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Saturday, March 30, 2013

Saturday, 3/30/13 update


The post last weekend classified the action since the lows of Mar 17 as an ending diagonal.  The read at that time was that 4 legs of that structure were in place with the 5th and final leg almost complete.  But this last week saw a continuation of the roller coaster.  It still looks to be an ending diagonal, but one which is taking longer than thought last weekend. And just as a week ago, it appears that the 5th leg is in progress.
The alternative view would be that the waves since the Mar 17 lows are a series of waves 1 & 2 of ever declining degree, 5 in total up to this point.  This would imply an upside explosion almost immediately, with a significant amount of distance in both time and price yet to come before the sequence runs out of steam.  Doesn't seem reasonable, but I suppose it's possible.

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There's been a lot of national press attention given to equities in the last few weeks as a result of the Dow Index exceeding it's all time highs of 2007 as well as the S&P being within a hair's breadth of its all time highs.  So are we in the midst of a new long term bull market?  There is an EW alternate that would accommodate that thought.

But the preferred view on this site is that all the action since the Mar '09 lows constitute an "X" wave.  In Elliott "X" waves are moves that separate corrective sequences in complex corrections.  They can travel to and even past the point where prices started the original corrective sequence.  So under this view the rally of a couple of major indexes to and past the 2007 highs does not disqualify the bull run off the 2009 lows as an X wave - at least not yet.

Some perspective on the long view might help make the case.  Elliott Wave distinguishes between two main wave types: impulsive and corrective.  Impulse waves have 5 distinct and well defined legs, 3 in the direction of the underlying trend and 2 against it.  The 3rd leg (wave) is usually the strongest and longest in equities and the 4th wave retrace does not overlap the 1st wave.  Corrective waves consist of 3 wave moves or combinations of 3 wave moves.  Corrective waves can be very complex and are often characterized by choppiness and a lot of price overlap.

Below are some long term charts of the S&P and the NYSE.  To my eyes the action since the Mar '09 lows appears much more corrective than impulsive.  But then I suppose that just proves my bearish predisposition.



   

Sunday, March 24, 2013

Sunday, 3/24/13 update

The ES/SPX was locked in a trading range last week.  Profitable little roller coaster if you caught the turns.  The current short term EW count shows the pattern last week to be an ending diagonal with the last leg of that diagonal in progress.  And that structure is the last move in a wave of higher degree that is itself a 5th wave.  If correct then prices should roll over by the end of day Monday.


The big question is what will be the extent of the next correction.  The current long term alternates charted below offer a wide range of possibilities.  At this point it's difficult to say which is more likely, except that the 1st alternate can be viewed to be the most unlikely barring a black swan event in the next few days.

 Alternate #1

 Alternate #2

 Alternate #3

Sunday, March 17, 2013

Sunday, 3/17/13 update

Crowded weekend so not much time for a post.

Current short term count for the ES:



There's no question that equities are overbought on the short term.  However, markets can go "overbought" or "oversold" in a strong trend and just stay there.  But gravity has to have an effect at some point, if the above count is correct then that point is very, very close.  It may already be here, except that Friday's selling was a three wave move with a rebound that overlapped the 1st leg of that move, so it does seem likely that there's one more pop left in the gun. 

Al's Daily Indicator has a record of being better at nailing bottoms than tops.  The chart of that indicator below highlights it's record with respect to tops in the last couple of years.  Actually, it hasn't been half bad over that period.  However, it did recently put in a spike top last Monday and has been falling away sharply since then in the face of a continuation of the recent rally through the week.  Probably the best way to view this is as a confirmation of a 5th wave in progress as per the Elliott count above.


Saturday, March 9, 2013

Saturday, 3/9/13 update

The preferred count on the ES/SPX has the market closing in on a very significant long term top.  If correct, we're seeing Minute W5 of  Minor Wave c of Intermediate W5 of a diagonal C wave in a long term zig-zag that commenced in July, 2010.


 And that zig-zag is the 2nd of a double zig-zag "X" wave correction off the Mar '09 lows.


