Back in May I posted three alternative long term Elliott counts (on Anna Mall's HOB site). One was mega-bearish, one bullish and one mega bullish. Daneric @ http://danericselliottwaves.blogspot.com/ is in the mega-bear camp and does an excellent job of outlining that alternative, and Tony Caldero @ http://caldaroew.spaces.live.com/ does an excellent job of tracking things from the mega-bull point of view. I prefer the middle of the road long term, with the belief that we're in a bull market that should run for another year or two but will eventually be limited by the enormous debt burden this country is carrying (and continuing to expand). From an Elliott perspective, that translates into an "X" wave situation as laid out in this chart posted in May:
The Elliott count here has the end of a major bull market cycle dating back to the 1930's ending at the highs in 2000. That's followed by a nine year corrective cycle that takes the form of a flat and ends at the March 2009 lows. Since then we are tracing out what should be a three leg "X" wave. In Elliott, X waves are interim moves which separate multiple stages in an extended and complex corrective series. The 1970's equity markets are a good example of this type of series. Back in May it looked like the first, or "A", leg of that X wave was complete at the April highs and that the second "B" leg commenced with a bang that included the May "flash" crash. The big question for the near term is whether that B leg was complete at the early July lows. There is a possibility that the selloff that ended at that time was only the first leg of that B wave.
Alternate 1 - Major Wave B done at July lows
Alternate 2 - Major Wave B still in progress
There are a number of arguments favoring a scenario where the market rolls over sometime in the near future. The first is time proportions - Major Wave A from Mar '09 thru Apr '10 took 14 months, if we accept the late June lows as the end of Major Wave B that's only two months, hardly seems enough. Another is volume behavior - volume has already been notably absent since the Mar '09 lows, and that situation has been even more pronounced since the interim lows of July 6.
In the above daily charts, the NYSE index is on top and an eight day moving average of total NYSE volume is below. As can be seen, volume began to decline after the spike at the late May lows and continued declining AFTER the July 6 lows right into early September. It has increased a little since then, but not significantly. Certainly not a picture of an overwhelming bull stampede.
Another near term bear argument is that various published sentiment gauges are also showing extremes in bullish sentiment (notwithstanding the lack of volume) - Daneric does a good job reporting on these in his post on Friday.
Finally, the price pattern in recent weeks has been hesitant to say the least. Although generally trending up, prices are moving in fits and starts typical of an approaching top. In point of fact, my current ES Elliott count has the market completing a series of 4th and 5th waves of increasing degree.
In the above chart, minor wave 5 (red) and thus major wave C (purple) are shown terminating on Nov 2nd and ushering in the start of Intermediate Wave C down. The date is no accident - "buy the rumor, sell the fact". I believe one of things that's been driving the market up has been anticipation of Republican victories in the November election.
If it is the case that Primary B has another down leg yet to occur, then fibonnaci retrace targets based on the distance traveled of Primary A are as follows:
.382 - ES 1006 (and also = July lows)
.50 - ES 941
.618 - ES 876
