E-Mini S&P Elliott Wave Discussion: July, 2010

[EWT]

The Market ended the week with a negligible gain. NYSE volume was putrid;765.6 million shares traded... the lowest of the year. I found two interesting chart patterns that I would like to share with you in a two part post. They are "fractal" in nature. Fractals are the structures Elliott described as self-similar patterns appearing at every degree of trend.

Looking at the first chart, we can compare the current wave structure to that of the decline from the 2007 top. In the far left hand box, notice how prices were able to push up in one final surge before resuming the downtrend. Looking at the box on the right, the same fractal is present suggesting that once this countrend rally has completed, the market will trade significantly lower consistent with the longer term trend analysis and wave interpretation.

See next post for futher information.

 

[EWT]

Quote from EWT:

The Market ended the week with a negligible gain. NYSE volume was putrid;765.6 million shares traded... the lowest of the year. I found two interesting chart patterns that I would like to share with you in a two part post. They are "fractal" in nature. Fractals are the structures Elliott described as self-similar patterns appearing at every degree of trend.

Looking at the first chart, we can compare the current wave structure to that of the decline from the 2007 top. In the far left hand box, notice how prices were able to push up in one final surge before resuming the downtrend. Looking at the box on the right, the same fractal is present suggesting that once this countrend rally has completed, the market will trade significantly lower consistent with the longer term trend analysis and wave interpretation.

See next post for futher information.

Here's the second part.

The second fractal is the ending diagonal pattern. From the 120 minute chart, notice the larger diagonal that terminated at wave 2. Now compare it to it's brethren depicted in the right hand box. Should the market push up as expected to complete wave v of the diagonal, the stage would be set to resume the larger downtrend which is consistent with the weekly chart shown. What is unclear is whether the market has enough umph to close the gap at 1119.75. I have to think that larger market participants are not going to let the market decline before this gap is closed. So near term, that's my target even though a new high is the only requirement to fulfill the completion of the pattern!

Finally, there is one other interpretation of the wave structure that I need to bring to your attention. It is possible that a iv wave triangle ( not shown) is forming that would have greater near term upward potential... one that might hunt stops above 1126.75. Should this play out, this would not negate the weekly fractal pattern but it would alter the overall daily wave count from wave 1 (1038.50). In this case, a combination wave 2 (blue) would most likely be in order, follwed by the wave 3 decline.

The early part of next week should tell us the information that we need to position ourselves for the next market turn.

Best of Trading

 

[EWT]

Good Evening. As a reminder I am only posting to the blog on a M-W-F basis but you can get my intraday thought by following me on twitter. The URL is www.twitter.com/elliottwavelive

From my week in review that I previously posted, I was anticipating an ending diagonal to form today. With today's gap open and persistent strength, the diagonal interpretation has given way to the other interpretation of the wave structure that I brought to your attention... a iv wave triangle. Given this alternative I indicated that greater upward potential could hunt stops above 1126.75.

Earlier today I posted preliminary projections for wave v to my Twitter account. I can now revise those with somewhat greater clarity. My projections using the diagonal interpretation were 1119.25- 1121.76. Looking at the current wave structure as depicted in the chart wave v should terminate according to the following Fibonacci extensions:

wave v = .618 waves (i) - (iii) at 1141

wave v = 1.618 wave (i) at 1123.52

Looking at daily cycle analysis, upper projections point towards 1134.75 +/- 10% which is agreeing with my Fib projections. As always, these targets are not magnets but areas that one should focus upon if the market approaches them. It's what price does after encountering the key areas that matters... meaning we should see an impulsive 5 wave structure if this countertrend rally has completed.


Best of Trading

 

[EWT]

Quote from EWT:

Good Evening. As a reminder I am only posting to the blog on a M-W-F basis but you can get my intraday thought by following me on twitter. The URL is www.twitter.com/elliottwavelive

From my week in review that I previously posted, I was anticipating an ending diagonal to form today. With today's gap open and persistent strength, the diagonal interpretation has given way to the other interpretation of the wave structure that I brought to your attention... a iv wave triangle. Given this alternative I indicated that greater upward potential could hunt stops above 1126.75.

Earlier today I posted preliminary projections for wave v to my Twitter account. I can now revise those with somewhat greater clarity. My projections using the diagonal interpretation were 1119.25- 1121.76. Looking at the current wave structure as depicted in the chart wave v should terminate according to the following Fibonacci extensions:

wave v = .618 waves (i) - (iii) at 1141

wave v = 1.618 wave (i) at 1123.52

Looking at daily cycle analysis, upper projections point towards 1134.75 +/- 10% which is agreeing with my Fib projections. As always, these targets are not magnets but areas that one should focus upon if the market approaches them. It's what price does after encountering the key areas that matters... meaning we should see an impulsive 5 wave structure if this countertrend rally has completed.


Best of Trading

Correction: Daily cycle target was +/- 1.0% instead of 10%

 

[EWT]

Not much has transpired in the way of price appreciation since Monday. Both Monday and Tuesday were either doji or spinning tops depending on your interpretation. Regardless, they show indecision and declining momentum. What we don't know is whether they are just part of a continuation signature or if they signal that a top is forthcoming. Today showed a slightly more bullish candle that closed near its high. I'll be looking for initial upside momentum to pick up tomorrow or in the ON session.

As I have mentioned, I have to believe that we are going to take out the 6/21/2010 high of 1127.50. My upside target remain at 1134 +/- 1%. There has got to be a tremendous amount of buy stops just above the 6/21/2010 high. One would think that this adds fuel to the fire, pushing prices higher. What's odd is why larger players have not forced the issue in the first 3 days of this week so they can liquidate their longs. The answer might be that there is also allot of overhead supply between 1127.5 and 1150 waiting to break even on longs that were held throughout the decline. It will be interesting to see how much buying will be absorbed from new bearish positions, long liquidations from profit takers and frustrated bulls who finally get a chance to break even. I have to call this a draw between the Bulls and Bears but when the dust clears, the Market should roll over as the Bulls have exhausted their energy.

