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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.   

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