Zooming in, the current Minute W5 is also in it's later stages:


However, this count has declined in probability a little with the very recent action.  There is a cluster of fibonacci based targets that exist from ES 1535.50 to 1546.25.  The ES has pushed through these levels and appears to be headed towards the next cluster of fib targets at 1578.50 through 1594.00.  In the process it is losing the wedge type appearance that is characteristic of an ending diagonal.  It certainly seems to have a decent head of steam, and thus it wouldn't be all that surprising to see it push past that next target area as well in coming weeks.

So it is appropriate to start considering more bullish alternates to the preferred count.  When examining the long term picture, it could be the case that the double zig-zag count is still valid, but that the internal labeling is not.  I had intended to develop a long term chart illustrating this idea, but my trading platform (TOS) pumped in an update this morning that for some reason restricts daily/weekly futures charts to three years of data.  Thanks guys.  So I'll try to talk my way through it.  The alternate would reclassify the initial move off the Mar '09 bottom into the Apr '10 high as Major Wave A of Primary Wave W (the 1st of the long term zig-zag structures), with the drop from Apr '10 into Jul '10 being Major Wave B and the rally from Jul '10 into the top of Feb '11 as Major Wave C to complete Primary Wave W.  The ensuing flat type corrective structure into the Oct '11 lows would be Primary Wave X.  Since then we've had Major Wave A of Primary Wave Y topping at the Mar '12 high and Major Wave B bottoming at the Jun '12 lows with Major Wave C currently in progress.  And this is where the major difference comes into play - we would thus now be in Intermediate Wave 3 of Major C in this scenario, which allows for some distance yet to be traveled.  Hopefully you followed all that, if I get time in the coming week I'll try to lay this out on an SPX chart.

The other bullish alternate is uber-bullish.  That count has a radically different long term perspective.  It maintains that the 2007 equity highs represented a "Super Cycle" Wave I (!!) and that the Mar '09 lows were the bottom of Super Cycle Wave II.  Since then, equities are viewed as being in Cycle Wave I of Super Cycle III.  Further, in order to accommodate all the overlapping in the structure since the Mar '09 lows it is necessary to tag the structure as a series of nested waves 1 & 2 of declining degree.  Thus the market is currently in Intermediate W3 of Major W3 of Primary W3, and accordingly has quite a lot of work to do before arriving at any significant long term top.  I did take time today to work up an SPX chart of this alternate:


I know, I know - hard to accept this possibility given the bearish economic constraints, but it is what it is - and maybe (if this alternate is correct) the market is telling us that those bearish constraints are going to be resolved favorably.  I do know that I have a very difficult time getting the market to behave to my expectations, so maybe it would be better for me to let the market indicate what it wants to do.

One final thing.  After a little head fake Feb 22 when it moved up slightly from a reading below 1.00, Al's Indicator gave a very solid buy signal on Feb 26 when it spiked up from a low of .85 on Feb 25. 


Saturday, March 2, 2013

Saturday, 3/2/13 update

The preferred count on this site has the ES/SPX in the 5th wave of an ending diagonal, which by definition should be a three segment structure.  Minor Waves "a" and "b" of that structure are complete and Minor Wave "c" is in progress.  Further, Minute waves 1 thru 3 of Minor "c" appear complete at the ES 1530 high on Feb 20.


The three wave move since the Feb 20 top into the low of 1481.75 on Feb 25 is either Minute W4 or the first segment of Minute W4.  It's clearly a zig-zag, and since Minute W2 was a flat the sequence satisfies the EW rule of alternation.  If Minute W4 is complete at the Feb 25 low then Minute W5 is now in progress.  5th waves generally travel a distance that is related to 1st waves in terms of a fibonnaci ratio.  On this basis, possible targets for Minute W5 are at 1531.00 where Minute W5 = .50 x Minute W1, then at 1542.75 where Minute W5 = .618 x Minute W1 and finally at  1580.25 where Minute W5 = Minute W1.


However, it's possible that Minute W4 is not yet complete.  Minute W2 lasted 11 days. If Minute W4 was complete on Feb 25 it's duration was only 3 days, so there is room for Minute W4 to drag out a bit longer and not be out of proportion.  It's entirely possible that Minute W4 could be in the process of forming a double or triple zig-zag with the low of Feb 25 being only the first zig-zag in the sequence.  Also, it could form a triangle as conceived in the chart below.