Saturday, 3/28/15 update

Last week it looked very likely that the ES was going to continue up to new ATH's, but that didn't happen. Because of the failure to follow through to the upside all three alternates discussed in last week's update remain on the table.

Two of those alternates are shown in the chart below:

The 1st of those two has the Primary Wave III bull market off the 2011 lows terminating at the late Feb high and Primary Wave IV now in progress.  The 2nd has Major W5 of Primary Wave III still working its way out with Intermediate W1 of Major W5 done and Intermediate W2 in progress and probably close to done.  That would leave Inter W3, W4 & W5 yet to occur to complete Major W5 and establish a top for Primary Wave III.

The 3rd possibility is that Major W3 of Primary III is still in progress.  In this alternate Intermediate W5 of Major W3 has been tracing out an ending diagonal since the mid-October low of last year, with Minor W1 thru W3 of that structure in place and Minor W4 done or close to done.  That would leave Minor W5 to occur into the Major W3 top.  But it would also mean that Major W4 & W5 have yet to unfold into the Primary III top - so a bit yet to travel for the bull in terms of both time and price.

The nice thing here is that there are some clear invalidation points for the 3 alternates.  The 1st alternate that has the Primary III top in place at the late Feb high will be ruled out with a rally to new ATH's.  The 2nd alternate that has Major W5 of Primary III extending will be ruled out with a drop below the assumed start point of that structure at 1973.75.  The final alternate will be invalidated if the current sell off continues unabated down through 1999.25.  That is the point where the current Intermediate W4 of the diagonal will exceed the length of Intermediate W2, which will violate the conditions necessary to form a diagonal.  All 3 of these alternates have roughly equal probability IMO.

On the short term, last week's sell-off left the count as a three wave structure with a final down thrust (at a minimum) necessary to form a 5th wave and thus an impulse.  The counter trend rally that was laid in on Thursday and Friday has a very corrective looking pattern, with the result that so far it looks like there will be more selling in the very near future.  So there is a pretty fair likelihood that a 5th wave will be put in place.  However, if it does occur and is a 5th wave then be prepared for a snap back rally, and that's where the rubber will meet the road.  If in fact the Primary III top is in place then that rally will be weak and short lived, if not then one of the other two alternates might well be in play.

Saturday, 3/21/15 update

bear (b^ar) n.  A large plantigrade carnivorous or omnivorous mammal (family Ursidae) with massive thick-furred body and short tail.  Currently thought to be almost extinct.

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A week ago it really looked like the intermediate term (and possibly long term) trend had shifted to bearish after the late February ATH's.  The drop from those ATH's into the Mar 13 low looked very much like an impulse and cut too deep in relation to the preceding uptrend to be considered as a "C" wave of a corrective structure.  However, the action this last week has brought the ES to very close to establishing new ATH's and thus invalidating the idea of a major top being in place.  In addition, the week's rally pattern is very impulsive looking, which also suggests a continuation of the move up past the late February highs.

Thus the bear count still remains on the table but has diminished in probability to maybe 1 in 10.  That count shows a double zig -zag off the Mar 13 low and will be ruled out with a print above the ES 2117.75 high of Feb 25:

The primary alternate is that Major W5 of the bull market from the 2012 lows is still in progress.  In that context the March sell off is Intermediate W2 of Major W5 with Intermediate W3 now underway.  What looks like an impulse structure in the March sell-off is counted as a double zig-zag (with some difficulty):

If we continue rallying to new ATH's another possibility opens up, and that is one where Major W3 of the bull market from 2012 is still in effect.  This alternate would have the market forming an ending diagonal Intermediate W5 of Major W3 as in the chart below:

Obviously it would also mean quite a bit more bull market yet to unfold.

Wednesday, 3/18/15 update

Al's Indicator strikes again:

The Indicator bottomed at a reading of .772 last Tuesday, a reading below 1.000 is considered to be in buy territory.

The big question is whether the rally since the mid-week lows of last week is a 2nd wave in a developing bear trend or the start of another run to new all time highs.

Bear count in the ES looks like this:

If their is in fact a bear trend developing, the r/r here for a short trade is pretty good - the bearish count is invalidated at the prior ATH of 2117.75, around 20 points from today's close.

Sunday, 3/15/15 update

Very clear impulsive structure down from the top a few weeks ago.  If this count is correct, we could see a counter-trend rally very soon which should provide a shorting opportunity with decent r/r.

In the boonies (Texas Hill Country) - very poor connection, happy to get this done.

Saturday, 3/7/15 update

Have we seen a stealth top in the ES?  The selling last week would seem to say so, especially the powerful downdraft that occurred on Friday.  Market tops tend to be sneaky, hence the ferocity that bear markets tend to exhibit - a lot of folks get trapped in their longs and subsequently hit the exit door in a panic.

It is possible to continue the count suggested last week:

However, there is a thing in EW analysis called proportionality which says that subwaves within a larger wave tend to be proportionate to one another.  As can be seen in the above count, the suggested Intermediate W4 (purple) is way out of proportion to Intermediate W2, which only lasted a day and a half and traveled 24 points.  So it's unlikely that this alternate is correct.

So that leaves us with the idea that the Feb 25 high at 2117.75 concluded the rally from 1973.75 low of early February.  Applying that idea to the chart also leaves some proportionality problems, but nothing near as drastic.  Five waves up can be counted from the Feb 2 low, however it's not the most aesthetically pleasing.   But this is not an art contest, and reality needs to be recognized:

There is one final consideration, and that is that Major W5 (blue) may extend.  In that case, the Feb 25 top only marks the high of Intermediate W1 of Major W5 with Inter W2 in progress and Inter W3, W4 and W5 yet to occur.

There is good evidence that the Primary W III high is in as of Feb 25.  There appears to be a major paradigm shift underway in the financial markets.  That shift involves interest rate expectations, with everyone anticipating that the Fed will soon be raising those rates.  As a result the US$ has been on a bull tear in recent months, and now it appears that the bond markets have topped and have moved into a bear trend of at least intermediate term and quite possibly long term.  All this is very negative for equities.  So we have underlying forces providing impetus for a Primary W IV bear trend.