Monday, 3/31/14 update

Today's rally blows up the short term flat count presented in the weekend update.  However, since the Mar 7 top the moves have been of 3 wave form in both directions, so until an impulse is generated the odds are that a corrective process is still underway.  That correction is looking more and more like a diagonal of some sort.  Here's a couple of ideas.

Alternate #1

Alternate #2

The long term count underlying the 2nd alternate is one last presented in January:

Both the short term diagonal counts are invalidated if prices continue the uptrend of the last two days and move above the Mar 21 top at 1876.75.

Saturday, 3/29/14 update

Intermediate W2 has been in progress since the Intermediate W1 top on Mar 7 and appears to be forming a flat.  The A leg of that structure bottomed at a low of 1823.50 on Mar 16 and the B leg topped at 1876.75 on Mar 21. 

Minor Wave C of the flat looks to be tracing out an ending diagonal with Minute Waves 1 through 4 of the move done and W5 under way.  It needs to be noted that if this count is correct then Minute W3 is shorter than Minute W1, so Minute W5 cannot be longer than Minute W3 - in EW rules a 3rd wave cannot be the shortest wave in a 5 wave sequence.  Minute W5 would equal Minute W3 at 1824.75, so this is the line in the sand.  A drop below this level would rule out the ending diagonal idea and suggest that Minor Wave C has formed a series of nested 1st & 2nd waves and will thus potentially cut much deeper.    

Sunday, 3/23/14 update

The rally action in the ES of last week has put two of the alternates presented in last weekend's update into jeopardy.  This is because in order for those alternates to be valid then the action since the Mar 7 high has to be counted as a series of two nested waves 1 & 2 down as per the above chart.  The problem is that the second wave 1 & 2 pair is much larger in terms of price and time then the first.  That's possible I suppose but not likely.

Alternate #1

Alternate #2

Which leaves the alternate wherein Major W4 is considered complete at the Feb 5 low of 1732.00 and Major W5 in progress and extending.  In that alternate Intermediate W1 of Major W5 is done at the 1887.50 top of Mar 7 with the Intermediate W2 either complete at the Mar 16 low of 1823.50 as in Alternate #1 or with one leg remaining to trace out as in Alternate #2.  Either way the intermediate term prospects are for new all time highs to be established in coming weeks.

Wednesday, 3/19/14 update

Yesterday's buy signal on this daily indicator was described as tentative given the weakness of the move back above 1.00.  Today's selling has made it even more tentative as it resulted in a drop back below the 1.00 level to a reading of .96.  The buy signal will be canceled if the indicator drops below Monday's reading of .923, which will more than likely be the case if we see follow through selling tomorrow.

Tuesday, 3/18/14 update

Buy signal on this daily indicator as of today's close.  A buy signal occurs when the indicator drops below a reading of 1.00 and then spikes back above that level.  Not much of a spike in this instance, so it has to be regarded as somewhat tentative.  But a buy signal nevertheless.

Sunday, 3/16/14 update

Alternate #1

OR

Alternate #2

OR

Alternate #3

Lots of possibilities since the Major W3 top of Dec 31.  A problem here is that the rally from the 1732.00 low on Feb 5 into the 1887.50 top of Mar 7 can be counted as either 3 waves or 5 waves.  The 3 wave count is cleaner, the 5 wave count is awkward in spots.

Viewing that rally as 5 waves leads to the first two alternates, where Major W4 is considered complete at the Feb 5 low and Major W5 in progress since that time, with it complete at the Mar 7 top as in Alternate #1 or still in progress as in Alternate #2.  If Major W5 is complete as of Mar 7 then Primary Wave III is also done, which means a very significant top is in and a strong bear trend is underway.

But counting it as 3 waves results in Alternate #3, where Major W4 is considered still in progress and forming a flat.  In that structure, Intermediate Waves A and B are concluded and Intermediate Wave C is in progress.  Inter Wave C should reach or slightly exceed the Inter Wave A low at 1732.00 before it's done.  That low will mark the end of Major W4 and usher in a rally in the form of Major W5.

Because the Feb 5 to Mar 7 rally counts much better as a 3 than a 5 wave move the edge has to be given to Alternate #3 at this point.

