Saturday, 12/28/13 update

Short term ES count

Sunday, 12/22/13 update

The ES appears to be in the 5th wave of an impulse up off the late August lows.  If so, then a correction of some significance should be in the cards some time in the next month, but not before a continued push to more new all time highs.  A possible target is at ES 1856.00 where wave 5 of the impulse will equal wave 1, as in the below chart.

There are two questionable areas in the long term count, both are highlighted in yellow on the 1st (daily) chart above.  The first is the rally sequence from June through mid-September in 2012 which is labeled as Minor Wave 1 (red).  That sequence can be labeled as a five wave impulse, but it's a bit awkward, especially at the beginning of the sequence where there was a lot of see-saw action.  The second is the correction labeled as Intermediate W4 (purple) in August of this year.  It is quite a bit more shallow and of short duration as compared to Intermediate W2 (late March to early June, 2012) - i.e. it's not proportionate.  Not saying that it absolutely has to be proportionate, but it is out of the norm.
An alternate to that count that addresses those two issues is below.  Look familiar? It's a rework of the hyper-bull count first proposed on Dec 1st.  So this would be a possible alternate count that is in play.  And if so, it portends quite a bit of bull market yet to ensue before a significant long term top: Inter W3 top followed by Inter W4 and W5 into a Major W3 top, that followed by a Major W4 and W5 into a Primary Wave III top, that followed by a Primary Wave IV and V into a very significant Cycle wave top.

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It's been my experience that a systematic approach to trading is the one that works best.  I'm an adherent of the methods developed by Richard Dennis, a very successful commodity trader who did quite well in the 1970's & 1980's.  His approach is described in the book "Way of the Turtle" by Curtis M. Faith.  Personally I believe this book should be required reading for anyone involved in futures and options trading.  His approach had two primary components: a tested trading system and a set of money management rules.

The money management component is just as important as the trading system, but it is the trading system that is of interest here.  A good trading system is based on a means of entering and exiting trades that is clearly defined and that yields an excess of winning trades over losers.  The conditions upon which a trade is entered and exited is established by extensively back-testing the associated rules.  Those rules are thus determined in advance and must be adhered to - any variance from the rules introduces a variable that hasn't been back tested and thus affects the probabilities, and the goal is to trade a system which has been demonstrated to yield a higher probability of profitable trades.  The great thing about this approach is that it removes emotion and opinion from the process.   It moves the trading effort from gunslinger mode to cool headed poker player mode.  Of course, if you'd rather be a gunslinger, go for it babe - I hope it works out for you.  

One final note on this subject.  I've traded a number of systems using the "turtle" method.  None is perfect, but they don't need to be - they just need to possess a demonstrated "edge" - i.e. historical excess of winning trades over losers.  The problem is that in each of these systems there seems to be a point where the edge evaporates.  Why?  I'm not exactly sure, but I believe it's because the only way to guarantee that a given system has a permanent edge is to test that system against a database that is 100% comprehensive - i.e. that is complete from the beginning of time until the end.  Obviously impossible, at least for us mere mortals.

Sunday, 12/15/13 update

The overlap of the 1774.50 Nov 7 high this week has ruled out the hyper bullish EW count discussed as a possibility in the last couple of weeks.  That leaves two alternates on the table.  The 1st (Alternate #1 below) needs a 5th wave to complete Major W3 of the bull market from the Oct 2011 low, which of course would be followed by a Major W4 & W5 before the significant long term top of Primary Wave III.  The 2nd (Alternate #2) has that Primary Wave III top in place as of Nov 29 high at ES 1812.50.  The Primary Wave III top, whenever it occurs, should lead to some fairly impressive bear activity in the form of Primary Wave IV.  Primary Wave II lasted 7 months and dropped roughly 22% (peak to trough) in the ES, and Primary IV should be roughly equivalent.

