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Friday, October 8, 2010

Elliott Wave Update ~ 8 October [Update Sat 12:22AM]

[Update 12:22AM: Friday's final configuration had a new /es high of 1164 just .25 over the previous 1163.75 you see in the middle.]
[Update 7:50PM: Dollar may hit the arrow spot.
Updated NYAD chart.
VIX 60 minute. Finally closed that long open gap. Thats a wedge count.
Daily shows just how tight the Bollinger Bands are yet again.
Weekly is still bullish.  Really shows the falling wedge. Reversal to the upside should have the VIX breaking 50.
Well the moment of truth has arrived for the Minor 2 crowd (me).  We have a confluence of events that could set the perfect bear storm.  All the things that I have blogged over the many months are being put to the test in many ways.

Lets review (refer to the Wilshire 5000):

1.  Minor 1 is a proposed leading diagonal 5 wave triangle from the April highs with overlapping deep retrace waves [ii] and [iv] which retraced per EWP of 66-81% of the preceding wave. - Check.

2.  Minor 2 has retraced a 5-3-5 zigzag so far that is typical of a wave two. It has retraced some 75.6%.  Per EWP, leading diagonals most often retrace deeply to 78.6% Fibonacci. A spike Monday to 12366 would fulfill this principle. - Check.

3. I have argued that Minor 1 had two major "mass sell decision points of May 6th (flash crash) and May 20th.  The second lower May 20th candle kept the market "in check" until sellers exhausted. Once this area was held as support, the market is now challenging the higher sell decision candle resistance of May 6th.

4. I have shown how P[2] itself had one close over its own "bridge too far" candle known as Lehman BK day on September 15th 2008.  P[2] had one close over Lehman and fell back hard.

5. Today closed over the flash crash candle for the first time since Minute [ii] of Minor 1 closed over it once back in May.

6. We have the downtrend line from October 2007 top also coming into play

7. We have the 78.6% Fib residing in a "blue box" virgin wave space that often identifies the resistance "challenge area" for wave two's.

8. We have the US dollar challenging a long term trend line in an A-B-C pattern on extreme sentiment (thats for sure).

9. We have many, many markets perhaps hitting their "targets" ready to turn. Sentiment is getting extreme in many of them.

So all in all, a Monday spike higher would not be out of the question. Yet for the bears to be successful, they likely need a red close on Monday back under the flash crash candle high. When the market can use and hold the top of the flash crash candle (remember I'm talking Wilshire - not Dow's 30 stocks) then it can of course go ahead and challenge the old April highs. But until then, consider that the market may want to unleash some heavy selling right here and now.

So I am not yet ready to give up on Minor 2. It is at an area that I should have argued for all along if I was using my EW brains.    If the market decides it does not want to be a Minor 2 and go and make a new high, well we cannot disagree with that. I accept that. But that won't make it any safer nor change my P[2] count! Indeed things would look even potentially uglier in the long run.

So here we are.  Any gap up on Monday, I will assume it to be a head fake. A violent reversal is very possible.

Fundamentally we have the foreclosure mess starting to go viral.
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