Of the three alternate ES/SPX scenarios presented Saturday, the 3rd and most bearish one (near term) has been ruled out by the action so far this week. That leaves the idea of a intermediate term flat in progress since the highs of last May, or a more bullish Major Wave C up off the early October low at 1068.00. In the flat alternate, prices should trend up to the early May highs around 1375 over the next month or so, and then roll over into some serious selling for the C wave of the flat. In the 2nd alternate, a longer term bull trend is in effect which will eventually lead to the area of the 2008 highs.
The selling in the SPX/ES since mid November has certainly been relentless. Wave count on this extended impulse does show that the sequence is possibly nearing a conclusion, although at least one more wave 4 - 5 sequence is indicated. Prices are currently working in the area of a .618 retrace of the October rally at 1152.50. It is quite possible to see prices stay in this area for a few days while putting in the final waves. If prices do push lower in the immediate future then the next level of support is at the .786 retrace of the October rally at 1115.25.
Updated charts on the alternate longer term ES counts:
Alternate 2 Alternate 3
Given the relentless nature of the recent selling, Alternates 1 & 2 are beginning to fade in probability. This will be especially so if prices push down to that .786 retrace of the October rally at 1115.25. Both those alternates will be completely invalidated if the ES drops below the Oct 4 low of 1068.00.
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.
Buy signal on SPX/Vindicator, went long ES. Elliott pattern on the ES has been very difficult as of late, but it looks like the correction that's been in progress since Oct 27 could well be over as of today's low at 1179.25. A 50% retrace of the October rally is at 1178.75, pretty doggone close to today's low.
Buy signal on the ES/SPX. I'm inclined to go long, but there is a real danger of whipsaw here, so holding off pending a pullback. If there is a decent pullback, will need to assess it before committing. There's been a developing triangle since the high of Oct 27. That triangle quite possibly completed it's final "e" leg at this morning's low, although it didn't reach the lower triangle trend line around 1225. So the question is, will there be just a little more selling to bring prices closer to that lower trendline?
Buy signal on the Vindicator Buy/Sell, but not going to trade this as it looks like the underlying trend is down.
Fascinating fractal pattern in last 6 weeks: double zig-zag from low of Oct 4 to top of 10/27; triple zig-zag from low of Nov 1 to top of Nov 8; and apparent double zig-zag in progress the last couple of days. Elliott theory says moves with the trend are in 5 wave structures and against the trend are in 3's - so underlying trend appears to be DOWN.
Target area on this zig-zag formation is around 1260, which has been support/resistance in recent weeks.
The triple zig zag postulated in Monday's post was accurate after all, although it did top at 1275.25 which is a little past the target of 1272.00. If this count is correct, we are in a Minor W3 of the 1st (A) leg of a second zig zag down from the highs in May. Eventual target of this bear market could be at 936.00, which is a 61.8% retrace of the Mar '09 - May '11 bull market. But that's a long way away, so it's a highly tentative target. Vindicator Buy/Sell is finally perking up, hooray!
Vindicator Buy/Sell is still flat lining, it's unusable as a trading tool until it starts showing some life.
Following up on this morning's post, the pattern since the low of last Tuesday Nov 1 is choppy and overlapping, more typical of a correction than an impulse move. I know that seasonally this time of year has an upward bias, but this chart pattern is certainly not conducive to that bias. In fact, it could be that the high of earlier this evening at 1264.00 marks the conclusion of a Minor W2 upward correction and Minor W3 down is just starting. We'll know the answer by the end of day tomorrow. Could it be that the collapse of MF Global is just the tip of the iceberg? Lots of smoke coming from the direction of CME, one get's the sense of some serious behind the scenes turmoil. Very interesting.
The Vindicator was designed to be a means to measure supply and demand in equities. It is based on advance/decline and volume statistics on the NYSE. Supply is translated into a Sell line (red in the charts) and demand is represented by a Buy line (green in the charts). Generally, a bull market will generate a Buy line that is ascendant over the Sell line, and a bear market generates the reverse. Trades are indicated when the two lines cross. The Vindicator Buy/Sell was developed just about two years ago and has proven to be a valuable trading tool over that time. But in the last week it is doing something I've not seen in the two years I've been tracking it. Instead of the Buy or Sell giving a clear signal it's been essentially flat lining as may be seen on both the 30 minute and 10 minute charts below. Some oscillation is normal in the Vindicator, but this pattern is out of the ordinary. It began to become obvious on Tuesday this last week. I took the time to manually calculate the formulas to double check the trading platform's output and the trading platform output is correct. I don't know with any certainty how to interpret what this tells us about market conditions other than to comment that it's probably "what you see is what you get" - i.e. over the last 5 trading days market supply and demand has been fairly evenly balanced. However, if we zoom in on the pattern and overlay the Vindicator Buy/Sell lines over the price chart it can be seen that prices are possibly on the edge of a down stroke. Note the fall off in buying pressure and increase in selling pressure apparent since Thursday's high.
CYCLE - Green - I, II, III, IV, V - A, B, C, X PRIMARY - Red - I, II, III, IV, V - A, B, C, X MAJOR - Blue - 1, 2, 3, 4, 5 - a, b, c, x INTERMEDIATE - Purple - 1, 2, 3, 4, 5 - a, b, c, x MINOR - Red - 1, 2, 3, 4, 5 - a, b, c, x MINUTE - Green - 1, 2, 3, 4, 5 - a, b, c, x MICRO - Black - 1, 2, 3, 4, 5 - a, b, c, x NANO - Black - (1), (2), (3), (4), (5) - (a), (b), (c), (x)
Manage apple orchard & processing business full time - trade part time
Traded cattle futures professionally for family meat packing company in 1980's
Also traded stock indexes for own account
Won the US Trading Championship - Options Division in 1986 (500%+ return in 4 months)