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Friday, September 30, 2011

Elliott Wave Update ~ 30 September [Update 8:45PM]

[Update 8:45PM: Two versions of the ending diagonal wave [v] count which is my top count at the moment because thats whats staring us in the face. Don't get hung up on the nitty gritty. The main point being they both end below 1101 SPX and some possible "overthrow" of the lower wedge line. Is it a "textbook" wedge or ED pattern? No, but the subtle patterns are the ones that usually work. Was the March 2008 low a textbook wedge? No it wasn't but it certainly captured the "spirit" of an ending diagonal and the results were the same.

For the upside option, I am still wary of an upper wedgeline challenge. We'll see how futures play out Sunday night. Friday ended decidedly bearish and a continuation of that, at least through Monday morning is often the case.
Slight variation allows perhaps a bigger pop to the upside early next week even right out the gate and that possible wedgeline challenge to the upside. 
If a massive gap down happens Monday, then a falling wedge may not be in play but rather a solid wave (iii) of [v] down. So until then we'll have to see the exact nature of Sunday's futures.

[Update 6:40PM: Followers (me) of Robert Prechter of Elliott Wave International call this "Primary wave [3] down" - or P[3] for short - but I do strongly consider another primary long-term count:  that of the double three combination pattern of flat-zigzag-zigzag.

Let me make clear that in the long run it does not much matter as I agree completely with both Prechter's minimum target - Dow 1000 - and the time involved to get there (approx June 2016).  Prechter's cycle time work is amazing and if you cannot agree with his wave counts, its certainly hard to argue with his time counts.

Having prices fall back to the long-running DOW 1000 support that spanned from the 1960's to early 1980's certainly seems reasonable. How it gets there is up to debate and for EW technicians to argue over. But in the end I don't think even Prechter would care if its charted as a combination Supercycle wave or a simple expanded Supercycle flat (in which P[3] is a part of). They both lead to the same destination - severe contraction and deflation and collapse of the credit cycle that pumped this sucker up to begin with.
[Update 4:55PM: This is for those that insist "the Dow can never go to _____" (pick a number lower). Greece's stock market kind of reminds one that markets can get cut in half and then get cut in half yet again and again.

Working our way backwards:
Here is 2011:
Zooming back further:
And peeling the chart back to its peak reveals the extent so far:
Yet I still don't see anyone clamoring for Greek stocks based on low prices.

Stocks - very quietly - just lost another 2.5%. EWI would probably say "prices are working their way lower" and that would be apt.

Yesterday's squeeze at end of day proved to be just that.  Will we get more squeeze plays come next week or are the bulls exhausted in trying to maintain prices above the 1140 level?  The week closed solidly under that level. The path of least resistance is proving to be down.

We cannot say just yet what exact wave is tracing out but we do have the guiding principle that lower prices under 1101 SPX is justified and required under EW rules if the market is to form at larger 5 wave pattern down. We also have a downward wedge perhaps forming from the 1230 SPX peak. However it does not yet count complete.
TLT spunky today but we kind of anticipated that a retrace back up - at the minimum - was probably occurring.
Our proposed NDX count aligns still.
SPX monthly chart. Negative MACD bar, crossover of the signal lines and the ROC has passed under the 0 line. Decidedly bearish long term.


From a technical standpoint, the severe oversold has been alleviated with the sideways consolidation and it appears stochs and MACD history bars are rolling over again.
Other than the end of day squeeze (for the umpteenth time during this past 7 weeks), overnight action is not inspiring if your a bull.  Each stab uses up buying power and each failure to hold gains hardens resistance. The primary count is the market requires at least a new low under 1100 SPX. For the e-minis, its below 1077. 

Thursday, September 29, 2011

Elliott Wave Update ~ 29 September 2011 [Update 7PM]

[Update 7PM: Crapple will undoubtedly be the last stock standing.  Fairly confident its in its wave (5) of a primary [5] of a cycle wave high. Too many count options at the moment for wave (5).
But long term its a cycle high per EW count:
[Update 6:20PM: I had Netflix in a huge ending diagonal pattern which suggested exhaustion and subsequent price collapse was coming.
The aftermath and downside follow-through. Very impulsive to the downside.
That other fan fad fave CMG looks quite similar to Netflix in a huge ED pattern which could be exhaustion. Will it suffer the same fate? Still above support.
[Update 6:04 PM: A closer look at the triangle count. A price breach under 1130 from here violates this count.]
[Update 5:52PM: TLT squiggle count:
[Update 5:45PM: The reason we may see a sharp bounce higher is that both the e-minis futures and SPX cash index may have traced a leading diagonal down which implies a possible deep retrace up of 78.6%. This would take prices toward the upper wedgeline I was showing earlier
The market has formed a subtle downward wedgish shape from the 1230 SPX wave [iv] high.  Last day of the month/quarter tomorrow.

