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Sunday, February 27, 2011

Weekend Update 2/27/11

ES 
There is some controversy right now as to whether the selling this last week really does mark the onset of a major correction or is merely a blip in the steady onwards and upwards  What's significant to me is the break of the lower trendline of a nicely delineated channel that stretches back six months.  This tells me that if we haven't seen the start of a significant correction, then we quite likely are in the early stages of a topping formation.  In either case any move up should be limited and any move down should have much greater potential.  If we close firmly below that lower channel line then I believe the rout will be on - we did break it but didn't close below it.


If the bullish case is correct and we resume the steady rise, then we are most likely looking at an extended Intermediate W3 (purple).  Intermediate W3 started at the low of Aug 31. If it is extending then Minor W1 (red) will be marked at the top of Nov 9, with Minor W2 being the November correction, Minor W3 at the high of Feb 18 and Minor W4 in progress or complete at Thursday's lows.

If the selling this last week is, in fact, the start of a significant correction then the pattern in the ES is a little problematical.  This is because there was very little alternation in the corrections to the down move as it unfolded, so to get a proper Elliott count wave 1 is counted as taking up the bulk of the travel of the drop.  A little awkward, but it's important to note that this was not the case on the SPX or some of the other cash indexes.  However, this is favorable to the bullish case as the sell off is much more easily counted as a double or triple zig zag.
From a bearish standpoint, the rally off the Thursday lows is approaching the .618 retrace of the down thrust and appears to be in the "c" wave of an irregular flat, so if the ES is to resume the selloff it should happen very early in the week.   ES 1325 - 1335 should turn the market back down.   


GOLD

The preferred count in gold is that it is in a Minor W4 (red).   Since Minor W2 was a simple zig zag then by rule of alternation Minor W4 needs to be a flat or triangle or some type of complex formation.  Since we are currently approaching the Minor W3 high of 1424 then a flat looks to be the best probability.

Gold - daily  

In Minor W4, Minute W "a" is marked as done at the low of 1309 on Jan 27 with Minute W "b" in progress.  Within Minute W "b" Micro waves "a" & "b" (black) are done with Micro W "c" nearly complete.  The area of 1425 to 1435 has proved to be strong resistance three times in recent months, so there's a fair chance that gold will roll over in that area.

Gold - hourly

There is a very viable alternate in gold, and that is that Minor W4 was complete at the 1309 low of Jan 27 and that Minor W5 has been in progress since then.  This is quite plausible given recent events in North Africa and the Middle East and the fact that gold is the "safe haven" choice.  It would also dovetail nicely with a resumption in selling in the ES being driven by developments in the news.

Gold - daily - alternate count

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