Saturday, 10/27/12 update

Last week the ES/SPX followed through on the selling that started the prior week, but the action towards the end of the week was pretty difficult to analyze, much less trade.  The market seemed pretty trendless starting on Wednesday, and it would be a fair guess that it's going to stay that way for another week and a half.  Two factors might put a damper on any potential big move.  First is the "100 year" storm projected to hit the New York City area this coming week.  Second is the major election coming up on Nov 6 - one would expect that market participants will throttle back pending the results of that election.

The selling on Tuesday last eliminated one of the three possibilities presented in last weekends post when the ES dropped below 1416.50.  That leaves the two alternates that consider that the 1459.75 high for Oct 18 represents the top of a failed 5th wave.  The big question is whether that 5th wave marks THE end of the bull market that commenced at the Mar '09 lows or whether that bull has yet a bit more to run.  Possibly the election results in 11 days will be the deciding factor: death & doom if the current administration retains power or a short term burst of optimism if the incumbents are sent packing.

The two alternates currently look as follows:

TOP IS IN:

Daily Bars

 

 Intra Day

MORE TO GO:

Daily Bars

 Intra Day

Saturday, 10/20/12 update

First off, please excuse the braggadocio of Wednesday's post.  I guess I got what I deserve with Friday's strong sell off.

The key to an EW analysis of the current situation is the classification of last week's rally into the Thursday top: is it a corrective 3 wave move or a 5 wave impulse?  If it's corrective then it can be viewed as an "X" wave in an ongoing correction sequence dating back to the Sep 14 high, if it's impulsive then it's either a 1st or 5th wave (more on that later).

Looking at an hourly chart it appears impulsive, and breaking it down into a 10 minute chart confirms that impression (btw the SPX is much the same):

So the odds on chance is that last week's rally sequence is an impulse.  Fitting that into the long term preferred count presents several alternatives.  The long term preferred count has the ES/SPX in an ending diagonal "C" wave of  2nd zig-zag of an "X" wave structure off the Mar '09 post crash lows. 

The 1st short term alternate has last week's rally counted as the 1st wave in the final 5 wave structure of that ending diagonal "C" wave:

Wave 1 alternate - 2 hour bars

Wave 1 alternate - daily bars

This alternate is eliminated with a print below 1416.50.  Friday's low of 1423.50 is perilously close to that point, so the market has to turn up almost immediately next week to keep this alternate viable.

The next two alternates count last week's rally as a failed 5th wave. 
Under the 1st of those views the failed 5th wave marks THE top of the entire bull move off the Mar '09 lows:

Failed 5th Wave - alternate #1 - 2 hour bars

Failed 5th Wave - alternate #1 - daily bars

The 2nd of the failed 5th wave views has the Thursday high marking the conclusion of wave "a" of Intermediate W5 of the ending diagonal.  If correct then Friday's selling is the 1st stages of wave "b", and the eventual low of wave "b" will usher in wave "c" of Intermediate W5. 

Failed 5th Wave - alternate #2 - 2 hour bars

Failed 5th Wave - alternate #2 - daily bars

Wednesday, 10/17/12 update

So far this week the ES is tracking almost exactly as projected in the weekend update.  Red dashed lines in the chart were drawn over the weekend.  At this point the market is overbought on any number of short term measures but has yet to show any waning of momentum.  So the sell off of the prior few weeks begins to look like one great big bear trap.

Sunday, 10/14/12 update

The selling in the ES/SPX since the short term top of Oct 5 has been an almost picture perfect 5 wave impulse that appears to be nearing its conclusion.

There are divergences evident on a number of short term indicators which help buttress the argument
for a short term low.  In addition prices have dropped into an area that has served as resistance/support over the last six months.

The preferred count at this juncture is for the current sell off to be a "c" wave in a flat correction.  If accurate then a low in the very near future could serve as the launch point for a decent sized rally.  But even if not accurate a completed down impulse should lead to a retrace of the move.  So the ES could provide a long entry opportunity in the very near future with a nice risk/reward profile - long near the bottom of the evident support/resistance area with a stop not too far below, potential upside in the upper 1400's (or higher).

Current preferred counts look as follows:

OR

Tuesday, 10/9/12 update

Apparently the ES got the memo from the weekend post.  If the analysis presented Saturday is correct then a "c" wave of a flat type structure that's been unfolding since mid-September is underway.  Target is in the low 1420's.  Updated chart shows waves 1 & 2 complete and wave 3 in progress:

One note: since the preferred count is for this to be a 4th wave, then it's possible that the correction could turn out to be a triangle.  In that case the sell off of the last few days needs to stop short of the "a" wave low of 1424 and turn up into wave "d", which of course would be followed by a wave "e" to complete the 4th wave.

Saturday, 10/6/12 update

The pattern in the ES from the Sep 14 high @ 1468 into the Sep 26 low @ 1424 was choppy, sloppy and clearly corrective.  However, the pattern since that Sep 26 low has been very much the same - lots of 3 wave moves and overlaps, not impulsive looking at all:

In fact, if you mentally flip the pattern from Sep 26 into Friday's high at 1466 you can see that it's almost a mirror image of the prior pattern - in other words, it appears to be a fractal.  So the best guess at this time is that the recent upswing is more likely a part of an ongoing correction from the Sep 14 high than the start of an upside impulse.  Yes, it could be interpreted as a series of nested waves 1 & 2's, and yes the pattern in the underlying S&P 500 is a little bit cleaner, but the sell off after Friday's high has a very impulsive look to it, very much befitting the start of a possible "c" wave down.  So for the time being the rally from Sep 26 low at 1424 into Friday's high at 1464 is being considered the "b" wave in a flat type correction with the "c" wave just underway.

Just for chuckles, here's a stab at the internal count for the proposed "b" wave, which shows it to contain a triple zig-zag with the last move itself being a triple zig-zag - it was the best way to account for the multitudes of overlaps:

Inserting this thinking into the bullish alternates presented last week produces the following:

Alternate #1 

2 hour bars

Daily bars

Alternate #2

2 hour bars

Daily bars