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Wednesday, June 15, 2011

Elliott Wave Update ~15 June 2011 [Update 8:41PM]

[Update 8:41PM: Another example from the fine charts of Sentiment Trader. This is their composite chart which they figure is the most comprehensive model they have. Its an intermediate type chart with several timescale MA's.  As you can see its getting into the bearish range in all moving averages - hence my concern is that if the market "bottoms" real near here, there may be no price room to "correct" this chart back to a decent  neutral state without possibly challenging the 1370 high.  And that would make for a crappy wave 2 huh (let alone wave 1)

Hence the dilemma a wave and sentiment trader has in using such data except for when it hits extremes such as its starting to do now.  This is the concern I currently have with sentiment data if it chooses to "bottom" and start to correct up,  a chart such as this takes a while to move in other other direction on all scales and takes price to effect the movement. 

Therefore from a Minor 1 count, a lower price in starting - say 1150 SPX - gives a sentiment chart such as this room to correct via rising prices within the context of a Minor wave 2.  Now it doesn't have to turn bullish extreme again mind you, it merely needs to correct to some decent neutral state to allow even more bearish selling in a bigger Minor wave 3 down. 

Note the far left side of the chart includes the July 2008 low. See how extreme that Minor 1 of (3) of P[1 ] down managed to get on the composite chart below?  I call that a "bleeder" wave in which it just hammers sentiment in a steady fashion. Sort of whats happening here.

Hence, I understand when people are suggesting an "interim" bottom near here - heck this chart supports that notion - in fact if it happens I'll be looking at the Minor 4 triangle / flat count again hard.

But the problem is in 2008 people also figured that the interim bottom was occurring - just before wave iii of (iii) of [iii] down knocked them for a loop.  So thats where we may stand.  We currently lack a solid 5 wave pattern down at Minor degree (which is what I am truly interested in tracking for a confirmation of P[3] down) 

P[3] down will squash a chart like this time and time again - in fact that has been my prediction all along. And we are at one such moment in time to test to see if we will be surprised to the downside. 

And don't forget if we get a P[3] down, the "expected" sentiment data will slowly skew more extreme than ever as the long running "optimism" bullish skew the market has had for over 30 years slowly swings the pendulum toward a decidedly permanent bearish bent as the bear market marches on.  Being that we are at the right peak still of a super head and shoulders, this hasn't even gotten started much yet!
But lets take another chart - AAII bearish % which just came out - (today's market moves are not reflected in the survey). The bear % certainly is nowhere near a bearish extreme.  Does this reflect a significant low coming?  Heck we are not even near the 2010 levels.  So pick your poison here.  

[Update 7:09PM: Here is a follow-up chart to my weekly Wilshire chart below.  I am comparing price levels and wave lengths and Minor 1 of (3) of P[1] down was a perfect example of how a wave kept bleeding down until every subwave was in place. Sentiment got squashed on that move down and it occurred almost exactly the same time frame - June (2008).  Even the price levels and where I propose we may be currently are eerily similar using the Wilshire total market.

Can it be that the algo's, having learned actually nothing because they are not a real brain - are repeating the same sequences from the same levels with the same inputs (credit crisis, etc.?)

Are we to expect this algo-controlled market to behave differently if they compute the same need to sell as they did in June 2008? Is not nothing fixed since then?

Hey, if we don't have a much further decline in points (with no third of a third) then so be it!  All I am suggesting is that the conditions are ripe. Like tornado weather - conditions may be ripe but it doesn't always materialize. Won't be the first time I am wrong and won't be the last.
[Update 6:18PM: If I surmise that we have not yet had the "third of a third" of a Minor 1 down just yet, then this chart gives you an idea of exactly what I am suggesting on how a Minor 1 down should look like.

First of all, if this is P[3], Intermediate (1) of P[3]'s job is to try to advance prices beyond (in this case lower) the higher degree wave P[1].  That is 666 on the SPX by the way.

Note the remarkable price levels in play here and even the "point of recognition" as compared to the crash in 2008.  I use the Wilshire because I feel this best represents the total wave picture and social mood. I am simply suggesting the market may, in effect, repeat the 2008 crash in a way. And that would still not be the end of the bear market.....
Complete technical reversal of yesterday on increasingly bearish market internals. A third wave down of significant size is gaining strength as the primary count. Evidence is sprinkled in the various charts below and important points are made in bold.

The daily chart below shows and increasing amount of downside breadth as the market moves lower. This is what occurs in third waves. This is the opposite of what has typically occurred during any previous P[2] corrections.  This supports a third wave down of some size. Note the resistance layers and technical damage that has occurred.
The big three indexes, DJIA, SPX and COMP (and NDX - not shown) are all aligned to the downside still. Each has confirmed the other today.  
Possible squiggle count. This shows you that fear is increasing and has finally broken out. Today the waves down intraday looked beautifully impulsive down.
As has been discussed, many intermediate sentiment measures are getting in previous extreme bearish ranges that has occurred during P[2] or even P[1]. Some are speculating that a significant "bottom" is being put in right here at around 1250SPX or above based on those sentiment charts.  Here is my logic on that (and this is a key in my thinking)

1.  If this "bottom" intends to work off the extremeness and rebuild bullishness starting from only at 1250 SPX level or so, then the market may need to re-challenge highs in order to accomplish both price and time to rebuild bullishness. Logic would then have it that this is NOT P[3] down.

2. If point #1 above is not the case, AND this is P[3] down, then we are almost ready for a panic "third of a third" wave down and those sentiment indicators will get more stretched over time by the time five full Minute waves down occur.  Therefore, by the time the "dust" settles and we have a Minor 1 price low, the market will have room to retrace in both time and price in a Minor wave 2 to work of intermediate sentiment bearishness and "reset" without challenging the 1370 high.

I hope I explained that well enough. It short, the market does not have enough "price room" to work off extreme bearishness at these longer time frames from only a 1250ish level without challenging old highs - this is my opinion of course.

Therefore the only other logical wave count if this is P[3] down is that we have not even had our 'third of a third" wave down yet which market internals seem to support.

That is why I say we need to be "getting on with getting on" down in a waterfall price collapse in order to get the market prices lower so that when they do bounce hard, they have room to work off bearishness in a Minor 2.

Kapish? Its sound reasoning and that is why I have focused on the seemingly diametrically opposed counts of a TRIANGLE and P[3] down count.

Tying in the expanding down breadth, the seemingly (still) lack of fear, and longer term sentiment measures which are getting quite bearish yet probably have room to get even more extreme, the odds of a "third of a third" wave down COMING SOON to a theater near you, is the top count at the moment.

In consideration of point #1 in the discussion above, this is the best count to fulfill that. In other words if the market is putting in a significant bottom here and soon in price, AND intends to work off that extreme bearishness on longer term sentiment charts, then there is a good chance we are not working on P[3] at all.

However in light of consistent expanding down breadth shown in the first chart of this update, that is a tall order for a supposedly rare pattern. But nonetheless, here it is. And it does have some daily positive divergence occurring to give it some credence.
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