The current fundamental background supports the idea that a major long term top is in or nearby.  First item is the status of the Fed money machine.  As we all know, the Fed is ratcheting that money machine back.  They're attempting to ease out.  I'm sure their hope is that they can tiptoe past any potential trouble.  But they're letting the gas out of the equity balloon - you would think that it has to have an effect.  Second situation worthy of note is the Chinese credit situation.  Bear markets are often (if not always) rooted in crises involving credit.  The Chinese have a crisis of that sort that appears to have just begun it's downward spiral.  And the amounts involved are massive.  A financial collapse in China would have worldwide impact, hence the negative prospects for US equities.

Tuesday, 3/4/14 update

Sunday, 3/2/14 update

Long term chart:

Couple of short term alternates:

Alternate #1

Alternate #2

Major W5 is in progress from the 1732.00 low of Feb 5.  Possible targets for Major W5 are at 1868.75 where Major W5 = .618 x Major W1 and at 1953.25 where Major W5 = Major W1.  Based on these targets there are two primary possibilities evident for the EW count.

Alternate #1 has the ES in Intermediate W5 of the move and thus in its very last stages.  Intermediate W5 is forming an ending diagonal and has already laid down Minor Waves 1 through 3, with wave 4 either complete or very close to complete.  Target here is that 1868.75 area.  Supporting that target is the fact that in this count Intermediate W5 = Intermediate W1 at 1871.25.

Alternate #2 has Major W5 extending with only Intermediate Waves 1 and 2 complete and Intermediate W3 in progress from Thursday's low at 1832.75.  Target is at 1953.25.

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Tick Analysis
You may recall the tick analysis work presented in early January.  Those studies had shown real potential for a few months leading into that post.  However, the results went seriously off the rails during January and forced me back to the drawing board.

One of the aspects of the original work that I really liked was the concept of a moving average of the instantaneous (1 period) tick minus the same period simple moving average of the tick.  The idea here is to attempt to generate a leading indicator of sorts that signals a pending change in trend.  Using 26 periods of 30 minutes (see note below) as a base, following is a chart of that using the average (H+L/2) tick per period as the input:

As can be seen, if a trade was made whenever the MA crosses the zero line the results in the last month were pretty favorable.  Whether this will hold true over an extended period remains to be determined.  The highlighted areas are of interest.  What's happening during those periods is that the instantaneous tick, after spiking above or below the SMA (simple moving average) of the tick, is settling back in to roughly match the value of that SMA.  I read the pattern as the signature of a trending market.

Accumulation and distribution are important market concepts.  The idea is that savvy players  accumulate long positions near the bottoms and distribute (sell) positions near the top.  So can that activity be picked up by analyzing what's going on in the tick?  What if the formula employed in the above study were to use the tick highs per period rather than the tick average?  Applying this idea results in the following chart:

 
As can be seen in the highlighted areas, using tick highs as input to the formula results in a pattern that has the chart diverging at lows - i.e. it does in fact appear to be picking up accumulation.  But it's not reliably picking up distribution.
So what if we now run the study using tick lows as input?  Here it is:

Can't say that this reliably picks up distribution either - it seems to cycle pretty much concurrent with the market, at least during this time frame.  Perhaps this study will appear differently in a bear trend as opposed to the bull trend that was in effect during the time frame under review.

Putting all three ideas together results in a very intriguing picture:

The highlighted area at the lows at the beginning of February are worth discussing.  During that period all three averages diverged against the double bottom that was formed at that time.  Whether this pattern will repeat at significant tops or other bottoms remains to be seen.

Note: Why 26 half-hour bars?  The first part of the answer revolves around the fact that a normal trading day is 6 1/2 hours in length, so 30 minutes is the largest whole unit subdivision of that span.  Why 26 bars?  Because of the 24 hour "news cycle".  There is a chicken and egg argument as to whether news drives the market or the other way around, but there's no question that news and the market are interrelated.  The 24 hour news cycle refers to the fact that the news for any particular day is repeated throughout that day and reset the next day.  If the news is significant enough it will echo through the next day.  So 26 half-hour bars would encompass that two day span.  Besides, it works.

Note: On the road next week through the weekend, so no update