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

Finally, at the 60 min. chart level I've labeled the wave structure as well as included the corrective price channel. As long as price remains within the channel during the decline... the structure remains corrective. That would be consistent with the interpretation at the daily chart level.





Here's the market's position at the close:

Momentum: Remains OB but turning down on weekly. Daily and 60 min. time frames are bearish but nearing an OS condition.

Pattern: wave.iv of wave.c of wave.2.

Time: No analysis made.

Trade Strategy: Remain flat. Further downside is expected but limited in my opinion. Should daily and 60 min chart levels make a bullish momentum reversal, price should rally. Once that has exhausted itself I expect another wave of selling. I'll be looking to establish a bearish position as momentum indicators and price confirm a top is in place.


Best of Trading
 

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Today was certainly a snoozer... that is until 2:50 est. As most of you know from my Twitter posts, identifying the current wave count on lower TF's was difficult as prices chopped back and forth. Sideways corrections are always difficult to identify the termination points because there are numerous corrective structures and combinations thereof. That brings me to a great lesson. When the water is murky... meaning a trader can't identify the wave pattern with absolute uncertainty, then stand down and wait until the water is clear. A trick that I use in such times of frustration is to find the lowest TF that I can find where the wave structure is clear. Often this will be at the 60-120-240 chart level.

After the market closed I noticed that the 120 min chart provided the clarity I needed. Here's what I know. The current wave structure has unfolded in a 3-3 wave pattern (w.a and w.b). Any pattern that starts with 3 waves is a corrective pattern. Therefore my bias to the downside i.e. new low is still intact. Any wave structure that begins in 3 waves c can also be tricky as several possibilities exist. W.(iv) could unfold in a triangle or a flat correction. The difference is that under the flat interpretation, price will trade ABOVE 1182, most likely to 1184.75 with w.c in 5 distinct waves. Other reisitance levels are provided within the chart.

Possible targets for the termination of the triangle's interpretation (not shown) will have it's termination point located between w.a and w.b. Regardless of which interpretation plays out, traders who positions themselves correctly can capitalize on the fact that new lows will eventually be reached.

Tomorrow I'll be watching this market closely to identify the operative wave count as well as targets for the next move to the downside.


Best of Trading
 

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PART 1 of 4

Announcements:
Due to the Thanksgiving holiday, there will not be a week in review published for 11/22- 11/26.

The Week In Review:
The month of November has been strong for all dollar denominated asset classes as investors rationalized buying everything in hope that the FED will create inflation and drive markets up. In November, the Daily Sentiment Index for the S&P reached 94% bulls and the AAII Investor's poll reached 57.6% bulls. Both readings are the highest since January 2007. Considering the optimism for stocks that transpired near the market's high of 10/12/2007 and the weak economy, it's not hard to reason from a contrarian viewpoint that most investors who counted on the FED's easing before and are now even more bullish than 2007 will also suffer a similar fate when they least likely expect it.

With Thanksgiving only days away here in the U.S., I think most readers expect a week of low volatility as traders are more focused on the "bird" than QE2, USD, equities and commodities. It's often during these holiday times that I take some time to review my trade plan, goals for next year and a good old fashion dose of "Chartfest"... basically, I'm looking at allot of markets. In the next couple of weeks I'll be posting the charts of crude oil, copper, USD, some sectors and individual stocks.

However, I try not to take anything for granted. Note that the following chart shows converging moving averages as annotated by the blue circles. Analysts call this condition "market compression". I find that when this occurs there is a high probability for a big market move. Also not that I've circled several places on the chart when all three moving averages converged. Draw your own conclusions but the subsequent moves seem rather definitive to me. Unfortunately, most traders don't know what direction the market will trade by just looking at the chart. That is unless you have Elliott Wave in your trading toolbox. So let's try to explain why the market is compressing and the expected direction of the market using the wave principle.

