From Monday's post, the wave structure called for a new recovery high. The combination of several somewhat positive economic reports, the election results and the FED's QEII announcement provided comfort for traders to push the market higher. Bottom Line: Price made a new recovery high and has filled the gap (green resistance line) but market indicators and internals continue to lag. Conditions are ripe for the reversal that I have been calling for. However, I would be remiss if I didn't mention that the drop dead limit to maintain this wave count is the April high of 121650. So essentially, it's do or die for the Bears. Here's the Market's position as of the close: Momentum Indicators: OB on Weekly and Daily. 60 min chart is bullish but not in OB territory. Pattern: final wave.v of wave.c of wave.2. W.2 may have completed with the new recovery high. Time: No change from previous comment. Trade Strategy: Looking to establish a bearish position as 60 min momentum indicator reaches OB, then makes a bearish reversal. Best of Trading
The wave structure is now exhibiting a new personality . One that no longer allows me to maintain a stance of looking immediately lower in a big way due to the fact that prices has now exceeded the upper corrective channel by a significant amount which usually signals the presence of 3rd wave price action. Secondly, a new recovery high was made that exceeded the April 4/26/10 high of 1216.5. Elliott Wave rules state that w.2 can't exceed the origin of w.1, therefore I can no longer label the decline from 1216.5 as the start of a w.3. Attached is a weekly chart showing my current view of the wave structure. Note my expectation is for another push higher followed by a decline that should be a sideways. The decline can't breach 1127.5 under the current interpretation. In Monday's daily wrap up I will be discussing the upward potential of this new interpretation as well as possible alternative count. Best of Trading
The market made little progress in either direction today. This was expected as the wave pattern suggested that last Friday's close was a mature w.3. Today's price action either began a complex w.iv decline or it ended at the 1214.75 low. I have attached the 60 min chart to complement the weekly chart level that was presented in the Week In Review. Note that I have designated two sets of w.iv's. Since today's price action may not have completed w.iv, I can't project any w.v of w.3 of w.b termination targets. Regardless, once the correction is done, a new high should follow that will earmark the end of w.3, followed by a w.4 decline and another fresh high for w.5 of w.c of w.b (See Week In Review weekly chart in next post) as well as more commentary. Best of Trading
One thing that clear is that the FED has manipulated the market again much like it did in late 2002 and 2003. The thought process is clear. Inflate and kick the can (the bigger problem at hand) further down the road. In the meantime, investors and traders alike love the backstop. They say, "Don't Fight the Fed". While this certainly has merit, the wave structure tells another tale. However, let me digress for a moment. It's true that most Elliotticians saw what was to be the largest collapse since the Great Depression go up in smoke. That's not poor technical analysis, it's market manipulation and now we have to deal with it. Bottom line: The decline that began as Primary w. 3 down has evolved. When market's evolve, as technicians we must transition from one pattern to another. We accomplish this by looking at alternatives and making our assumptions based upon what we are sure of. Here's what I am certain of based upon Elliott Wave Theory : 1. The decline from 1590.5 that terminated at 665.7 is a 5 wave structure. 2. Five wave impulse waves are always followed by three wave corrective structures that when complete are fully retraced. Given this, the only question to be answered is how far the market will travel before the larger downtrend will resume. In the upcoming posts, I hope to provide some answers to this question. Best of Trading
On Monday I stated that price action either began a complex w.iv decline or it ended at the 1214.75 low. Yesterday a new high was struck that might indicate that w.3 had been struck. However, today's decline still leaves the potential for a more complex forth wave at the daily chart level. What's important is that we recognize that the decline from 1124.75 is an unfolding forth wave (either w.iv or w.4) on lower time frames. Therefore on a short term basis I am looking down. Downside targets are between 1180.5 - 1153.25 ( the .236 and .386 retracements of wave 3) on the daily chart level. A close beneath 1126.75 on the daily chart level would create wave overlap that would signal that a significant top had been struck. In my next Week In Review I will be discussing several alternative wave counts that lead me to believe that a significant decline is still in forthcoming. After the close Cisco reported earnings that beat but the stock sold off hard. The NQ_F are down significantly while the YM_F and ES_F are also down. So unless this is a fake out in the ON session, I expect weakness at the open. Here's the Market's Position as of the close: Momentum Indicators: OB on Weekly and Daily chart levels but both have turned down indicating a possible selling opportunity. 60 min chart is bullish and in OB territory. Pattern: At weekly chart level: w.iv or w.4 of w.c of wave.2 ( or other alternative counts instead of w.2 - all with bearish implications) Time: No change from previous comment. Trade Strategy: Looking to establish a bearish position as 60 min momentum indicator makes a bearish reversal. Downside targets are between 1180.5 - 1153.25. Best of Trading
QE2 vs Elliott Wave Theory. Which One Wins Out In this weeks review I want to spend some time looking at the bigger picture and other possible wave counts that may provide us with an additional bias as to where the market is heading. This is a three part post. Currently I have already presented a scenario under what I will call Scenario #1 whereas Intermediate w.(c) of w.b is still underway with initial targets of 1237-38 or 1343.6. Thereafter, a decline greater than the Great Depression should ensue. This is the "Dooms Day Scenario" See next post for Scenario #2
Under Scenario #2: the current rally is viewed as minor w. B of Intermediate w. (B) is unfolding as an expanded flat correction whereas w. B exceeds the origin of w. A. This implies that w.B would extend higher once the current decline that began on 11/9/10 ends. I'll post termination points as soon as they can be identified ... that is if this scenario plays out. Once w. B is complete, a five wave decline would be called for that would terminate significantly below 1003.1, possibly at the 1.382 reverse fibo of the distance between w.A and w.B .
Under Scenario #3: the current wave pattern would unfold in a triangle fourth wave. The current rally whether complete or not should result in a sizable decline in three waves proportionate to a .618 retracement of w.( a - b). This implies a possible decline below 1003.1. Of course much depends on the significances of any further advance. For sake of argument, we'll assume that w.c will terminate below 1003.1. Thereafter w.d and w.e will also unfold in three waves to complete w. IV. Thereafter a new recovery high above w.III would occur. Conclusion: Each scenario presented projects that price will make new lows before any rally of significant proportion. When several Elliott patterns like this agree with respect to direction there is obviously a higher probability that price will trade in that direction. I believe that its not only a matter of when. Best of Trading
Selling pressure continued today even though traders tried to buy the market at the open. The decline from the highs does not appear to be complete. The decline could be the start of w.3 as I depicted in the week in review or just a w.4 correction. The fact that selling pressure was on weak volume infers that the later is the preferred count. The daily chart show that w.4 should be a sideways affair since the rule of alternation apply whereas w.2 was a sharp correction and w.4 should then be either a triangle of flat correction. My target for the decline is 1153.25. See next post for continued analysis. This is a 3 part post of today's action.
I've added another daily chart showing an indicator that Jeff Kennedy of EWI developed. Note what transpires as the black MOAD line drops below the purple 30 ma. Should this occur, a sizable sell off would occur. The indicator last made a similar cross right after the April top. I'll be keeping a close eye on this indicator as it confirms that more bearish scenario. See next post for part III of III