Alternate #1

Alternate #2

The short term will tell the tale between these alternates.  Equities look poised for an oversold bounce off last weeks lows.  If that bounce develops into a more sustained rally that results in new all time highs, than the activity of the last two weeks can be viewed as a flat type correction and Alternate #1 is likely in play.  If however the market rolls over after a brief and shallow uptick and collapses below last week's lows then the pattern since the Nov 29 ATH can be labeled as a series of nested waves 1 & 2 and Alternate #2 becomes the preferred view.

Sunday, 12/8/13 update

So far the short term scenario proposed for the ES/SPX in last weekend's update is playing out.  The ES appears to have found a bottom in the recent corrective sequence at 1777.75, and has put in a rally that has the look of an impulse since that time, although there have been only three legs to that rally into Friday's close.  The 1777.75 low on Wednesday did not overlap the assumed 1st wave high of 1774.50 in the pattern from the 1640.00 low of early October, so the premise of an extended wave 1 followed by shorter waves 3 and 5 remains intact.  Also, wave 4 in this pattern, which just concluded, is a flat and thus alternates with the 2nd wave zig-zag structure.  So assuming that the rally from last week's low continues to all time highs, then it would be a 5th wave in this scenario.  Since wave 1 exceeds the length of wave 3, then the maximum allowable travel for this 5th wave is the 72.75 point travel of that 3rd wave.  So measuring from the wave 4 low at 1777.75, the lid on the sequence is at 1850.50.   
If the market rallies past the 1850.50 limit, then last Wednesday's low is most likely a 2nd wave in a developing extended impulse from the 1736.50 low of Nov 8.

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The news of a 7.0% unemployment rate on Friday sparked that day's rally.  But what are the implications for Fed policy?  Bernanke and other Fed governors have said that their goal with all the QE's has been a7% rate, now that we appear to be there, does that mean that the Fed will start pulling in the reins?  The implications are potentially ominous, not only for US equity values but for the economy as a whole.  The party on Wall Street has been reliant on the Fed Reserve punch bowl to some extent, what happens if they take the punch bowl away?   But equally as concerning is the effect on the economy of any Fed tightening.  If the Fed stops pumping out cash by means of buying Treasuries and MBS's the inevitable result has to be an uptick in interest rates.  Naturally this should result in a drag on the economy to some extent.  But more importantly the effect on the Federal budget could be profound and very damaging.  If interest rates move toward their post-WWII norm of around 6% the US Treasury will see an increase in it's interest payments in the $400 billion/yr range - a major dent in the Federal fisc.  Unless the rest of the Fed budget is reduced to the same extent - fat chance!! - this will necessitate an even higher level of borrowing which in turn leads to ever higher interest expense.  A problem anyone who has ever gotten into debt trouble with their personal finances is familiar with (yes, I've been there) - it's a spiral that feeds on itself and usually can't be solved without some pain.  Also, increased Treasury borrowing coupled with a withdrawal by the Fed from the market for that borrowing is bound to crowd out the private market, thus putting a damper (or worse) on economic growth.  Of course, slower economic growth means less tax revenue and higher deficits and even more Treasury borrowing.  This is not a pretty picture.
My guess is that Yellen, with her dovish monetary inclinations, won't pull in the Fed's ears.  This means there would most likely be some serious inflation in the offing, which again would lead to higher interest rates with the same outcomes. 
All of this translates to the same place as far as prospects for US equities :  down.  But the market hasn't shown the inclination to head that way in any serious fashion as of yet.  The trend is your friend, and right now the trend remains up.

Sunday, 12/1/13 update

 EDIT 12/2: At the end of the post, re: short term count, Minute W3 traveled 72.75 points, not 34.75, so that would be the max for Minute W5 in that count 

Since the 2008 economic troubles the printing press at the Fed has been running to the point of overheating, and the result is a river of US $'s far in excess of what is needed to support economic growth.  One would expect that funny money to show up in consumer price inflation, but the CPI has been relatively tame.  Of course, that's assuming that the government reports are not doctored, which could well be a bad assumption.
But using that assumption, where's the cash going?  I've been researching that question, and the answer is complicated.  For one thing, the international reserve currency status of the greenback muddies the picture - it's clear that some of this gusher is coursing overseas and causing higher prices elsewhere.  That appears to be the new primary export commodity for the US : inflation.  Other parts of the answer get into an esoteric discussion about bank reserves and so on.  But part of the answer is most probably a fairly obvious one:  US equities.
So we cranked up the printing presses to solve the problems created when the housing bubble burst, and in the process are pumping up the stock market.  So is a bubble in equity prices developing?  Quite possibly the answer is yes.  If so, is there an EW count of the action that evidences a developing bubble?  There certainly is.

