Saturday, 8/29/15 update

So, was that it?  Is the correction that's been building all year done after just a few days of serious selling?  Seems like it's too quick, unless you consider the sideways track that we've seen all year to be part of that corrective process.  In that context it wasn't all that quick.

From an EW standpoint the E-mini has formed a double zig-zag into Monday's crash low at 1831.  This is labeled as Primary Wave IV in the top chart and alternates nicely with the irregular flat of Primary W II (in 2011).  EW rules allow for as many as three zig-zags separated by "x" waves in a multiple zig-zag correction.  Since the E-mini has formed two zig-zags there is room for one more "x" wave/zig-zag  sequence.  Unfortunately, using EW rules, there is no good way to determine whether that final zig-zag will occur or if Primary W IV concluded at Monday's low.  The invalidation level for further Wave IV action is all the way up at the late July "x" wave top of 2126.25.  However, it can be noted that the recent bear action was quite severe and generated "oversold" readings rarely seen. So from that standpoint Primary W IV reached it's pinnacle (not sure that's the best way to phrase it - oh well).  I'm sure the perma bulls can muster many good reasons why the correction is done, and likewise the perma bears can muster many equally good reasons why there's got to be more selling in the near future.  I'm don't believe either side can be given more credence than the other at this juncture, i.e. it's a 50/50 proposition IMHO.

The short term chart and EW count since the Monday low is equally ambiguous - so far there have been two impulse structures up since that low separated by flat style correction.  As noted in the chart, the pattern can be labeled as an a-b-c(in progress) of a corrective sequence or as a wave 1 - 2 - 3(in progress) of a developing longer term impulse.  One thing to note: on the very short term the  market reached some "overbought" markers on Friday and is due for a pullback early next week.  The dimensions of that pullback could give clues as to the nature of the rally off of Monday's bear market lows.

Sunday, 8/23/15 update

From last weeks update:

"It is possible that the series since the July 20th high is a sequence of nested waves 1and 2, but that interpretation is beginning to strain credulity.  If that is in fact the case, then this market should break south hard and fast very soon."

As we all know, the market did break south hard and fast this last week.   So the possibility I considered least likely is in fact what we have (sort of, more on that later).

Last weeks plunge broke solidly below the interminable trading range we've seen this year, and also it broke under the channel that has defined the bull market from the Oct 2011 low.  So it is being labeled as Primary Wave IV of the bull market off the Mar 2009 lows:

Primary W IV appears to be forming a multiple zig-zag.  This alternates nicely with the irregular flat that defined Primary W II.

Best guess on the internal count on these zig-zags looks like this:

The whole sideways slop from the "a" wave low on Jul 27 into the Aug 17 interim top is very difficult to fit into the EW paradigm.  It could be a series of nested waves 1 and 2 as mentioned in last weeks update, but there are a couple of reasons why that interpretation is not a good fit, at least not for the ES.  After long study, the best labeling is that of a convoluted "b" wave as in the above chart.  From there however there is a very clear impulse in progress.   So far the current "c" wave appears to have waves 1 and 2 in place with wave 3 in progress with that 3rd wave possibly done or close to done.  However, as severe as this sell off has been there could be an extended 3rd wave.  As Yogi Berra said, it ain't over until it's over.  Identifying targets for this "c" wave is highly problematic, so the best would be to let the market tell us when it's done selling off.

Saturday, 8/15/15 update

Looking at the longer term charts of the ES/SPX two things are pretty obvious: 1) the powerful upside momentum off the 2011 lows evaporated at the turn of the year, 2) that turn has not resulted in a serious bear trend, at least not as of yet.  Result: trading range - and an extended and very frustrating one.  Yes, there have been one or two weeks of sell off during the year, but they fizzle out after a bit and the BTFD'ers jump in with a stick save.  So as of this point this whole period appears to be a correction in the context of the bull off those 2011 lows with a little more of that bull (or should I say bullsh--) yet to come. 

The EW pattern in the ES since the mid-May high @ 2134 is difficult to pin down.  The SPX (cash) isn't much better.  The ES put in a 3 wave pattern from the May top @ 2134 into the early July low @ 2034, followed by a quick 3 wave move into a top of 2126 on July 20th.  So those waves are an "A" and "B" wave of either a flat or a triangle that is being formed.  There is a 3rd possibility, and that is that those waves are part of a multiple zig-zag formation, but that option seems less likely given the pattern since the July 20th high.  That pattern since the July 20th high is particularly convoluted.  The low of last Wednesday could mark a "C" wave low in a triangle:

OR it could be the wave 3 low of an ending diagonal "C" wave:

On the hourly chart the pattern since that July 20th top can be counted as follows (in the context of a developing triangle from the May highs):

It is possible that the series since the July 20th high is a sequence of nested waves 1 & 2, but that interpretation is beginning to strain credulity.  If that is in fact the case, then this market should break south hard and fast very soon.
Of course, and as always, the market will be the final arbiter - it has the right to do whatever it wants and I have the right to be wrong.

Saturday, 8/8/15 update

The flat correction anticipated in last weekend's post did in fact materialize, but not quite as envisioned:

IF this count is correct the odds favor a run up into the 2110 area over the coming week.

Sunday, 8/2/15 update

On the short term the ES developed an impulse off of Monday's low into Wednesday's high and appears to be forming an irregular flat since that time.  Thus the expectation is weakness early in the week followed by more rally:

On the intermediate term the low established Monday was a higher low than that of early July, and this fact has opened up a multitude of possibilities from an EW standpoint.  More information is needed to winnow out these possibilities, so those alternates are on hold for a bit. 

The one thing that should be noted is the buy signal generated by Al's Daily Indicator on Monday.  A reading in the .50 area by this index has historically been a pretty strong buy, and the indicator bottomed at .584 on that day.  Generally this leads to enough bull market to lift the indicator above the 2.00 level.  But this can happen without price highs above the level of the peak that preceded the drop to the lows that generated the buy.  In other words this indicator can be a good tool if trying to time the top of a counter trend rally.