Weekend Update 6/5/10

Talk about being blindsided.  The sell off yesterday, although possible in my analysis, was a lot stronger than anticipated.  And yet there were warning signs from the Vindicator which will be addressed in a little bit. Elliott Wave is up first. The "P3" scenario has certainly risen in probability as a result of yesterday, but no updated chart today of that as it's relatively simple: two successive W1 - W2 series down from the highs of 4/26 ended at this week's highs and we're now in a 3 of 3. Lookout below. Rather, I'd like to deal with the "X" wave scenario.  The 1st chart is a slight revision of the count that's been presented.  This count retains the assumption that the lows of 5/25 are it for quite a while, but now instead of two W1-W2 sequences there is just one with Friday's low either the end or close to the end of W2.  This count has a low probability but it is a possibility.

 
 To explain the 2nd X wave count it's necessary to back out to a longer view first.

 This is Daneric's count (http://danericselliottwaves.blogspot.com/)  through the high of 4/26/10 and is one version of P3, with the difference from the X wave count being the low of Mar '09 labeled as Cycle Wave I and the high of 4/26/10 labeled as Cycle Wave II.  That period is labeled as three successive zig-zags and can just as appropriately be considered to be the major wave A of an A-B-C type X wave sequence.  Since 4/26 we've had the A-B legs of the major wave B of X, and are currently in the C leg of that sequence.  That C leg is itself unfolding in an a-b-c fashion, and we are currently in the c leg of that final sell-off.  Thus by this count we are in the final stages of the major wave B correction.

On the Vindicator, fact is that there is still a learning curve to be climbed.  There are times when I wonder if it has any real value, such as Friday.  But on review, and with the benefit of hindsight, the Vindicator was signaling the approach of a down move:

Several things to note on the above charts:
1. 30 minute V Stoch slope topping at the close on Thursday
2. Last 30 minute bar on Thursday is a doji with a long tail 
3. Clear bearish divergence on the 5 minute V Stoch also in the last half hour of Thursday trading

One final chart to buttress the case:

The highlight in this chart is the Vindicator Buy/Sell line.  Although the Buy line pretty much retained ascendancy over the sell line since it crossed up on 5/25 it's been steadily tailing away since a peak on 5/27 , establishing a clear bearish divergence in the process.  It was giving a message (loud and clear) that buying pressure was waning.  As I said, there is still a learning curve with the Vindicator.