In this count the real difference from other bullish counts being tracked on this site is the count from the Minor W2 low in Nov 2012, which has the ES only completing Minor W3 & W4 since that time with W5 in progress.  This would mean that to complete the entire move since the Mar '09 lows there needs to be an Intermediate W4 & W5 to complete Major W3, which in turn will be followed by a Major W4 & W5 to complete Primary W III, which will be followed by a Primary W IV & W V before a significant long term top occurs.  So quite a bit of room yet to run.

On the short term, there is a way to count the pattern since the Oct 9 low that shows 5 waves complete into this last week's highs.  However, that count (in the ES at least) is a little awkward in spots.  The count in the hourly chart above is another possibility, with an extended 1st wave for the pattern followed by a much shorter 3rd wave with a wave 4 in progress and forming a flat.  This makes a certain amount of sense as the whole structure is itself a 5th wave - so selling pressure is possibly compressing the structure as a top is approached.  Two things need to occur for this count to adhere to EW rules and thus be accurate:  Minute W4 cannot drop below (and thus overlap) the Minute W1 high of 1774.50, and since Minute W1 is longer than Minute W3, then Minute W5 cannot exceed the 34.75 point distance of Minute W3.
EDIT 12/2: Minute W3 traveled 72.75 points, not 34.75, so that would be the max for Minute W5 in this count 

Sunday, 11/24/13 update

"Overbought" and "oversold" are terms thrown around by market analysts.  But the truth is that markets often reach what look like extremes and keep right on trucking.  That certainly appears to be the case right now in the ES/SPX, which can certainly be classified as "overbought" by several types of momentum measurements.   However, whether it will turn here as a result is not a given.

There were three long term bull counts presented in last weekend's update.  All three show the ES in a 5th wave of one degree or another as of this juncture.  Also, prices are bumping right up against a trendline (blue channel in chart) that has turned the ES back twice in the last couple of years: March, 2012 and May of this year.  So the setup is there for a bear strike.   

In addition, the pattern since the 4th wave low of Nov 8 shows a pretty clear 5 wave structure up off that low, with the assumed 3rd wave longer than the 1st and alternating waves 2 and 4.  However, we are entering a period that has a seasonally upward bias, and the market closed Friday with a fair head of steam.  So it is quite possible that this 5th wave is going to extend, in which case the Minute W3 (in green) top on Nov 18 could actually be Micro W1 of an extended Minute W3 with a Micro W2 low on Nov 20.  That would allow more price and time space for a continued run.

 
Haven't discussed the long term bear alternate in quite a while.  The push through the ES 1586.75 high of 2007 this last spring put that count in serious question, and as equities have continued there relentless upward trend that "X" wave count has become less and less probable.  A fair elimination point would be at ES 1804.25 where the assumed "X" wave is a multiple of 1.236 times the 2007 - 2009 bear market.  Friday's high at ES 1803.25 puts the market right at that point.  Any significant push past this level pretty much rules out the "X" wave alternate.

Sunday, 11/17/13 update

It ain't over until it's over.
And it ain't over yet.
And I suspect it won't be for a while - the seasonal tendency is bullish from here until the middle to end of January.  Of course there's always the possibility of a black swan event.

