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Wednesday, November 23, 2011

Wednesday, 11/23/11 update

Ouch - got my fingers burned. Long ES trade yesterday looked like a good move from half a dozen standpoints, but obviously it wasn't.
Buy signal on the SPX/Vindicator 10 minute chart was a bad one, but what should be noted is that there was not a buy signal on the the SPX/Vindicator 30 minute chart - lesson here is that the longer term trend was still down so the trade based on the 10 minute chart was against that trend - i.e. it was a trade that fought the tape, never a good idea.

SPX/Vindicator 30 minute
It should be noted that there is a divergence in the Vindicator sell line against these lower prices, so the strength of the selling appears to be waning, but it's still not over yet.

SPX/Vindicator 10 minute chart as of a little while ago:

The Elliott pattern in the last few weeks is quite interesting. Especially last week Wed (11/16) through Fri (11/18). Those few days had multiple overlaps - every corrective move up against a prior down thrust overlapped the prior sequence. There were four of those in the space of three days. The options with that were to view them as a series of waves 1 & 2 or as an unfolding ending diagonal. The ending diagonal seemed more likely, and that was my count yesterday, but price activity since then has ruled that out. What is apparent now is that last weeks overlapping was in fact a series of waves 1 & 2 marking the onset of an extended down impulse. We thus should see a sequence of ending waves 4 & 5 over the coming days.

The .618 retracement level of the October rally is at 1152.50, and at 1157.50 Minute Wave "c" is twice Minute Wave "a", so target levels for this sell off are in that area.

If we push significantly below that, then the most bearish medium term option of the three that have been getting presented increases in probability. And if we break below the early October low at 1068.00 then it becomes a certainty.
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