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Sunday, April 27, 2014

Sunday, 4/27/14 update

The ES will go up if it doesn't go down first.

Now there's a market analysis that's sure to impress and amaze.  With the analyst's stupidity no doubt. 

But actually, that's about where we're at.  Coming into last week I was inclined to think that the ES/SPX was almost certainly going to make a run to new highs off the Apr 13 lows without major interruption.  True, the count was for wave 3 of an ending diagonal, so only a marginal new ATH was the expectation.  But the action last week was somewhat tentative, and the Thur/Fri sell off cut deep enough to raise questions about the correct count.  And the fact is that under EW rules the near term bearish alternates on deck the last couple of weeks have not been definitively ruled out.  Those alternates had an impulse forming and in it's early stages, with the 1st wave bottoming at the Apr 8 low and an irregular flat 2nd wave working it's way out since that time.  Since a 2nd wave is allowed to travel almost completely to the start point of wave 1 under Elliott rules, then the bear counts cannot be eliminated until the ES/SPX rallies to a new ATH.  So here's an updated hourly chart of the near term bear case:

The near term bullish alternate has the ES forming an ending diagonal at Major wave degree starting at the 1732.00 low of Feb 5.  Intermediate W1 of that ED topped at the 1892.50 high of Apr 4, Intermediate W2 bottomed at 1803.25 on Apr 13 and Intermediate W3 is currently in progress.  Possible targets for Intermediate W3 are at 1902.50 and 1929.50, which represent .618 and .786 multiples of Intermediate W1 respectively.  In an ED the 3rd wave should be shorter than the 1st (and the 5th wave shorter than the 3rd).  These targets are not real high confidence, but if the count is the correct one then they probably aren't far off.  This alternate can be ruled out if the end of week sell-off continues next week and leads to a drop down through the ES 1803.25 low of Apr 13.

Saturday, April 19, 2014

Saturday, 4/19/14 update

Coming into last week there were several short term possibilities for the ES, two of which saw the pattern from the Apr 4 ATH as the beginning of a corrective series that had laid down a pattern of nested 1st & 2nd waves.  However, the rally from last Sunday evening's low has retraced almost all of the two day drop that preceded it.  So the only viable possibility for the idea of a continuation of the sell off that started on Apr 4 is that of a 1st wave bottom on Apr 8 followed by an irregular flat 2nd wave that is almost complete, as per below:

This idea is certainly possible, but the ES/SPX was oversold enough as of the Apr 13 low to support a more extended rally then we've seen to this point.  So that leaves the more immediately bullish option as the current preferred alternate.  That alternate has an ending diagonal in progress since the early February low:

Monday, April 14, 2014

Monday, 4/14/14 update

Buy signal on this indicator as of today's close.  If this sticks and the ES rallies to new all time highs then Alternate #2 from the weekend update is most likely in play.

Sunday, April 13, 2014

Sunday, 4/13/14 update

Alternate #1

Alternate #2

From the Dec 31 Major W3 high the ES formed a three wave structure into a low of 1732.00 on Feb 5, followed by an impulse into an ATH at 1887.50 on Mar 7.  This was followed by a triangle structure which terminated on Mar 28 and then another impulse into a further ATH of 1892.50 on Apr 4.  The action since then has generated some downward impulses but to this point has only formed three waves.

There are two ways to view this action since the Major W3 top.  Alternate #1 has the ES forming a large irregular flat since that time with Intermediate Wave A of that structure bottoming at the 1732.00 low of Feb 5, Intermediate Wave B topping at the Apr 4 ATH, and Intermediate Wave C currently in progress.  This alternate is attractive from a couple of standpoints.  First, it would portend a low for Major W4 that approaches the lower channel trendline of Primary Wave III, an event which hasn't occurred since the bottom of Major W2 and one which is to be expected to make the structure look proportional.  Second, it accounts for the triangle that was formed in March, which is counted as Minor Wave b of Intermediate Wave B.