So pick your preference:

Bull pausing for a serious shake out very soon:

Bullish stampede continues interrupted by occasional cud chewing:

UBER bull:

Sunday, 11/10/13 update

The ES has been fighting obvious headwinds the last couple of weeks.  As discussed last week, prices are right at a long term trendline.  Also, the underlying technicals are displaying divergences.  And finally, the alternate EW counts all show this to be an area of 4th and 5th wave unwinds.  But even with those considerations the ES/SPX staged a very impulsive looking rebound on Friday off an impressive looking downstroke on Thursday.  If we continue rallying the bears will once again have been denied their day of glory.  Paradoxically these short lived sell offs are setting up a very bearish situation.  One would have to assume that the number of market participants inclined to be bearish has been eroded considerably over the last couple of years, but the fact is that a bull market NEEDS  bears.  Bears provide support in bear trends when they buy to cover their short positions.  If there are a lack of short positions to be covered that leaves the market in the hands of bulls in panic - whoosh!! is the result.

So here are the two main alternates.  Target areas are noted on the charts.

Alternate #1

Daily

 Hourly   

Alternate #2

Daily 

 Hourly  

There is a 3rd possibility that seems less likely, and that is that the Nov 7 top labeled as a "b" wave in both the above alternates is actually the top of a 5th wave ending diagonal, with the ensuing sell off and rebound being waves 1 & 2 of a new bear market.  However, the rebound off Friday's low has retraced over 80% of the Thursday sell off, so it's much more probable that it will keep on rallying to new highs.

Alternate #3

Sunday, 11/3/13 update

I'd like to think that the print high at ES 1773.25 on Wednesday this past week marked a very significant top as per the above chart.  On Tuesday the ES motored a little above the upper trendline of a channel that has defined the market since the Mar '09 lows.  Then on Wednesday it dropped back below that trendline in the form of a key reversal where the market achieved a new all time high early in the day and then proceeded to drop to a lower low than the prior day followed by a down close.  In addition, the 1773.25 high is very close to a fibonnacci level of 1776.75 where Major W5 = .618 x Major W1. 

Also a number of technical indicators are showing divergences into Wednesday's high, such as a daily RSI and the McClellan Oscillator (1st chart below) and my proprietary daily indicator (2nd chart below).

BUT THEN...............
The pattern since Wednesday's high is beginning to feel like what happened in the mid September through early October correction - a nice downward impulse followed by a lot of waffling sideways crap culminating in a low that established a base for a ramp up into new all time highs.   Perhaps I'm being impatient and the waffling in Thursday and Friday's action is a series of nested 1st & 2nd waves building into a collapse.  If so that collapse needs to develop very soon.  If not then the below alternate count is quite possibly in play.

Monday, 10/21/13 update

Here's another long term count that hasn't yet been considered.  It has the correction that ended on Oct 9 as Major W4 of Primary W III, with Major W5 in progress and headed for a significant top.  The problem with this count is the same as that of labeling the August correction as Intermediate W4 of Major W3 - they both are much more shallow and short lived than the associated 2nd waves in their respective series.  But there still is a sense here of a major top forming, at least for this analyst.  Just looking at the chart, it's obvious that upward momentum is receding as compared to the trajectory of the prior two years.  So this count is worth considering.

Saturday, 10/19/13 update

Let's recap the last couple of weeks.

First, the Obama administration announced the selection of Janet Yellen as the replacement for Ben Bernanke as the chair of the Federal Reserve.  She is a Keynesian and is known as a monetary dove.  Really, all you need to know about her and what her program for the Fed is likely to look like can be inferred from this excerpt from an article about her that appeared in the NY Times:
"As the central bank’s vice chair since 2010, she has pressed for stronger measures to reduce unemployment, battling the doubts of other Fed officials about the value of continuing to expand the Fed’s enormous stimulus campaign."

Second, after a lot of flying feathers and consternation from Congress and the President, our government has the green light to borrow (and thus spend) another TRILLION dollars.  And that's a trillion dollars beyond the 3 trillion dollars or so that it already collects in taxes.  That's Trillion with a T!!

So naturally the Wall Street reaction is a strong rally.  You see, the American stock market is a perpetual motion money machine that will NEVER AGAIN fail.  If I seem cynical, it's because I am.  You see, I have this (apparently) bad habit of thinking through the situation and seeking to understand what it's eventual consequences are likely to be.  And I believe that those consequences are likely to be quite negative.  But what needs to be recognized is that those consequences might take some time to develop.  So for right now the strength in equities makes a certain amount of sense, especially if your time frame is short term.

