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Sunday, April 14, 2013

Sunday, 4/14/13 update

Markets are places where lessons in humility are taught on a regular basis.  The last couple of weeks are a case in point.
The ending diagonal formation in the ES of late March - early April seemed to be signalling the end of the bull sequence that started last November.  Instead, it was merely signalling the end of the rally that started right after Christmas.
In EW terms, it now appears that we've seen a 1st wave off the November low into a mid-December high followed by a 2nd wave flat into the Dec 28 low.  Thereafter there is a 3rd wave into a high at ES 1568.00 on April 2 followed by a zig-zag wave 4 into the 1533.25 low of April 5.  The ES thus currently appears to be working out the 5th and final wave of the rally off the November low.



To this point Minute W5 has shown distinct sub waves and appears to have passed the 3rd wave midpoint of maximum acceleration.  If the above count is correct the ES has yet to trace out a rally-correction-rally sequence before finding the final top to Minute W5.  Note: the dashed red lines in the chart are intended to show the form of the possible rest of the move and not necessarily to pinpoint price targets or time frame. 

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It has been the preferred view on this site that the bull market since the Mar '09 lows is a corrective "X" wave sequence that will eventually roll over into another severe bear market.  In that context it was always anticipated that equities would match their 2007 highs in the process of working out that "X" wave.  However, now that we're at those highs serious consideration has to be given to the idea that the 2009 lows marked the onset of a very long term bull market.  The alternate EW count in that eventuality looks like this:

  
Why does this deserve serious consideration?  Simply because all the reasons to be long term bearish don't seem to be causing any significant economic pain at the moment.  If the top of that assumed X wave is near at hand one would expect to see some serious cracks in the foundation begin to appear - but they really haven't as of yet.  That's not to deny the possibility that any number of possible black swan events may slam this thing into a reverse gear.   So from a trading perspective the best idea IMHO is to recognize that the market is currently uptrending and act accordingly, and to switch to bearish only when market action makes that the obvious trend.

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I will be traveling on business starting early Wednesday through late Friday, so updates to my indicators and trend charts will be spotty if at all.  Also, may not be able to manage an update next weekend.

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