Weekend Update 6/12/10

A little recent history to put things in perspective.  Here's a comment from the "Wednesday 5/26/10 wrap up" :
 "The more I look at current charts and some daily indicators I follow, the more I think that yesterday morning's lows were a significant turning point."
The market see sawed it's way up from that point for a week and a half, price pattern was choppy to say the least, and then topped and rolled over on Friday, 6/4.  The ES minis lost around 55 points in a matter of hours, and by the morning of Tuesday, 6/8 were down by almost 80 points from the prior Friday's highs.  So the comments of 5/26 looked off the mark at that point.  However, prices bounced off the lows of 5/25 on the morning of 6/8, and have been trending upwards ever since.
Once again the price pattern since 6/8 is choppy with a lot of wave overlaps and very difficult to label in an impulsive fashion, but it is definitely up.  We're either seeing an extended series of wave 1 - wave 2 sequences or a series of a-b-c zig zags.  But the main point to be made here is that 5/25 IS looking more and more like a significant turning point, and the selling into 6/8 being turned away at the same level as that of 5/25 only confirms that low, although it did serve to raise doubts about that observation.  Typical market behavior - one's convictions are always being tested.  The big question is HOW significant, i.e. are we just in a bounce limited to the amount of time necessary to work off the oversold conditions evident coming into the 5/25 low, or are we going to settle in to an extended bull move? My crystal ball isn't good enough to know the answer.  However, some pertinent observations can be made for the near term. The daily indicators that were showing oversold coming into 5/25 have not yet moved to overbought readings, so from that standpoint we have a ways to go.   From an Elliott standpoint, the lows of 6/8 can be labeled as the end of wave c of the 2nd A-B-C sequence down from the highs of 4/26 and still adhere to Elliott rules, and thus that entire move from 4/26 can be considered complete.  Here's what the chart from the 4/26 highs look like with that count applied:

 Note: for some reason TOS has "lost" over a half days worth of ES price activity from the evening of 6/8 into late morning of 6/9, so the chart is incomplete for that time period.

The pattern from the 6/8 low is currently labeled "a-b" with "c" in progress, but it needs to be emphasized that count is tentative at best.  Takeaway message here is that the likelihood is that the bull move off the 6/8 lows needs some time yet to reach a conclusion.
You'll note in the chart that the 6/8 low has been labeled as a major wave A (blue).  The reason can best be explained by a daily chart of prices from the lows of Mar'09:

This is the "X" wave scenario, where the thought is that the move off the Mar '09 lows will unfold in the form of a three leg a-b-c type "X" wave.  In that scenario the highs of  4/26 are currently labeled as the termination of Primary Wave A of the first of those three legs.  Primary Wave A thus lasted almost 14 months (roughly 60 weeks).  It would seem unlikely that Primary Wave B, which is a corrective wave to Primary A, would only last 6 weeks.  Thus the lows of 6/8 are labeled Major Wave A of an expected three wave Primary Wave B. 

For the "P3" view at this juncture and some excellent current market observations I suggest reading Daneric's posts from Friday and over the weekend (http://danericselliottwaves.blogspot.com/).

On the Vindicator, a short trade was established Friday based on an apparent divergence in both the 30 and 5 minute V Stoch, however the market overcame those divergences and the position was stopped out during the rally into the close.
However, the Sell line in the Buy/Sell Vindicator is bottoming which sets up another potential short sale. The entry signal would be the first tick up from whatever low it reaches.  Going long on Buy line bottoming and short on Sell line bottoming has been one of the more reliable trading strategies with the Vindicators.