See part 2 of 4 for more details
 

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ES_F Forecast:

At the daily chart level, I'm still working a w.4 retracement whereas the wave pattern should unfold in either a flat correction or a triangle, followed by a new recovery high. This interpretation bodes well for a market that undergoing compressing. Between the flat and triangle, the triangle interpretation (see 60 min. chart levels) would best explain the market compression that we find developing at daily chart level. Under each of these interpretations, a decline below w.1, roughly the .50 retracement of w.2 - w.3, would eliminate another high in the rally that began in July from w. (B) and call for a larger decline. While, I remain open to this possibility, I don't think the probability of such an event is high.

See Part 3 of 4 for more details
 

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Turning my attention to the 60 min. chart levels, I've shown the charts for flat and triangle interpretation. Until I see how the pattern is unfolding, I can't make a near term forecast beyond what I have noted.
 

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Here's the market's position as of the close on 11/19/2010.

Momentum: Weekly is OB and has turned down. Daily is bullish but not OB. 60 min. is OB.
Pattern: W.c of wave.2. Either a triangle or flat correction for w.4

Time: No analysis made.

Trade Strategy: Remain flat until w.4 wave pattern becomes clearer.

Conclusion: Once w.4 ends, the market should push higher in an impulsive manner. Expect a new recovery high that is telegraphed by the three moving average convergences at the daily chart level.


Best of Trading
 

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Last time I left the readership with the thought that the market is working a minor degree w. developing in either a flat or triangle corrective structure. As long as 1171 holds my view of the wave structure remains intact.

From the two charts that were presented in the week in review, I was anticipating an advance. That advance was achieved in the ON session and terminated just above the .618 retracement (1204.75). In doing so but failing to push higher necessitates a slight labeling change based upon today's price action but it doesn't effect the overall interpretation of structures for minor w.4. Either interpretation is still valid.

Looking at the 60 min. chart, I am anticipating a modest push up tomorrow but I am uncertain as to whether w(b) ? had ended. Don't be surprised if the market makes another push down to test the lower trendline of the triangle. Should price extend well beyond the .786 retracement in tomorrows trade, odds start favoring the flat interpretation.

Here's the Market's position at the close:

Momentum: Weekly is OB and has turned down. Daily is bullish but not OB. 60 min. is bullish.

Pattern: W.c of wave.2. Either a triangle or flat correction for w.4

Time: No analysis made.

Trade Strategy: Remain flat until w.4 wave pattern becomes clearer.

Best of Trading
 

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Fist of all, I'd like to wish all my readers who celebrate Thanksgiving a happy and safe holiday.

The market continues to unfold in a choppy and sideways manner that is consistent with corrective structures. As I have previously mentioned, w.4 is unfolding in either a triangle or flat correction. The extent of the current rally from 1174.75 doesn't count complete so I will be looking higher to 1203.75 whereas w(c) = w (a) to complete w.b circle. Should price exceed this level, other targets exist between 1212.75 - 1217.3 depending on what type of triangle or flat develops.

Here's the market's position:

Cyclic Momentum: Weekly is bearish but not OS. Daily is bullish but not OB. 60 min. is OB.

Pattern: Either a triangle or flat correction for w.4

Time: No analysis made.

Trade Strategy: Remain flat until w.4 wave pattern becomes clearer.

Best of Trading
 

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Today's session continued to demonstrate sloppy price action. Today's decline below w(a) blue (1174.75) forces an adjustment to the previous wave labeling whereas w.b circle is still unfolding. Unfortunately I can't determine if w.4 is unfolding as a triangle as the proposed chart indicates or if the flat interpretation will prevail. Until the wave structure clearly identifies the operative wave count, both interpretations remain valid. As a reminder, either interpretation eventually leads to a new recovery high above 1224.75.

There is one uncertainty that I am watching, i.e. should price decline below 1171, odds are that a much larger decline would ensue and my wave labeling is wrong.

Here's the market's position at the close:

Cyclic Momentum: Weekly is bearish but not OS. Daily is neutral. 60 min. is bullish, approaching OB.

Pattern: Either a triangle or flat correction for w.4

Time: No analysis made.

Trade Strategy: Remain flat until w.4 wave pattern becomes clearer.

Best of Trading
 

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