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There are still two possibilities in the short term following the highs established at the Sep 19 top. Those are whether that high represents the top of Minor W1 of Inter W5 (Alternate #1 below) or the top of Inter W5 itself (Alternate #2).  If it's the top of Minor W1 then Minor W2, W3, W4 and W5 need to occur.  If it's the top of Inter W5 that would also mark the top of Major W3 and some serious bear market activity should start to develop.

The pattern from the Sep 19 high into the Oct 9 low can be counted as a 3 wave move into that 1640.00 low.  Depending on which alternate is in play, that low is either the bottom of Minor W2 with Minor W3 of Intermediate W5 now in progress, OR it is the low for Intermediate Wave "a" of Major W4 with Inter Wave "b" now in progress.  At this point the odds favor the possibility that Inter W5 is still in progress based on the strong and clearly impulsive action off the 1640.00 low of Oct 9.  That action looks much more like what would be expected of a 3rd wave in an impulsive series rather than a part of a "b" wave in a correction.  In addition, the rally since the Oct 9 low has now carried above the highs of Sep 19, so if a Major W4 is in progress it has to be an irregular flat.  In that context a practical limit for the rally that's under way would be the point where the rally travels a distance that is 1.236 times the travel of the "a" leg of Major W4.  That point is at ES 1747.25 - beyond that point and it's almost certain that Alternate #2 can be ruled out.

Alternate #1

Alternate #2

  

Wednesday, 10/16/13 update

It's fall in and I'm in the apple business, our main gig is apple processing but I do have a piece of actual orchard, so time has been more limited than usual.  Thus I haven't been studying markets as closely as usual, in fact I haven't had any trades on for a good two weeks, not enough hours in the day to do the right job there.
But with that in mind, the time I have spent looking at equities has been troubling - this rally since last Wednesday's lows has felt odd.  Looking at the technicals there is nothing that really stands out, so I can't point at anything in particular that would substantiate the sense of hollowness, but it just doesn't feel right.
And in the ES it's notable that the price pattern since Sunday night looks a lot more like a couple of 3 leg sequences than fives.  So the following chart may be what is unfolding: a "b" wave of Intermediate degree stabbing towards the all time highs of Sep 19.  And that "b" wave is in it's "c" leg which is a developing ending diagonal.  This of course would be an Intermediate "b" wave in an ongoing correction and would lead to a strong and impulsive "c" wave sell off.

Of course the pattern since last Wednesday's lows could just as easily morph into a complete 5 wave impulse to it's eventual top.  So this is presented only as a possibility.

Sunday, 10/13/13 update

BEAR FEVER - A psychological condition common in futures and options traders, especially those involved in equity markets.  It is characterized by an underlying strong bias towards favoring a bearish point of view.  It is most harmful when the individual afflicted with this condition is unaware of it's existence.  It is theorized that it's causal impetus is the result of a hugely successful bearish trade early in the traders career, which can be an exhilarating experience due to the speed with which bear markets tend to move as compared to bull markets.  The deleterious effects of this condition are numerous.  A partial list of those would include the following:
- A tendency to establish larger positions than is prudent in a possible bear market situation;
- A tendency to fail to recognize the end of a correction in a timely fashion, leading to holding a bear position longer than it should be held;
- A tendency to close bullish positions earlier than necessary on the belief that a big crash is right around the corner;
...............and so on......................

Therapy for this condition can be effective if the individual can be made to recognize that the community of futures and options traders is relatively small in number and financial resources as compared to the quantity and resources of all the other market participants, and that those other market participants have a strong commitment to a never ending bull market. 

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The series from the Sep 19th high into last Wednesday's low looks like 3 waves, with a nice impulse at the beginning and end but a whole lot of choppy and indecisive market action in between.  So very much a corrective sequence.

