Saturday, 11/24/12 update

If you just look at the chart of the last week's activity in the ES/SPX it seems apparent that a bull move is in progress and thus that the low of Friday Nov 16 was quite significant.  But Friday's strong up move has to be qualified - volume in the equity markets was less than half of what has been typical.  It was thus the usual holiday market situation - the boys in the pits running stops and cackling all the way to the bank.  This isn't to say that there is not a legitimate bull move in progress, it's only a note of caution.   Follow through buying will be necessary over the next week or so to provide confirmation. 
There is a very strong seasonal up bias in the period of Thanksgiving through the end of year holidays, so a bull market of some sort should be no surprise.  The question is, what sort of bull will it be?  i.e. are we going to see a choppy corrective type sequence that will fail and lead into the next downstroke of a major bear that commenced at the Sep - Oct highs?  Or will it impulse up with new  highs in the offing?
This author can think of several very solid arguments, both technical and fundamental, to buttress both the bull and bear case.  So as usual events have transpired in a manner to obfuscate what is most likely in the intermediate term.  However, from a very short term perspective the market ended the week in a very "overbought" condition, so a quick pull back is likely sometime in the next two days or so.

Current short term EW counts look as follows:

Bull alternate

Bear alternate 

It should be noted that in the bear alternate the top of the current rally off the Nov 16 lows may only be the first leg of Minor W2 (red numbers) rather than the entirety of the move.  In this case this move is only the first zig-zag of a double or triple zig-zag sequence or it is the "a" leg of a 3-3-5 flat type structure.  This thought occurs when comparing the duration of Minor W1 at 21 days to the duration of Minor W2 of 4 days to this point - it is likely that Minor W2 will unfold in a manner that chews up more time.  This would also allow for a continuation of the usual holiday season rally sequence deeper into December.

Saturday, 11/17/12 update

Lots of technical damage has been done to equities in the last month.  In the ES/SPX prices are down roughly 9% from the Sep/Oct high points.  Along the way some important uptrend lines have been broken and also some bullish EW counts have been disqualified.  At this point the argument that we've seen the top of the bull market that commenced in Mar '09 now outweighs the possibility of a continuation of that trend.

From an EW standpoint a Cycle degree "X" wave can be counted as complete into the Sep/Oct highs.  In the ES/SPX it can be counted as a double zig-zag.  The 1st zig-zag sequence ran from Mar '09 through the top at ES 1217 in Apr '10, followed by an "X" wave into the low at ES 1003 in Jul '10.  The 2nd zig-zag ran from that point into the Sep/Oct highs and included an ending diagonal for it's C wave.

  

There's a fair chance that Friday's low at ES 1040.25 marked a short term bottom of some sort.  The EW count since the Oct highs can be counted with a Minor Wave 1 complete at that low (Alternate 1 below) or with Minute Waves 1 through 3 of Minor Wave 1 complete at that low and Minute Wave 4 in progress (Alternate 2 below).

Alternate 1

Alternate2

Alternate 1 would dictate a decent corrective bounce in the form of Minor W2.  Alternate 2 would lead to a shorter and more shallow bounce (Minute W4) followed by another wave of selling (Minute W5) before the onset of Minor W2.

The bullish alternate here is that the sell off of recent weeks is a Minor Wave "b" of an Intermediate W5 in the bull series dating back to Mar '09.  However this possibility is pushing the envelope of what seems likely.  A move below ES 1262 before any new highs would completely eliminate this alternate.

Sunday, 11/11/12 update

Lot's of carnage in equities this week.  The ES/SPX saw some pretty significant technical damage.  Prices broke down through the uptrend line connecting the low of Oct '11 and June of this year.  Also they broke down through the 200 day MA which is an indicator followed by a lot of folks.  Didn't break through that MA in the NYSE but it's right on top of it.  Also there was a significant surge in volume that accompanied the selling.

It's been said that market bottoms are made but tops are formed.  That jumps out on the ES daily chart of the last year.  The lows of Oct '11 and this past June are made and the market immediately jumps up and away.  But the triple top of mid-September through mid-October looks like a kid on a trampoline.  Was a pain in the neck to trade as well.

Of course the big question is whether we've seen THE top of the bull run dating back to the crash lows of Mar '09.  That certainly is one of the possibilities here, but the bull case is not yet completely dead.  When will it be?  Hard to answer that question.  What can be said is that there are levels which if breached would significantly diminish the odds of a continuation of the bull market.  The 1st of those would be the June low at 1262.

Daily EW counts of the bull and bear alternates currently look like this:

Bull alternate

Bear alternate

Zooming in to the very short term and assuming the bear alternate, the drop that started at the Oct 18 highs is either a Minute Wave 1 & 2 followed by a Micro Wave 1 with Micro W2 in progress or it's Minute Waves 1 through 3 with Minute W4 in progress.  Either way more selling should materialize in the very near future.

Wednesday, 11/7/12 update

The next few days in the ES/SPX are going to establish market direction for the next several months or longer.  If there is significant follow through selling then the idea that a major long term top was established over the last couple of months will go a long way towards being proven.  However, if that follow through selling doesn't materialize then we may have seen (or will shortly see) an Intermediate term low that will be followed by at least 100 points of bull market.  The alternates look like this:

BEAR COUNT

 BULL COUNT

Seasonal tendencies over the holidays and into January are bullish.  However, market technicals have a bearish cast to them.  The McClellan Oscillator and Summation Index both diverged against the recent highs and are in downtrends that appear to have some distance to go:

Same can be said for Al's Indicator which has momentum, volume and Adv/Dec components:

Saturday, 11/3/12 update

Last week's storm shortened trading provided a couple of nice rallies in the ES/SPX, but it was Friday's steep and sustained selling that deserves attention.  It could be the start of something significant, especially since it was accompanied by matching sell offs in the precious metals, commodities and certain currency/US$ pairs (such as the EUR/US$).  It's a fair bet that follow through selling will occur early next week.

This site is not a big fan of time cycle analysis, but there is one cycle that was noted here earlier this year that deserves a re-visit.  It's an apparent 67 week cycle that has defined some pretty significant bull-bear sequences in recent years.

As can be seen, there have been seven complete iterations of this cycle in the past ten years, and out of those seven two were failures.  But the other five outlined some fairly significant footprints.  This is especially true of the last three.  The current cycle started at the lows in October of last year and is due to bottom again in early January.  If this cycle is going to have a significant effect in it's current iteration then a bear sequence of some import should start anytime, and may already have done so with the mid-September highs. 

Concerning short term action the EW picture presents equally valid and opposing possibilities as usual.

Alternate 1  The bear sequence from the Oct 18 high into the Oct 29 low is counted as a 5 wave impulse with the 5th wave being a sloppy ending diagonal.  In this alternate the rally from Oct 29 into Friday morning's high is considered a double zig-zag correction and would dictate lower lows to come.

Alternate 2  The Oct 18 to Oct 29 sell off is counted as a completed zig-zag.  After that the rally into Friday morning's high followed by the sell off during the rest of the day on Friday are a 1st and 2nd wave of a developing bull market impulse.

Alternate 2 is eliminated by a drop below the low of ES 1393.00 of Oct 29.  At this point that eventuality seems likely to occur.

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