Finally, for my analysis to turn immediately more bearish, I still need to see a decisive close below 1110 in an impulsive manner with five completed waves.

Next update is on Friday, 9/17/2010.



Best of Trading

 

[EWT]

So much for a quiet day before the FOMC announcement. Let's get right into it. The following chart shows where we are in terms of the current wave count. If you have been following along you know that I was calling for a breakout and a price target of 1134 +/- 1%. We have also reached the point where wave (v) = .618 wave (i) - (iii) at 1135.75. The high of the day was 1140.25 so there is certainly more room to the upside should the internal structure of wave (v) subdivide.

You will also note that the previous high on June 21 labeled wave 2 (blue) , (1127.5), has given way to an alternative wave count whereas we never began wave 3. Often countertrend moves are difficult to nail down until such a point where both technicals and wave structure finally come together. To be frank, I certainly had difficulty with the labeling but I alluded of this potential outcome as early as August 31 and then again on the following day. To quote. "Food for thought - Turning to the larger picture, the elusive, wave iii of 3 down, has not materialized leaving me cautious as if I smell a fox in the chicken coop! At the daily chart level, the market has meandered sideways for 3 + months. This is not the kind of price action one expects if we are truly in a third of a third. However, the larger count ( not shown) is still the highest in probability and should be maintained until such time as price renders us wrong. In the meantime, there is nothing wrong with looking ahead and playing "what if". Several possible explanations are available, although premature. Could we be building a triangle B wave that counts the decline from 4/26/2010 as an A-B-C structure or are we building a combination wave 2 pattern? " Well today we have our answer. It's a combination! W-X-Y.

A few other key notes. Earlier in the commentary I mentioned that wave (v) could subdivide further. If so, the wave (c) = wave (a) at 1158. It's a possibility. What is of interest here is that an unclosed gap is at 1157 which by coincidence is in the vicinity of the previous 4th wave. This should make you pay attention to the message of the market because countertrend moves can end at or near the previous 4th wave. I'm not stating that the market can get there, I'm only drawing your attention to the fact and the principles of EW.

Looking forward, I am still be looking for a top as this rally is extremely long in the tooth. Until next time...

Best of Trading.


P.S. Don't forget you can follow me on Twitter for intrady updates at www.twitter.com/elliottwavelive

 

[EWT]

Quote from EWT:

You will also note that the previous high on June 21 labeled wave 2 (blue) , (1127.5), has given way to an alternative wave count whereas we never began wave 3.

Correction wave 2 (blue) was 1126.75

 

[EWT]

The upper targets have been achieved from my previous forecast of 1134+/- 1%. In doing so, several points of interest are: internals are weak; the NYSE ADV/DEC is diverging as price rallies; ROC and other short momentum indicators are beginning to rolled over. Sentiment indicators and the Put/Call Ratio appear to be signaling a reversal is near. Yet as of the close, we have no confirmation that a top has taken place.

The wave structure is mature but I can't rule out the possibility that price will not try to close the gap surrounding the previous 4th wave at 1158. Also, price has yet to reach the upper boundary of the channel. Tomorrow this line goes through 1151.25. It's important to note that extremes of channel lines mark cycle tops and bottoms. How you might ask? Because when a longer duration cycle than the one contained in the channel lines rolls over, curvilinear channels (not shown) also turn and prices quickly break through the chartists trend lines. The grey lower trendline is of significance. It was tested today and held leading me to believe that the upside is still viable. Should the market break the trendline in a convincing manner my assumption is that a major price reversal is founded on the fact that:

1. A long duration cycle has caused the effect and it will be quite some time before the previous trend is resumed.

2. A long duration cycle has a large magnitude associated with it and therefore the amount of price range associated with it should be significant.

For tomorrow, my trade plan is to scalp while waiting for confirmation that a tradeable top is in place. Don't forget to follow me on Twitter for intraday comments at www.twitter.com/elliottwavelive


Best of Trading

 

[JoePaterno]

Quote from EWT:


For tomorrow, my trade plan is to scalp while waiting for confirmation that a tradeable top is in place. Don't forget to follow me on Twitter for intraday comments at www.twitter.com/elliottwavelive


Best of Trading

Um, you mean now useless advice will be available in "tweets"?

What next, your paid service?

 

[EWT]

The current rise in equities and commodities exhibit the concept of "all in one" whereas it seems that everything is pegged to the US Dollar trade. With the FED's announcement this week, it is clear that Keynesian economics is still very much alive. Hopes for a full recovery and the re-inflation of assets are dependent on quantitative easing (QE) that further devalues the Dollar. The Market seems to favor this continued approach. We will not debate this issue but in my humble and subjective opinion, only a bottom in the US Dollar can derail this rally. I want to be clear that I am not changing my long term bearish bias. I'm merely stating my perspective regarding the current rally.

The following weekly chart shows a target box for termination points for wave 2 (blue). Price has also reached the previous 4th wave, a typical termination point for corrective price structures and the .618 retracement. Should prices fall below this area then my expectation is for a termination to be at the lower end of the target box.

The two SMA's, 30 and 10 represent cyclic activity. While no attempt has been made to determine the dominant cycle, both moving averages seem to match price bottoms and tops quite well. Notice that both cycles topped at wave 1(blue) and are now hard down. Regression analysis indicates that a low may be struck at 77.37 which is well within the target box. So we have two methods pointing to near term lower prices, then bottoming.

See next post for more details.

Best of Trading