For intermediate term purposes the question posed a few weeks ago remains open: was the Sep 19 top Minute W1 of Intermediate W5 of Major W3 with Minor W2, W3, W4 & W5 yet to come as in Alternate #1 below, or was it the top of of Inter W5 and thus Major W3 as in Alternate #2?  If it's Alternate #1 then it's pretty definite that we saw the bottom of Minor W2 this week and thus Minor W3 is now in progress,  if it's Alternate #2 then last week's low was likely the end of Intermediate Wave "a" of Major W4 with a lot more corrective activity in the wings.  Right now the nod has to be given to Alternate #1 given the strong and impulsive nature of the move up off the 1640.00 low - much more what would be expected in a 3rd wave impulse than a "b" wave in an ongoing correction.  However, the news out of Washington this weekend would seem to portend a strong gap down open this evening, so if nothing else it will be interesting.  

  Alternate #1

 Alternate #2

Tuesday, 10/8/13 update

In technical analysis, nothing is 100%, and neither is Al's Daily Indicator.  The signal from Sep 30 was obviously wrong, and the indicator has now rolled over and is heading back below 1.000 (reading at today's close is 1.002).  Historically, the best signals from this indicator have occurred when it bottoms below .500, but even there it misses about 1 in 5 times.

 
The bearish alternate from last weekend's post is obviously in play.  Possible EW count looks like this on the short term:

Long term view:

Saturday, 10/5/13 update

Last weekends short term EW count and forecast was obviously wrong.  Drastically so, I'll be the first to admit.  But the observation upon which that count was based has not changed, i.e. outside of the first few days off the Sep 19 top the action has been much more corrective looking than impulsive.  As of Friday close a case can be made for a double zig-zag count into the ES 1663.25 low of Thursday, which could well be the end of a corrective sequence from the Sep 19 ATH.   The action since then has an impulsive look to it, which is consistent with what would be expected if a new rally sequence has commenced.  Chart looks like this:

So is Lucy (powers that be) gonna sucker Charlie Brown (bears) once again into a failed kickoff?  Could well be - can't help but think that if Congress manages to resolve the budget circus then the market is liable to launch on a tide of exuberance.  Temporarily at least - debt limit circus standing close by in the wings.  Hope Charlie is wearing pads in the rear of his pants.

However, there is hope for the bears - a bearish ST alternate here has a 5 wave sequence bottoming at the Sep 30 lows with a flat in progress since then.  Additionally, that flat is currently in it's "c" leg, which should be a 5 wave impulse up, also consistent with what would be expected:

A possible target for that "c" leg is at the .50 retrace of the down impulse off the ATH.  That level is at ES 1696.75.

Friday, 10/4/13 2nd update

Confirmed buy signal on Al's Daily Indicator today with a spike above the 1.000 level (see Tuesday update).  So is this a good signal? Like anything else involving markets, this is a matter of probabilities (odds) - nothing is 100%.  In this case it's my opinion that the odds are fairly decent - the action off the Sep 19 ATH looks more corrective than the start of a major bear market.

 

Friday, 10/4/13 update

Still not able to update sidebar


ES (E mini S&P)
Hourly - DOWN f/Sep 19 - signal Sep 23
new Hourly signal UP f/Oct 3 - signal Oct 4
Daily - UP f/Jun 24 - signal Jul 5
EUR/US$
Hourly - UP f/Sep 24 - signal Sep 25
Daily - UP f/Jul 9 - signal Jul 11
AUD/US$
Hourly - UP f/Sep 29 - signal Sep 30
Daily - UP f/Aug 5 - signal Sep 6
GOLD
Hourly - DOWN f/Aug 28 - signal Aug 30
Daily - DOWN f/Aug 28 - signal Sep 12
SILVER
Hourly - DOWN f/Aug 28 - signal Aug 29
Daily - DOWN f/Aug 28 - signal Sep 12

Tuesday, 10/1/13 2nd update

Preliminary buy signal on Al's Daily Indicator today with a bounce up off a low reading of .812 from yesterday.  A preliminary buy occurs on any move up off a low reading below 1.000, buy is confirmed with a spike above the 1.000 level.

