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Wednesday, July 20, 2011

Elliott Wave Update ~ 20 July 2011 [Update 10:25PM]

[Update 10:25PM: The US dollar count. I favor a thrusting price low under wave (3) yet above 2008 prices. A narrow target window that will produce a valid long term EW pattern and form a possible double multi-year bottom.

I am unsure about this count, but I give it the benefit of the doubt due to sentiment (see next chart).
Sentiment has certainly corrected upwards on the dollar. Via Sentiment Trader, we can see, a long marginal price consolidation period has produced a plural bullish sentiment.  Something doesn't fit. Sentiment is high and prices are sluggish when viewed on this chart. Ultimately that supports a steady thrust down in my opinion to wipe the bullish sentiment out - yet I don't expect a new low in sentiment - maybe just back to the green bollinger band on the sentiment chart. Anyways, I could be wrong, but its a consistent view on how EW theory works in conjunction with sentiment.
One more thing: RISING YIELD DEFLATION.  Google it. The definition doesn't exist because I pretty much invented the term. Its not in the "books".  It basically means rising interest rates will cause massive defaults and herald in a terrible deflation due to credit collapse.

Just figured I'd post the term one more time for posterity's sake.

[Update 8:52PM: I have no short yet on bonds and I must say I am rooting for yields to go a bit lower on the 30 year as explained earlier to fulfill an EW count.

Does this make a valid cup and handle formation?

[Update 7PM: A closer look at the squiggle reveals a very nice 5 wave impulse pattern up. I used the Wilshire 5000 for superior form. A shallow-ish pullback suggests a b wave in this case.  And as I type this I notice a surge in the /es, futures but the NASDAQ remains subdued for now.

So (b) wave may not be over.  A higher target would be next resistance at 1344 and closing the SPY gap.
Stocks had no follow-through to yesterday and did not manage to close any indexes in the positive territory.  On intra-day commentary I figured they would manage a positive close and try to use momentum to challenge the 1331 resistance zone overnight.  But they day ended on weak note and A/H's saw more selling in the form of impulsive down. So we'll see how tonight plays out of course, its still early.

So 1331 SPX resistance did indeed prove a "stopper" at least for today. If this is a (b) wave of [e], it has certainly retraced a very robust amount for a (b) wave of a proposed 5-3-5 zigzag.

Note the inclusion of a Superbear count.  As suggested the other day, I harbor no illusions that the market
must rally to a doubletop 1370 or higher. It would make for a nice overall wave pattern, but we have been trading in this trading range (1250 - 1370) for many months now and it may be ready to just get the hell out of it - to the downside. So hence we have our P[3] count ready to go.

However, the overall wave structure still calls for only wave [e] for the primary count and we'll go with that until it proves otherwise
Another reason why the (b) of [e] may have topped because the e-minis looks like a completed 3-3-5 expanded flat in the futures as suggested the last night
30 year bond yields are stubbornly trying not to push down. We may have a mini continuation head and shoulders pattern with a target toward the 3.99% yield range which of course would finally be a challenge to the virgin wave space blue box area.
The long term picture shows I am extremely bullish bond yields (hence negative on prices). We are looking at   94% Daily Sentiment Index on bond prices as reported by EWI tonight!  If yields go one more notch down as I am calling for, well, you'll have your wave (2) of [3] low.
A scary selloff in equities - such as wave (c) of [e] - may produce this final wave in yields. Or a debt deal. I don't know what the "spark" will be, but the wave pattern suggests its coming soon. But 94% Daily Sentiment is getting to be a one-sided trade and aligns perfectly with our overall wave pattern.
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