak.

Those are some random thoughts. The NYAD, perhaps suggests that a drop is coming but then one more  final bear squeeze.  I don't know if I am right maybe we already had wave 4 and this is the "top". But using the "right look" guidelines, my gut says it may not be.

The big guess is what SPX prices will do to allow this NYAD chart to fulfill its wave pattern. That is largely what I am trying to do here. If anyone has further ideas, please add.

We'll see. Its a fun set of charts nonetheless!

[Update 6:35PM: RUT could be an ending diagonal 3-3-3-3-3 count. It does not have that "classic" form yet it violates no rules and conforms to the guidelines of having each wave shorter than the previous so that wave 5 is the shortest.  

An ED count typically ends with a price reversal back to under from where it started in relatively a short amount of time.  The start point is 647.]

We certainly have enough waves in place for a pattern to be considered finished for an [a][b][c] Minor 2.
The Wilshire might count better as an [w][x][y] double zigzag. Note the (c) wave(s) are not very nice looking and overlap (no blue box areas up here) and (c) would = .608, a near Fibonacci .618 x (a).

[BEST BULL COUNT ALTERNATE: Note the "ALT" as shown in Minor blue labels.  In this case if this is Minor 4 pullback, it must not trace anywhere into wave 1's price range by rule.   On the SPX, this would be 1129.  Then a Minor 5 would have to carry just above the April peaks and be considered Intermediate (C) wave of an (A)(B)(C) of Primary [2]. Yeah that count blows I know which is why my bear count is at the top of the list of things. So a breach of 1129 SPX is something we must keep our eyes on.]
At any rate, for the bear count we are looking for a 5 wave down structure for our first clues.

A cross section of various indexes shows that in some instances there could be impulsing, in others (like the NDX), not yet. So we have a mixed bag right now.  The market is still held by recent support layers nothing was too bearishly broken and we have a huge gap down on the SPX .

If the wave structure has only given us a "sneak peek" at the upper portion of a 5 wave structure that would imply a nasty wave three of small degree has yet to play out.  Thats the danger of viewing things through a bull lens at this moment. If this is only waves i and ii down, then a wave iii is lurking. The market will let us know if this is the case soon enough.
The NYAD count. Hopefully a Blue 4 will emerge. That means more selling to produce that down move.
It would probably take at least 60 SPX points to produce the "right look" for a wave 4, so thats at least 1125 SPX by a quick glance and best guess. (It took 90 SPX points to produce blue 2)
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