I wouldn't be surprised to see a challenge to the upper wedgeline tomorrow.  A break to the upside of that in the next few days could indicate a triangle option per the daily chart shown further below.
SPX daily. 50 DMA is at 1200. The 200 DMA is starting to slope down. That really hasn't occurred in a long time.

We also have a large converging pattern in development. This would be the triangle option for wave [iv] which, depending on how the next 2 days play out, could become the top contender for a pattern.
Monthly shows 5 straight losses unless tomorrow is simply an amazing up day.
We have a couple of viable counts to the downside - wedge at the least, wave (iii) of [v] at the most - therefore its best we to be on guard for the bullish near term options. The upper wedgeline is one thing to look for should we get yet another gap up open. Then the converging triangle barrier line as shown on the daily if a rally can be sustained.

Place your bets.

Could be a leading diagonal down for the last few days which implies a deep retrace up which may challenge the upper downsloping channel line.


Wednesday, September 28, 2011

Elliott Wave Update ~ 28 September 2011

Yesterday's 60:1 up volume ratio opening was closed under.  That is bearish price action for the near term. The market used up its "bullets" so-to-speak in that juiced opening and its hard to generate that same bullish enthusiasm near the same price levels in such a short amount if time. In other words, the price action is discouraging to say the least for anyone who bought and wanted to hold yesterday for a multi-day rally.

So, in a general sense to generate the same buying enthusiasm will now probably take lower prices. And this market is a herding market so if selling begins to rule again we may finally get our required lower low under 1100 SPX.

Because in some way, shape, or form, the SPX is required to make a new low under 1101 SPX as per rule in Elliott Wave theory. 

The "form" below shows some kind of overlapping wedge move down for wave [v]. It need not take that form. It could begin to impulse down if it so chooses.  All we can say is that we require a lower low under 1101 SPX if we are to have our 5 wave move from the 2011 price high.  That is the best and simplest way to count things at the moment and usually we are served best in EW theory by taking the look of things and keeping it simple.

If that new lower low occurs, we can take into account of how it occurred and go from there.

Sentiment obviously comes into play. Yes things are skewed to the bearish side to be sure. But the trick is figuring out how bearish we need to be to form an intermediate low.  So 1130 may look like good prices, but if the market breaks 1100 and plunges toward 1050, you no longer have great prices. Such is the nature of wave fives. They can cause capitulation of all the "buying and holding" done in a wave four.  

After all, the market has now - despite the volatility - traded "comfortably" (I say that lightly) in the 1100 - 1230 range for some 6-7 weeks.  So complacency can actually set in. You get used to the monster rises and falls.  Yet one can assume there are a lot of stops to be taken out just below 1100 both real and mental. So a small panic can again set in if 1100 is lost solidly.  

We cannot be sure what is going to happen. All we can say is that EW theory prepares us for the probability of 1100 SPX to be reached to form a minimum price for a wave [v] of at least 1.  If 1100 fails spectacularly we can have a mini-panic selloff and capitulation at the end of wave 1. What price that could  be is a best guess. 

Thats my opinion on things in general. So unless 1230 gets breached to the upside, we still are looking to at least 1100 first.

Wave fives at this degree are weaker internally than wave threes. We had record bearish down volume days in wave three so unless it becomes worse we can still presume this is a wave five. Maximum VIX price may also not breach wave three levels. We shall see.  However bearish sentiment can and often does become more bearish in wave fives.  This causes capitulation on a big scale. 


Tuesday, September 27, 2011

Elliott Wave Update ~ 27 September 2011

[Update 4:55PM: Since we have a count on TLT, lets look at the squiggles.