Sunday, 9/29/13 update

In the first few days from the Sep 19 top the ES laid down a very impulsive looking sell-off.  But that impetus certainly subsided last week, and the pattern for the last few days has been one of three wave moves in both directions with lots of overlaps - not a lot of conviction in either direction.  So this move from the Sep 19 highs is really looking more like a correction than the start of a major bear market.  Of course, the current activity could morph into more impulsive bear action, but right now that's not what is evident.  Going with that thought, a reasonable short term count would be that of a zig-zag, with the "a" leg terminating at the lows of Sep 24, the "b" leg at the highs of the same day, and the "c" leg forming an ending diagonal that is drawing to a conclusion as below: 

Long term view:

One troubling aspect in the above count is the nature of the August sell-off which is labeled Intermediate W4.  It's relatively shallow and short lived as compared to Inter W2, which occurred in late March through early June of 2012, spanning over two months and dropping about 160 points.  In contrast, Inter W4 lasted less than a month and traveled only 80 points.  Also, Inter W4 in this count failed to drop below any number of lower trendlines that might be drawn below the action since the bottom of Inter W2 - i.e. it didn't drop out of the Inter W3 channel.  So the question is whether it actually was Inter W4 or part of Minor W5 of Inter W3.  If Minor W5 is still in progress, then quite possibly what's developing is an ending diagonal.  That count looks as follows:

What's really interesting is taking that ending diagonal thought and applying it to the LT bear alternate being maintained by this site.  As can be seen, it fits in very nicely and gets the ES to the long standing target of 1745.25 for that alternate:

Sunday, 9/22/13 update

Another week where there are two possibilities that have significantly different implications for the short term.

But before discussing those, it needs to be noted that after extensive chart review it appears that the best count for Inter W4 is a double zig-zag that concluded on Aug 30.  The "c" leg of the 2nd of those zig-zags established a slight failure with it's low print of 1625.50 as opposed to the "a" leg low at 1624.75.

Intermediate W5 has been clearly impulsive since the Aug 30 low.  Five waves can be counted as complete into the Sep 19 high at 1726.75.  The question at issue is whether that high represents the top of Minor W1 of Inter W5  or the top of Inter W5 itself.  If it's the top of Minor W1 then Minor W2, W3, W4 and W5 are yet to occur.  If it's the top of Inter W5 that would also mark the top of Major W3 and some serious bear market activity should start to develop.  Supporting the case for the 2nd possibility is a cluster of Fibonacci targets right at or very close to that 1726.75 print of Sep 19:  Minor W5 of Inter W5 = 1.618 x Minor W1 at 1725.75; Inter W5 = .382 x Inter W1 at 1728.75; and Major W3 = 2.618 x Major W1 at 1726.75 (an EXACT hit).

As would be expected the SPX is showing the same Fibonacci relationships:

One other thing to look at, and that is a proprietary indicator called the Vindicator Buy/Sell index (sorry for the adolescent echos in the name).  The Vindicator uses NYSE Adv/Dec and volume statistics to measure buying pressure (green line) and selling pressure (red line).  It's kind of like the trin, but it uses a little bit different inputs and handles those inputs entirely differently.  Selling pressure as measured by the index crossed above buying pressure in mid-August and has been ramping up ever since, even during the rally sequence from the late August low.  There is a caveat here, and that is the consideration that the index is a 39 day moving average, so it is a backward looking measurement in that respect.  But the fact that the 17 days of strong price appreciation from late August through last Wednesday didn't curl the selling pressure line downwards may be extremely significant.  Are we seeing 5th wave distribution into an intermediate term top?  Maybe.  Could it be a long term top?  Maybe (he said with suppressed enthusiasm while rubbing his paws together and licking his bearish chops).

Thursday, 9/19/13 update

Current ES count

Saturday, 9/14/13 update

Another crowded weekend, so quick and dirty:

IS IT:

DOOR #1

OR

DOOR #2