Alternate #2 has Major W4 concluding at the Feb 5 low.  The three wave structure from Dec 31 into that Feb 5 low fits all the requirements for a flat, and thus fulfills the EW rule of alternation with respect to Major W2, which was a double zig-zag.  However, it is relatively shallow as compared to Major W2.  From that low the ES is tracing out an ending diagonal Major W5,  with Intermediate Wave 1 topping at the Apr 4 high of 1892.50 and Intermediate W2 in progress and either done or close to done.  Intermediate W1 is an a-b-c structure as required in an ending diagonal, with the March triangle being Minor Wave b of that structure.

There is a 3rd possibility which has Intermediate W3 extending farther than the above alternates and topping at the high of 1845.75 on Jan 15.  Intermediate Waves 4 & 5 then follow into the 1887.50 high of Mar 7 marking the top for Major W3.  The March triangle then becomes Major W4 with a short and quick Major W5 into the Apr 4 ATH of 1892.50.  That high would thus be the point of a significant trend change from the bull market of Primary Wave III to the bear market of Primary Wave IV.  The problem with this alternate is the compressed natures of Intermediate waves 4 & 5 as well as Major Waves 4 & 5 as compared to earlier waves in the series.

Alternate #3

Sunday, April 6, 2014

Sunday, 4/6/14 update

As an EW practitioner I carry idealized images in my head of various Elliott structures.   Quite often the reality in a given market synchronizes nicely with these idealized images.  Most often this is the case with impulse waves.  But then there are more than enough times when that reality does not mesh well with my idealized images even though the apparent EW count is valid - i.e. EW rules have been followed.  Most often this is the case with corrective sequences.  So I have to suppress my aesthetic sense and regard the ungainly looking count and/or alternate counts as possible in the context of the rules of the system.

The latest short term price pattern in the ES is a case in point.  There are a number of EW possibilities for the recent price action, but there are two that seem most likely to be correct.

Alternate #1

Alternate #1 has a flat type corrective sequence in progress starting at the Mar 7 high at ES 1887.50.  From that point the ES dropped in a straightforward a-b-c sequence into a low of 1823.50 on Mar 16 to complete the "A" leg of the flat.  The "B" leg has been in progress since then and has to be read as a double zig-zag, with waves "x" and "y" (which are clearly 3 legged moves as required in EW rules) in place and wave "y" underway.  Therein lies the problem.  The rally from the "x" wave low of 1834.00 on Mar 27 looks very much like an impulse, so if the ES is in wave "y" of a double zig-zag then there needs to be a correction that does not drop below 1834.00 followed by another impulse into a high equal to or exceeding the Apr 4 high at 1892.50 to form the three legs necessary for the move.  As can be seen on the chart projection this looks pretty cumbersome, especially given the strong and impulsive looking drop on Friday.  If it turns out to be correct then the "C" wave of the proposed flat from the Mar 7 high should be a 5 wave sell off into a point lower than the 1823.50 low of wave "A".

Alternate #2

Alternate #2 has the ES forming a triangle type correction terminating on Mar 28.  This structure looks pretty good (aesthetically pleasing?) for waves a, b, & c of the structure, but looks pretty funky for waves d & e.  Those last two moves are significantly shorter than the first 3 waves and are far out of proportion.  However, it should be noted that this triangle is much more visible and proportional in the cash indexes such as the SPX and the NYA, which is why it is credible.  As can be seen, the rally since the e wave terminus is either a 5th wave or wave 1 of that 5th wave.

Friday's sell off was impressively strong and sharp.  As a result the market appears "oversold" from a very short term perspective so that a bounce of some sort is in order.   Friday's high at 1892.50 and the low of 1855.75 are key levels. A move to the area of the high which stalls and rolls over would indicate that the Alternate #1 is in play.   A sustained move up past that high would indicate that Alternate #2 is the valid alternate and that an extended 5th wave is in progress.  Finally, a small bounce followed by a resumption of Friday's strong sell off would also validate Alternate #2 and signal that wave 5 terminated at Friday's high.

There are also a number of long term alternates possible at this juncture.  A resolution of the short term structure will help zero in on which of those long term possibilities is truly likely, so discussion of those long term possibilities is being deferred until the short term picture points the way.