The daily supposes if the SPX makes a new low under 1101, TLT will not make a new high to create a non-confirmation situation.
Squiggles shows an impulsive type move to the downside in a tight channel.  May be due for a bounce (and stocks hence down). Hasn't yet closed under Ben's announcement day of Operation Twist, but we suppose in the near future it will.
In the overall scheme of things, there is still the business of a wave [v] requiring a new low under 1101 SPX.

After a spectacular sustained open in which the up volume ratio of the NYSE exceeded 60:1 and there was sustained buying pressure most of the day on the "hope" of a solved Euro debt problem, the day almost reversed completely and ended the day at a more muted 3.65:1. The banks (BKX) ended today almost in the red - flat to be fair.

The last 6 weeks has seen stocks traverse some thousands and thousands of points in the DJIA. Quite an amazing period of volatility and makes one very weary. One would think that wave [v] low will occur at the official announcement of a Greek sovereign default.

The market is missing at least one wave down is the best guess. I use Wilshire for form.
SPX daily.  Unless and until 1230 SPX gets taken out to the upside (in which we would probably label it as Minor 2), we are still solidly within the 1100-1230  trading range.


Monday, September 26, 2011

Elliott Wave Update ~ 26 September 2011 [Update 8:35PM]

[Update 8:35PM: NYAD daily and weekly.]
[Update 5PM: GDOW shows at least 5 waves down from its 2011 top.
Today's up move fits in perfectly for the primary count of a choppy downward ending diagonal Minute [v] of Minor 1 wave.  Specifically, today's rise would be wave b of (iii) of [v].  After b finds its top, a 5 wave move to at least lower prices under 1114 SPX should be the next move in wave c of (iii) of [v].

Market internals ended the day with a squeezed 8.4:1 up volume ratio on the NYSE but advancers versus decliners ended the day at a more muted 2.75:1.   TRIN ended at a .33.  Again, it seems more of a short squeeze towards the open chart SPX gap at 1164-1168 SPX that anything more than that.   The 1164 high today tested the bottom of that gap and if futures hold, tomorrow may close that gap before turning down in wave c of (iii) as mentioned above.
TLT. Awaiting a move in prices under the horizontal line to indicate a trend reversal and possible exhaustion gap at the end.
NDX may be backtesting its wedge break.

Sunday, September 25, 2011

Friday, September 23, 2011

Elliott Wave Update ~ 23 September

Nothing much has changed since yesterday except Gold has seemed to confirm its top. We got the dead cat bounce today in the indexes.

Still on the lookout for a choppy downward move for wave [v].  A new low is required under 1101 SPX and we still await.
Of course we can label the waves down a slightly different way.
TLT got its pullback. Curious if its in a wave four pullback.
DAILY TLT. All the indicators suggest wave 5 in progress, not 3.
Gold back inside and under the pivot.
People have asked me how to resolve the NDX. I am not sure, but one possibility lies below. In this way would the NDX and indexes "align" further down the road and not now.


Overnight action looks like a sideways b wave of some sort after an "a" wave rebound from yesterday's low.

Thursday, September 22, 2011

Elliott Wave Update ~ 22 September

[Update 6:40PM: Update on TLT. Note that the count is that TLT is in wave three of five, a count that mirrors equities suggesting that they will turn around the same time.
The DJIA has made a new low thus confirming the view that the indexes are tracing 5 waves down from the 2011 high.

The selling pressure, although intense, is still less than what occurred in wave [iii] down in early August.  This supports the view that this is a wave five.

Yet even though bearish sentiment is building again, the SPX still has not breached its 1101 SPX wave [iii] low. The call is that it will but it may take a circuitous route to get there.

The 60 minute chart below shows one such possibility: Be on the lookout for a choppy ride lower in some kind of ending diagonal pattern as the market exhausts itself of selling.  If of course things become more intense than what occurred in the early August selling, then we may have to switch the view to Minor 3 down instead. But for now there is no reason (yet) to believe we are in Minor 3 down.

The ending diagonal wedge pattern has a history of developing at significant market lows. It occurred exactly 4 times in the 2008 downturn at various degrees to include Minor (twice), Minute and Minuette that I can think of off the top of my head.
Since the triangle was eliminated today the other top count is the 5 minute chart below.  But this implies a bounce anyways as in the hourly chart above. Incidentally there may have been a small ED pattern intra-day to 1114 SPX as shown below. If so, that implies more bounce tomorrow and its probably due.