Thursday 11/19/09 Market Update

I have fallen a bit ill but I'd like you post a short note anyways.

The market opened lower today but with some pickup in volume. Obviously the wave count mentioned yesterday did not play out. But with can easily relabel Monday's high as the peak of an impulse that began 11/02/09. This would be the completion of wave (v) of [v].

Now notice the rally into the close yesterday that preceded the gap down today. In my experience, this pattern is a strong indicator that corrective waves are actually moving lower, not bear market waves. We have seen corrective waves like this throughout the wave [2] rally. In addition, the waves since Monday's peak do not look impulsive. So I now believe the rally since 11/2/09 was actually wave A of (Z) of [2] with wave B of (Z) of [2] underway. It is possible wave B has already completed, but I would guess B is still underway even if the market rallies tomorrow (it could be a flat or a triangle).

There is a good technical argument for the completion of wave [2] Monday, but I don't see it confirmed in the waves. It is possible though. I would expect lower prices tomorrow if this is a correct assessment.

Have a nice weekend.

Wednesday 11/18/09 Market Update

Above is a 2 minute chart of the S&P 500 index. Prices continued sideways today before a rally near the end of the trading day. It appears that (iv) was actually a triangle that just completed today. So tomorrow, or at least the first half of tomorrow, should see a continuation of the rally.

In my estimation a significant top will come tomorrow around the 1115 or 1020 areas. These are the two areas with noticeable Fibonacci confluences using waves within [v]. The blue level is found by taking the widest part of the (iv) wave triangle and projecting it from the end of e of (iv). Oftentimes the impulse following a triangle reaches this level and no more. This result was seen back in June 2009.

Do not expect wave (v) to be long lived. Wave (iv) was wide but oftentimes the impulse following triangles is just a short burst upwards. Again, see the link above.

Following the wave (v) of [v] top, look for clean impulsive waves moving lower.

Tuesday 11/17/09 Market Update

Above is a 1 minute chart of the S&P 500 index. The major indices did close higher but on very light volume. The correction that started yesterday appears to have completed today after the wave became more complex. Upward waves followed but they are looking a bit weak. I expect one more push higher tomorrow, maybe into Thursday, that should end primary wave [2]. In my estimation wave [2] has been a triple zigzag even though there are multiple interpretations of its latest subwaves.

I expect clear impulsive waves moving down after the market finally tops. There should be clear weakness present. Also the general media should not be worried about an overbought stock market at this point. Any slide from this going forward should be seen as a "buying opportunity" by the media and general population. Good news for months to come will fuel the bullishness. Other pessimistic opinions by the general media will provide great doubt for the intermediate term bearish scenario ahead. I am fairly confident that the correct elements are in place for a wave [2] top, but the bullishness of the market has backed off noticeably over the past 45 days or so. So we wait and see.

Monday 11/16/09 Market Update

With somewhat higher volume, stocks rallied today. Two wave count options are shown above although their place within the larger wave structure is not exactly clear. In the short term, higher prices may be ahead early tomorrow if a flat iv wave has formed.

1113.69 was reached on the S&P 500 today, another new high. As discussed in Wednesday's post, breaking above 1110 or so invalidates the expanding diagonal C of (Y) of [2] wave. So unless a [i] of C had different orthodox top, or a truncated 5th wave is still ahead, another wave count is required to describe the market action.

Regardless of the wave patterns, the top of wave [2] should be approaching very soon, perhaps this week. One reason is the lack of breadth in the rally. The bank stocks are still looking weak with the Dow Jones Transportation Index still yet to confirm the recent rally in the Dow Jones Industrial Average (although it is very close to doing so). The Dow broke out 6 days ago. The major indices are also in weak technical positions.

Friday 11/13/09 Market Update

On very low volume Friday, the market made a rebound. The upper 1090s on the S&P 500 was reached. 61.8% of the slide since 11/11/09 has been retraced.

A second wave rebound may be underway (or may have completed). But in my estimation a zigzag down has formed with some impulsive waves following. If prices move to around 1102 Monday then fall, a second wave probably did unfold. But for now, a new high should be reached. It would make sense if this new high were the peak of wave [2], but the Elliott Wave structure is not clear.

Thursday 11/12/09 Market Update

Two charts of the S&P are shown above, the top is a 1 minute bar chart and the lower is a 5 minute bar chart. The market moved lower today but again on light volume. The expanding ending diagonal count discussed the past few days seems the most likely given the movement in stocks today. It is possible the past two days have been a zigzag 4th wave of an impulse, but it seems too large for what it is. Obviously if there is a strong rally tomorrow breaking resistance levels, [2] probably did not top. Otherwise expect lower prices with [3] underway.

If an expanding ending diagonal really did unfold, prices should break down fairly rapidly the next few weeks in a "dramatic reversal". Volume should also pick up. I will support a wave [2] top as long as prices generally continue lower with determination.

Tomorrow I expect a correction for at least the morning hours but with prices only reaching the low 1090s. This would be wave iv. Of course there is a chance prices breakdown further before a correction. In any case, crossing below the 1080s is a bearish sign.

Wednesday 11/11/09 Market Update

On low volume, the S&P 500 index reached a new high today. This means primary wave [2] is still underway. Above is a 1 minute chart of the last two days. There were impulsive waves to new highs that followed yesterday's correction (as discussed yesterday). Prices then moved lower in what appears to have been a clear double zigzag down. This pattern may be only part of a larger correction if the correction is extending. But for now the setup is very similar to yesterday's. So expect higher prices before the larger rally since 11/2/09 ends.


A 10 minute chart is shown above. Given the general structure and the buying that took place on the 9th, this looks like an impulse wave still forming. Only a few more surges should take place before it completes. But if this is an impulse, which larger pattern is it a part of?


Above is a daily chart of the S&P 500. Ending diagonals are 3-3-3-3-3 patterns. We should assume that expanding ending diagonals, if they exist, are also 3-3-3-3-3 patterns. This is also what was printed in "Elliott wave principle: key to market behavior" page 38, Figure 1-19, when the possibility of the pattern was discussed.
So if an impulsive wave since 11/2/09 is forming, how can it be a part of this pattern? It cannot. Furthermore look at the structure in Figure 1-19 above. The subwaves of the possible diagonal are clear zigzags, not impulses. This is absolutely not the case in the current view of the S&P 500.

Another challenge is a more basic rule; 3rd waves cannot be shorter than their 1st and 5th wave counterparts. If prices on the S&P 500 move beyond 1110, this rule would be violated. But as stated above, the market looks destined to make a new high. So with the market already reaching 1105.37, it seems likely that 1110 will be broken invalidating this expanding ending diagonal possibility.


In a final chart, a daily view of the Dow Jones Industrial Average, a much better looking ending diagonal can be drawn that actually has wedging characteristics. Wave [v] of C is blowing over the top line but this is not uncommon. But again, the subwaves look more like impulses than they do zigzags. At least the larger structure on the Dow is more feasible. Its wave [iii] is slightly longer than [i].

Putting wave structure aside, this market has clear divergence on the daily RSI and MACD indicators. It seems possible that the market will start a substantial decline (the beginning of wave [3]?) sometime next week. One reason why I favor this is because of the clear non-confirmation between the major indices (S&P 500 and Dow) and the BKX banking index and Dow Jones Transportation Average. The banks in particular are far from reaching new highs. This divergence has been seen before all the major tops in the market.

But how the larger Elliott Wave picture fits in is not at all clear. The daily S&P 500 chart above (3rd chart) has an option that may be the best even though some wave proportionality is lost.