Weekend Update 4/10/10

The Vindicator Buy/Sell line crossed into buy mode after the 1st half hour on Friday.  It continues to lay down the oscillating pattern that started in mid March.  This is telling me that there is a real bull/bear struggle going on.  Obviously the bulls have been winning the battle, prices have worked there way higher over that period.  The $64 dollar question is when the bears will succeed in overcoming the bulls.  I say when, not if, as this run has had no significant corrective activity since it's onset in early February and also because the Elliott Wave count almost certainly stands at 4 waves complete since Feb 5th with a 5th wave in progress.
Another thing to note on the Vindicator charts is the V Stochastic which peaked towards the end of day on Thursday and fell away until towards the end of day Friday where it started to curl up.  If the market stalls next week and the V Stoch also rolls over it could lay down a divergent pattern.
Finally please notice the "v" bottoms evident on the sell line in the buy/sell Vindicator, which has shown up three times in the last few weeks, the most recent being last Tuesday at the peak of wave 1. All three times led to a sell off.  This caught my eye this week, so I went through my limited archives on the Vindicator to see if it's a pattern which has any reliability.  The answer is "yes" - at times.  If the market is in a sustained trend the buy/sell line that is not in play (i.e. sell line in an up market, buy line in down market) will drop to almost zero and just stay there and isn't particularly useful as a trade signal on it's own.  However, when the buy/sell lines are oscillating it does seem to generate useful entry points.  The key is whether it forms a "v" bottom, which should be evident within an hour or so of a low point.  I'm planning on trading this pattern in the next week or two if it shows itself, particularly if the V Stoch appears to be peaking and most especially if we appear to have a five wave pattern completed from the low of 3/31 (marked wave 4 on the chart).

 Below is the Elliott count on the E-mini S&P as I see it.  The pattern since the low of wave 4 on 3/31 is pretty sloppy, but I do believe it is a wave 1 - 2 sequence as it is much cleaner and pretty apparent on the cash S&P (see the Vindicator chart above).  A daily chart follows the hourly chart.
This market is still notable by it's steadily declining volume, which has been the case going all the way back to the major low of March, '09.  What this means is that there appears to be an ever narrowing base of buyers supporting the rally.  I'm not an adherent of the P3 scenario of some folks, but I believe that participation has to improve at some point to sustain this bull market over the long haul.  
Finally, I have a series of daily statistics that I've been keeping up and charting for years which are starting to scream SELL.  We are certainly due for a correction of the run up since early February.  Next week being OPX week would seem to say we're a week away, but time will tell.

Thursday 4/8/10 wrap up

V Stoch almost reached 75 at about 2:30 PM and started rolling over while sell line remained above buy line so shorted ES @ 1183.75.  Original trading rules look for a reading above 75 but it was awfully close (72.8) so I went with it.  Strong run up since this morning's lows with an apparent 5 wave count and overbought conditions on my 5 minute charts, if anything we should see a retrace of that run to make the short ES profitable.  However, on Buy/Sell Vindicator the sell line dropped towards an ascending buy line at end of day.  If the buy line crosses above the sell tomorrow I will either cover the short ES or move the stop to a breakeven or better position.

 

From an EW standpoint, the drop from Tuesday's high into this morning's lows looks very much like 5 waves, although a tad sloppy.  Same pattern is evident on the SPX and looks much cleaner.  However, the move up today looks very impulsive (and also much cleaner) which confuses matters.  Supporting the argument for today's rally being a 2nd wave is the underlying market statistics: on the NYSE volume dropped off a tad and, more to the point, advances and declines were almost even.  So not a lot of real strength in the underlying technicals.  We should know the answer early tomorrow. 

Wednesday 4/7/10 wrap up

Sell line crossed above Buy line at the close today.

Still learning how to use the Vindicator.

My plan on using the Vindicators has been to buy when Buy line is above Sell and the V Stoch has dropped below 25 and ticked up from that low. A sell would be the opposite, i.e. Sell line above Buy and V Stoch one tick down from a high over 75. That strategy worked well in February and early March, but hasn't given any viable trades since. Went long today under those conditions @ 1183.25 and was stopped out @ 1178.25 for a loss of 5 points.

However, in looking at the recent Vindicator activity, I spotted something interesting which you can see in the chart below.  Three times in the last month the sell line has approached zero (3/17, 3/23 & yesterday) and all three times have marked the onset of some decent selling.  I have to think it through, but I believe that pattern should be incorporated into my trade plan for the Vindicator.

Tuesday 4/6/10 wrap up

Buy/Sell line still in buy mode, V Stoch meandering around mid range, go long or be wrong.......

Price pattern on ES since low last Wed (end of W4 I believe) is tough, lots of overlapping waves and no alternation in correction patterns, so on this chart we've either had a whole bunch of 1-2's which means there's a looong way to go on the upside or it's some kind of ending diagonal.  SPX chart (below ES chart) however shows a much clearer Elliott Wave pattern since last Wed with clear alternation and no overlaps, also shows real possibility of us being in 5th of 5th.  I lean towards that latter interpretation, we've been chugging away now for weeks (8 I think) with no real break.

Monday 4/5/10 Wrap up

Sell line on V Buy/Sell has declined almost to zero.  V Stoch also declining from high today, currently at mid range, if it declines below 25 it will issue a buy signal at 1 tick up from the low IF buy line still is above sell.

EW count over recent couple of weeks has been difficult, here are two possible interpretations:

Friday 4/2/10

Do we have a 5th wave?

Thursday 4/1 wrap-up

Still flopping around on the buy/sell, possibly indicative of a top.  We haven't had a trade signal on the
V Buy/Sell + V Stoch since 3/22, from the standpoint of the Vindicator it's been like a deer in headlights.  However, the fact is the market has pretty much tracked sideways over this period so there hasn't been much opportunity lost.

From an EW standpoint, still very difficult to get a wave count that is clear and satisfactory.  There have been no sustained clear impulsive moves during the sideways track of the last two weeks.  Lots of 3 count A-B-C's in both directions.  Here's my idea of where we might be at, but it's certainly not 100% certain:

Daily EW chart shows prices still in the channel from the 2/5 low, but we've moved sideways across the channel so that bottom trendline isn't far away: