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Saturday, January 16, 2016

Saturday, 1/16/16 update

In general all markets can be characterized as either "cycling" or "trending".  In a cycling market prices are either in a trading range or slowly trending up or down, and there is a lot of backing and filling.  Trending markets move strongly in a bull or bear fashion with only minor interruptions to the trend that are usually of very short duration.  When market analysts refer to a market as "overbought" or "oversold" there are generally referring to market indicators that oscillate based on market momentum.  These tools are excellent in cycling markets - after all a cycling market by definition is oscillating.  However, in trending markets they tend to become useless - again, by definition a trending market is moving in one direction in a sustained manner and thus is not oscillating.  This is where Elliott Wave analysis can be valuable - it provides a way to judge a market move and make reasonable conjectures about its endpoint.  

We are in the midst of a strongly trending move in equities.  By most measures this market is "oversold".  But that doesn't mean a bottom is close at hand.  Indeed, from an EW standpoint there is a pretty fair likelihood that there's more selling to come, although it is reasonable to anticipate a small bear market rally in the coming week.  There are a couple of possible counts for the pattern from Dec 29 top, the 1st of which has that move currently done or close to done:

The 2nd possibility has the move extending:

In either case the sell off this January is labeled as the 3rd wave of an impulse, which means it will be followed by a 4th wave bear market rally and a final 5th wave down to the ultimate low.

The longer view has the whole pattern since the highs last May labeled as a multiple zig-zag Primary W IV with the 3rd and final zig-zag of that wave currently in progress:

 A possible target low for Primary W IV is the .382 retrace of Primary W III which is at 1726.75.

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