Wednesday, April 23, 2014

4/23/14 Elliott Wave Update

In the long term, the Elliott wave options remain the same.  A double zigzag higher since (2) is possible within a sideways correction that began at the wave (1) high, but this option is not strong due to the complexity and lack of proportionality between the waves of the pattern, regardless of what they end up being.  If there ends up being a new all-time high without reaching a new short-term low first (something at or below ~1815 support), the ending diagonal options above will clearly look like the most strong options.  As mentioned in previous updates, ending diagonals are usually not the 5th of 3rd waves of an impulse.  Therefore, an ending diagonal would signal the end of an impulsive move higher that began in 2011.

An incomplete impulse higher since (2) is not strong due the the strange flat wave required between A and (4).  The waves lower since the last all-time high best resemble something corrective.  A deep retracement of this pullback has followed which supports the idea of a complete corrective wave lower since the last all-time high.  A flat higher since the W low is still a possibility, but it is growing weaker day by day due to the retreacment that has been achieved.
Other options since (3) are weaker.  A flat down still developing since (3) is possible, but consider what was found above; the ending diagonal options in the first chart would look strong if the wave higher from (4) continues to a new all-time high.  It would be very rare to see a sideways corrective wave within the 2nd or 4th waves of an ending diagonal.

It is important to note that (i) is longer than (iii).  This fact might seem to suggest an impulse higher is complete, but wave (i) was clearly the weakest of the three legs which speaks against the option; the strength of the legs should be just the opposite in an impulse wave than they currently are in this possibility.  On the other hand, a 3rd wave is usually longer than its 1st and 5th wave counterparts which is not the case with the wave count in color above.  In this option wave (iv) is also quite large which creates an undesirable feature.
From (4), there can be a complete zigzag higher followed by a correction perhaps incomplete.  This counts much better than the other possibilities.  If there is an ending diagonal unfolding since [4] or later, a double zigzag starting at (4) works fine as only single zigzags higher have likely been seen thus far (this provides alternation, a typical feature of the actionary legs of any wave).  If wave 'x' of a double zigzag is underway since (iii), the expectation is for a pullback or base to form so the market has enough energy to move higher again beyond the last all-time high and there is a good size relation between the wave higher from (4) and wave (3).
Bottom Line:
Last time, the following was stated: "It is the sideways and ending diagonal options that clearly stand out as the best options.  While at this point it is difficult to say which is correct, new all-time highs are expected in the near future before any meaningful sell-off.  So there is a very strong long play in this market.  1740 support is the lowest this market should go before challenging new all-time highs again due to a lack of bearish possibilities."
As discussed above, the sideways option since (1) is now not so strong due to the waves seen this week.  This suggests that 1740 will not be seen before another all-time high.  In fact even a test of 1815 will not look that bearish anymore.  There is likely an ending diagonal underway since a point at or after [4].
In the short-term, it is difficult to say what is exactly happening, but the lean is towards a complete wave higher at (iii) reached 4/22.  Regardless of what it is, the wave beginning at (4) should be part of a larger zigzag-family pattern higher developing which will reach a new all-time high.  At this time, the waves do not suggest an impending correction of anything substantial.

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