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Sunday, May 20, 2012

Sunday, 5/21/12 update

An alternate EW count that I've been considering for some time now has moved up to the preferred count with last week's selling.  This count envisions a 3-3-5 flat structure dating back to the highs of May, 2011.  The A leg bottomed on Oct 4, 2011 at ES 1068 and the B leg topped on Mar 27 at ES 1419.75.  The C leg has been in progress since that time.  It should be a 5 wave impulse structure and, since it's a 3rd wave (C of an A-B-C), it should be pretty strong.  Fibonnaci targets for the move are at ES 1020 and then in the ES 925 to 936 area.

From a shorter term perspective the ES appears to have completed two wave 1 & 2 series since the March high and could well be closing in on the bottom of wave 3 of the second series. 

Wave 3 in this count may be close to conclusion because the market is currently at very oversold levels.   Note however that markets can maintain oversold (or overbought) levels for far longer than seems reasonable, so this thought is a "definite maybe".  One thing I watch for clues for a bottom is a daily indicator I came up with some years ago (1987 to be exact).  It's a mish-mash of Adv/Dec, volume and some other odd statistics that does a fairly decent job of signalling market bottoms.  A reading on this indicator below .50 is a pretty reliable signal of a bounce in the near future.  That signal is usually good for at least 5 days of rally, sometimes a lot more.  It dropped below .50 last Tuesday and currently is at .304.

An hourly close above the downtrend line of the selling since May 1 would be a pretty good indicator that the bottom is in.  That downtrend line is currently around the 1330 level and dropping at the rate of about 6 points per day.

Back to the longer term view, there is an apparent 67 week cycle in the ES/SPX that Albertarocks has identified which is worth watching.  I usually am not a big fan of market cycle stuff, but this one looks impressive.  It last bottomed during the 1st week of last October and is due to bottom again the 1st week of January, 2013.  This would certainly provide enough time for the ES/SPX  to get to the target levels of the preferred count mentioned earlier.

Gold looks like it bottomed last Thursday.  It broke above the downtrend line from it's high of May 1 and has put in a very impulsive looking pattern since the Thursday low.

A change in trend for gold would be confirmed by a break above the downtrend line from the Feb 29 high on the daily chart.  That downtrend line is currently at about 1635 and dropping at the rate of roughly 13.50 points per week.

From an EW point of view, the apparent bottom last week could well be the conclusion of a 4th wave in a 5 wave structure dating from Oct 2008.  If so, the 5th wave would be in progress and should at a minimum match the 3rd wave high at 1923.70.

A bull market in gold fits nicely with the idea of a bear market in equities: fear would be the driver in both cases.

1 comment:

  1. Thanks for update, Al.

    Rebounce from oversold arrived right on schedule. lol