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Saturday, December 18, 2010

Weekend Update 12/18/10

ES is grinding higher, pretty typical of holiday markets.  I've revised and updated the hourly ES wave count, red dotted lines are the projection from the update of last weekend:

As can be seen, looks like we're building a diagonal Minor W5 (red) with Minute Waves 1 thru 4 (green) complete and Minute W5 in progress.  Also note the channel that delineates the upward drift that started at the Minor W4 low of Dec 3rd.  This Minor W5 is in turn the end cycle of Intermediate W5 (purple).  Fibonnaci targets for Intermediate W5 based on Intermediate W1 were ES 1218.75 (.382), 1233.50 (.50), 1248.25 (.682) and 1296.00 (1.00).  The first two targets are obviously behind us, but the 1248 target is a short hop up from Friday's close.  And it so happens that the apparent Minor W5 channel intersects that point early Monday morning at just about the point I drew in the projection last weekend.  I'd be thrilled if this turns out to be accurate.  Currently I have no position in ES, but I plan on shorting ES at right about that level Monday if things develop as per my projection.

The daily ES chart puts the whole rally from last summer's lows in perspective.  A clear Elliott 5 wave pattern is apparent:

Haven't talked about gold in a while.  It's been in a downtrend since Dec 7.  There are two viable alternates at this point.

Alternate 1

In this alternate an Intermediate W3 (purple) top was established at the Dec 7 high and we are in the beginning stages of an Intermediate W4.  There are a couple of problems with this count. First is that Minor W5 (red) can be better counted as a 3 leg move than a 5, and it needs to be a 5 to be categorized as an impulsive 5th wave.  Second is that the Minor Waves 1 thru 3 (red) were much more lengthy in duration than the ostensible Minor W4 and W5 labeled in November to early December.  Minor W1 was 5 months, W2 was 2 months and W3 was 9 months, whereas in this labeling Minor Waves 4 and 5 are measured in weeks and only lasted about 1 month total combined.  The daily chart gives a pretty good perspective of this:

Also note that the same duration observation made for the Minor Waves (red) can be made for the Minute Waves (green) of  Minor W3.

Alternate 2

This is actually Daneric's count for gold (  I like it because it solves the problems noted with Alternate #1.  In this alternate Minute W3 (green) tops in mid October, same as Alternate #1, but since then gold has been tracing out a triangle type Minute W4.  In that structure gold is well into the final "e" wave with a conclusion for Minute W4 near at hand.
Daily chart for Alternate #2:

Both alternates fit well with current conditions - the US$ is an uptrend and that should put downward pressure on gold prices.  So for the very near term it looks like the direction is down for gold.  However, if the US$ continues in it's uptrend over the coming months it's hard to see how Alternate #2 could be accurate. But Gold is it's own animal, and it doesn't necessarily move in lockstep with the US$.   Could be that a EUR crash will precipitate a "flight to safety" where both Gold and the US$ rally.


  1. Enjoyed your post Al. Your impression on the ES is supported by my recent analysis:

    I know your a busy man...but, I'd be real interested to get your spin on the recent unwinding of long term U.S. Treasury bonds. Is the latter driving market force counterintuitive to a rising dollar?

  2. Don't follow bonds at all except in news reports, I do know long rates have been in an uptrend. In general higher interest rates strengthen a currency - better rate of return attracts capital which moves the currency up.