Friday, 4/12/13 2nd update

Guess that answers that question.

Friday, 4/12/13 update

Gold has dropped to a level that has provided long term support over the last few years:

Likewise with silver:

Could be a nice buy opportunity.  However, be aware that the PM's could significantly break below these levels, in which case there would probably be a rapid collapse in prices.  So a good idea would be to wait for some sort of confirmation of a bounce off these levels before taking a long position.

Saturday, 4/6/13 update

The ending diagonal that was in progress since mid-March finally appears to have topped at ES 1568.00 last Tuesday.  Ending diagonals often appear at the end of sustained trends and are indicative of exhaustion of those trends.  In this case the ED marks the end of a rally that started last November and traveled 228 points (17%) in the ES, so the down trend should have some significance.

The pattern in the ES since the Tuesday high shows 5 waves down into a low of 1533.25 on Friday.  The fact that it was 5 waves helps confirm the possible change in trend.  The ES then rebounded into the Friday close.  If this analysis is correct then that rebound should not exceed Tuesday's 1568.00 high.  A possible target for the corrective bounce is at the .618 retrace of the sell off.  That level is at ES 1554.75 and is also right in the wheelhouse of the 4th wave of the sell off.  Corrections often are limited to the area of the 4th wave of the move that they are correcting.

Tuesday, 4/2/13 update

Couple of things showing up on this rally today which could be significant.

1st is the Vindicator Buy/Sell index which measures buying and selling pressure.  The chart of that below uses 26 half hour periods as a base, which equates to two days of activity.  Over the last two days selling pressure has exceeded buying pressure.  That will probably swing the other way if the current rally is sustained for the rest of today, but it should be noted that this did not occur as a result of sell offs since Mar 21 when the recent roller coaster commenced. 

2nd is the performance of the broader market as compared to the S&P.  The RUT is not participating in today's rally, at least not to the same extent as the S&P.  The chart below has the RUT in black bars and the S&P in purple, the indicator below the chart is a simple ratio of RUT divided by S&P.  I checked the NYSE and that index shows a similar situation.

Both these indicators may mean absolutely nothing in the end, but they are showing up at just about the right point.  However keep in mind that trending markets can be freight trains that crush everything standing in there way.  So a good idea would be to wait for a turn to be confirmed in some fashion before jumping on the bear wagon. 

Saturday, 3/30/13 update

The post last weekend classified the action since the lows of Mar 17 as an ending diagonal.  The read at that time was that 4 legs of that structure were in place with the 5th and final leg almost complete.  But this last week saw a continuation of the roller coaster.  It still looks to be an ending diagonal, but one which is taking longer than thought last weekend. And just as a week ago, it appears that the 5th leg is in progress.
The alternative view would be that the waves since the Mar 17 lows are a series of waves 1 & 2 of ever declining degree, 5 in total up to this point.  This would imply an upside explosion almost immediately, with a significant amount of distance in both time and price yet to come before the sequence runs out of steam.  Doesn't seem reasonable, but I suppose it's possible.

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There's been a lot of national press attention given to equities in the last few weeks as a result of the Dow Index exceeding it's all time highs of 2007 as well as the S&P being within a hair's breadth of its all time highs.  So are we in the midst of a new long term bull market?  There is an EW alternate that would accommodate that thought.

But the preferred view on this site is that all the action since the Mar '09 lows constitute an "X" wave.  In Elliott "X" waves are moves that separate corrective sequences in complex corrections.  They can travel to and even past the point where prices started the original corrective sequence.  So under this view the rally of a couple of major indexes to and past the 2007 highs does not disqualify the bull run off the 2009 lows as an X wave - at least not yet.

Some perspective on the long view might help make the case.  Elliott Wave distinguishes between two main wave types: impulsive and corrective.  Impulse waves have 5 distinct and well defined legs, 3 in the direction of the underlying trend and 2 against it.  The 3rd leg (wave) is usually the strongest and longest in equities and the 4th wave retrace does not overlap the 1st wave.  Corrective waves consist of 3 wave moves or combinations of 3 wave moves.  Corrective waves can be very complex and are often characterized by choppiness and a lot of price overlap.

Below are some long term charts of the S&P and the NYSE.  To my eyes the action since the Mar '09 lows appears much more corrective than impulsive.  But then I suppose that just proves my bearish predisposition.

   

Sunday, 3/24/13 update

The ES/SPX was locked in a trading range last week.  Profitable little roller coaster if you caught the turns.  The current short term EW count shows the pattern last week to be an ending diagonal with the last leg of that diagonal in progress.  And that structure is the last move in a wave of higher degree that is itself a 5th wave.  If correct then prices should roll over by the end of day Monday.

The big question is what will be the extent of the next correction.  The current long term alternates charted below offer a wide range of possibilities.  At this point it's difficult to say which is more likely, except that the 1st alternate can be viewed to be the most unlikely barring a black swan event in the next few days.

 Alternate #1

 Alternate #2

 Alternate #3

Sunday, 3/17/13 update

Crowded weekend so not much time for a post.

Current short term count for the ES:

There's no question that equities are overbought on the short term.  However, markets can go "overbought" or "oversold" in a strong trend and just stay there.  But gravity has to have an effect at some point, if the above count is correct then that point is very, very close.  It may already be here, except that Friday's selling was a three wave move with a rebound that overlapped the 1st leg of that move, so it does seem likely that there's one more pop left in the gun. 

Al's Daily Indicator has a record of being better at nailing bottoms than tops.  The chart of that indicator below highlights it's record with respect to tops in the last couple of years.  Actually, it hasn't been half bad over that period.  However, it did recently put in a spike top last Monday and has been falling away sharply since then in the face of a continuation of the recent rally through the week.  Probably the best way to view this is as a confirmation of a 5th wave in progress as per the Elliott count above.