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

Monday, 9/9/13 update

Saturday's post assumed that the bear market off the Aug 5 highs had more yet to come based on what looked like a bear flag in last week's price action as well as observed weakness in the underlying market technicals.

Today's action has brought that assumption into serious question.  The underlying technicals, although still not overly impressive, have definitely improved.  But probably of more importance is that the bear flag or diagonal pattern apparent last week has dissolved.  Instead, the action off the recent lows is beginning to look like a series of nested waves 1 & 2.

It's been mentioned in the last couple of weeks that there recently have been  multiple EW alternates possible.  One which I've been watching is that Intermediate W4 (purple numbers in the above chart) bottomed at the low of Aug 28.  This would seem to have a low probability given it's shallowness and short duration compared to Intermediate W2.  Inter W2 occurred in the spring of 2012 and dropped 170 points over a 2 1/2 month span.  But it's not impossible.  Inter W2 was a flat, and in this alternate Inter W4 is a zig-zag, so from an EW standpoint the rules have been satisfied. 

The hourly chart of this alternate looks like this:

Of course the bearish viewpoint presented in Saturday's update is still in play, but the odds of it being correct are diminishing rapidly. 

One final note: Inter W4 in the above count could develop into a triangle and still adhere to EW guidelines.  That would chew up more time and at least provide some similarity to Inter W2 from that standpoint.  But it would be a pain in the neck from a trading standpoint.

Saturday, 9/7/13 update

Pretty choppy equity market over the last week or so.  In terms of classic chart pattern analysis the pattern since the Aug 30 low is an apparent bear flag.  In Elliott Wave terms it's an apparent diagonal of some sort.  I say some sort because it is possible that the structure is a leading diagonal of a new bull sequence.  However, the evidence is that it is an ending diagonal and thus precedes a new leg down in a bear market from the Aug 5 highs.

Underlying technicals over the last week have a bearish cast to them:

Above is a 30 minute chart of the SPX against the Vindicator Buy/Sell index, a proprietary indicator which measures buying and selling pressure in the NYSE.  Of note is the behavior of the index over the last week :  selling pressure (red line) pretty much outpaces buying pressure (green line) even though prices have worked their way upwards.  This is not the pattern that is usually observed at the kickoff to a bullish sequence.  Normally bull market kickoffs generate a pattern that would be expected where buying pressure accelerates while selling pressure drops off.  So this is definitely a bearish sign.

So assuming that the bear market has more in store, the current EW count looks like this:

There are a number of possible counts for the pattern since the Intermediate W3 high of Aug 5, the above count is the most probable of those.  This count has a Minor Wave "a" low at 1631.50 on Aug 21 with Minor Wave "b" in progress since that time.  Minor Wave "b" is forming a 3-3-5 flat type correction with the Minute Waves "a" and "b" of that structure complete and Wave "c" commencing at the 1625.50 low of Aug 30.  Minute Wave "c" is forming an ending diagonal with waves 1 through 4 of that ED in place.  It is possible that wave 5 completed at Friday afternoons high print of 1664.00, which would conclude Minute Wave "c" and thus Minor Wave "b".  If not, then a possible target is at the .50 retrace of Minor Wave "a" at 1668.25.

The conclusion of Minor Wave "b" will mark the onset of Minor Wave "c".  This would be the 3rd wave of the sequence off the Aug 5 top, and thus should exhibit some strength.



   

Sunday, 9/1/13 update

Sometimes the path forward for a market is pretty clear using Elliott Wave, but that's the exception.  More normally, there are alternate possibilities.  Currently, the situation in the ES/SPX is more normal - i.e. there are are a number of possibilities, and that is true on a number of time frames.

So let's start with the very short term and work outwards from there:

Very short term alternate #1

OR

 Very short term alternate #2

On the very short term, alternate #1 has the ES forming a flat since the 1624.75 low of last Wednesday morning, with the "a" and "b" legs complete and the "c" leg just starting.  The "c" leg in a flat is a 5 wave impulse and should show some strength since it's the 3rd leg of the structure.  Alternate #2 posits a triple zig-zag correction off that Wednesday low that completed at the 1645.00 high overnight Thursday-Friday, with the first impulse down of the next down wave occurring into Friday's lows.    The implications for near term action are entirely opposite - alternate #1 portends a rally almost immediately, alternate #2 signals a sell-off after a brief and relatively shallow upside correction.  At this point alternate #1 has to be favored - the background news leading into Wednesday's lows was the situation in Syria, and the weekend news provides a respite to the potential danger there - so it's likely that the ES will rally strongly over the next couple of days or so.  I know, I know, EW purists say don't pay attention to the news as mass sentiment drives the market and then the news.  To me that's a chicken and egg argument.  The news is part of the fabric from which the market is woven, so ignoring it is deliberately blinding.  I think the better approach is to realize that the news is only one component to be considered when analyzing market possibilities.

Backing out to a wider view the two most probable alternates are as follows:

Short term alternate #1

 

OR

 Short term alternate #2

The two most likely EW counts for the pattern since the Aug 5 top both call for a rally in the next few days or so.  The practical short term difference will be the depth of retrace that the rally generates.

In short term alternate #1 a Minor W1 (red) down completed at the 1631.50 low of Aug 21.  That was followed by a simple zig-zag retrace for Minor W2 into a high of 1667.50 on Aug 26.  Since then Minute W1 (green) of Minor W3 is in place with Minute W2 in progress and forming a 3-3-5 flat.  Possible target for Minute W2 is the .618 retrace of Minute W1 at 1651.25 and should occur in the next day or two. 

In short term alternate #2 Minor W1 is not complete until the 1624.75 low of Aug 28 with Minor W2 in progress since that time.  As in alternate #1 the corrective structure since the Aug 28 low is a flat, but the wave degree is one level higher and is a retrace of the entire move off the Aug 5 high, so it should travel a bit farther and last a bit longer than in alternate #1.  Possible targets for Minor W2 in this scenario are at the .50 retrace of Minor W1 at 1665.00 or at the .618 retrace of Minor W1 at 1674.50.

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On the Intermediate Term it appears fairly certain that a bear market will be in progress over the coming weeks, so there's not a lot to talk about there.  However, the long term presents some drastically different outlooks:

Long term alternate #1

OR

Long term alternate #2

Long term alternate #1 has equities in a major long term bull market starting at the Mar '09 lows with the first cycle degree wave of that move only about half complete at this point.  So it forecasts much, much higher equity prices going forward.  Long term alternate #2 views the action since the Mar '09 lows as a rally in a long term bear market with serious trouble on the horizon.  It should be noted that the 1745 target for the X wave high in alternate #2 may not be achieved, it is quite possible to count that X wave as complete at the 1705 high of Aug 5.

Which of these long term alternates is correct is yet to be determined, and probably won't be known for some time yet.  Being the long term bear that I am, I favor alternate #2, but as usual the market will speak for itself in due time.