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Saturday, September 20, 2014

Saturday, 9/20/14 update

There is a distinct difference in equity markets as opposed to commodity markets.  In commodity markets the underlying tension between bulls & bears is such that neither side has a long term edge, i.e. neither side will dominate the long term slope of the market.  In the end commodity pricing will reflect the real world underlying demand/supply equation.  Increasing demand leads to higher prices and eventually leads to increased supply, which in turn leads to lower prices and eventually less supply, rinse, repeat.  However, in equities almost the entirety of society wants higher prices - from the financial industry to the politicians to the guy next door.  The exception of course is the very small community of traders who crave bear markets because of their potential for very quick and sizable profits.  So the long term bias in equities is definitely up. 
It's been over 5 years since the Mar '09 lows that followed the '08 crash. The equities markets grind steadily upwards, and every time the EW analysis shows the possibility of a top the market manages to truck on through anyway with extension after extension of the EW count.  As mentioned, the bias is definitely towards north, and the mindless BTFD'ers are right more often then not.  Such is the case at the moment.  Although the EW count would appear to portend a significant top in the offing, it's fairly likely that the expected top is not here quite yet.

Alternate #1

Alternate #2

Intermediate W4 was done at the 1890.25 low of Aug 7.  The rally that ensued had two clear impulse structures into the highs of Aug 26 (labeled Minute W3 in Alternate #1 and Minor W3 in Alternate #2).  Following that the ES/SPX embarked on an over two week long muddied and sideways track into the lows of Sep 14 followed by a thrust into the 2014.50 high of Friday.  That last rally is the tell.  Although the entire sequence since the Intermediate W4 low can potentially be counted as a completed Inter W5 move as in Alternate #2, the problem is that last week's rally is almost certainly a three wave move rather than a five.  The sell off after the Thur/Fri overnight high overlapped the presumed 1st wave high of the move.  So either the rally is over and it's a B wave in an expanded flat as in Alternate #1 or an ending diagonal is in the process of being formed.  If an expanded flat is being formed then wave C of the structure is likely in progress.  Targets here are at the 50% retrace of 1950.50 and (more likely) the .618 retrace of 1936.50.  If an ending diagonal is in play then the target high has to be somewhere south of 2021.00 to fit EW rules.

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