Ending DIagonal

After poo pooing it all week, the STU has now come to see the current wave action as an ending diagonal C wave of an ABC correction since Mar6.  An ending diagonal is a triangle-like pattern in fifth waves or C waves, the end of a wave pattern, meaning the market has come "too far, too fast."  The STU notes that "[t]his concept certainly applies to the current rally leg, which has closed higher for six straight weeks in the strongest advance in 76 years (since 1933 in the S&P)."  If this is an ED, it will reverse promptly - Monday most likely.  This is not the end of wave [2], but an X wave of a longer upwards corrective pattern.

The STU keeps open an alt count, where we are about to take off in a strong wave 3 up.  Neely also has a similar 'it could go either way' view: a strong final rally, or a correction that is fairly deep.  Both say to watch the first few days this coming week for guidance.  Sometimes when the wave pattern is ambiguous, best to stand aside and let it clarify. 

Comments

[da bear]

funny how Martin Armstrong's turn date is April 19th. if stocks turn down from here then he NAILED it. perhaps that is what the latest weakness in gold is pointing too.

McHugh has a turn date on May 20th or so. that could also be important.

I agree that this week is important. the negative action on Citigroup wasn't good...
and Sirius Satellite Radio is up 10 times off the low. wow. so perhaps this has run too far...

da bear

[Robert Murdoch]

I think the direction of Monday's trading might hinge on BAC and IBM's results. I suspect TXN's results won't be anything to write home about. Not sure if IBM is out after the close or not.

[Robert Murdoch]

I subscribe to McHugh and only now got to his weekend report. He has identified a number of bearish divergences and is calling for an imminent pullback. One caveat, however, is that the last leg up of a rising bearish wedge can exceed the top boundary line significantly. He warns that the indexes could exceed the top boundary line by 1% to 3% next week. However, he also states that prices could decline Monday.

The McClellan oscillator had a small change on Friday.
This should result in a large price move early next week. Every time in the last several months that McHugh has commented on a small change in the MO, the DJIA has moved at least 100 points one way or the other on the following day.

I have seen 2 other technicians calling for cycle lows in late April/early May(Andre Gratian/Tim Wood). The concern I have is that the market might continue to advance for awhile longer and that McHugh's May 20th+/- phi-mate turn date may be a short-term low, rather than a top.

[vipul garg]

certainly it is not an ending diagnol.. rally post april looks like ( looks like.since there is no confirmation till now ) a bearish triangle which confirms on break below 7870 on dow ..and should drop down to 7400-7300 levels at first...
a violent move on downside is needed ..

[george]

-deflation what should you be doing now-
this past august i began selling off all of my
stuff that i accumulated that had gone
up in value. i went to an ebay trading
assistant and had him sell off everything.
i also used several auction houses. we
tend to accumulate stuff like grandmom's
antique coffee grinder,or old bicycles,
sports cards,coins,watches,jewelry
dolls, etc..
this could
be for many of you the last time to
unload stuff to collectors that has gone
up during the massive bull market in stocks.
many of us sit back and do nothing because
of jobs or other reasons. if you believe
robert pretchers/EWI deflation forcast this could be
the last time to sell that stuff at a good
price. i no longer have any collectable stuff
or stuff that went up because of demand caused
by a great economy for many years.
during the depression of the 1930's items that
sell for millions today by collectors could have
been bought for less than 100 dollars per item.
honus wagners rookie card sold for $20 now is
selling for millions!
gold rolexes would have sold for $3.oo per watch!
pretty scary if the worse happens and EWI is
correct.
george

[Forkoholic Serge]

Any new ideas/articles about liquidity issue?
Chart is still broken
http://stockcharts.com/h-sc/ui?s=$CPMKTL&p=D&yr=0&mn=6&dy=0&id=p56360824663

[Forkoholic Serge]

good point, george
still expecting last time Dow10K+ party later this year or next :)

[Tartan]

There has been a lot talk from a wide variety of mainstream media types over the weekend about the "perfect" ending diagaonal that has formed on the S&P500 since the end of March. In Neowave terms, this structure could be viewed as a "perfect" contracting triangle. Does anyone think that it looks a bit too perfect? Each abcde leg touches its trendline almost exactly. Neely says that a triangle should only touch its trendline on 4 points.

My contrarian nature warns me that: (1) it may be too perfect and (2) everyone sees it.

We shall find out soon if this structure is valid - likely today.

[RNB]

Tartan,

I think that the action is too "perfect". I am standing aside, because I thinking that we will spike sharply higher. If I miss this move down, no big deal. I will just wait next time.

[vipul garg]

the issue is not how many see it , but how many are actionable on it ..

[DG]

What's the start date on that alleged diagonal?

FWIW, I still haven't given up on Neely's contracting triangle with reverse alternation. Today's action so far is consistent with the start of a wave D down.

I made a post on the previous thread on the details.

[Tartan]

>>What's the start date on that alleged diagonal?<<

DG: The start of the A wave of this alleged diagonal is either the low of March 30 (779) or the low of April 1 (783).

Today's price action is playing out as though this ending diagonal is valid. If it is valid then we should see price move back down to about the beginning of the whole movement - ie 779 to 783. It looks a bit too perfect to me but we shall see.

By the way Neely still feels that we should move up to 950-1000 in the coming several weeks.

[DG]

Tartan,

If the ending diagonal is valid, Neely's count is wrong.

I disagree with Neely here. I don't think this move is fast enough for wave E of an expanding triangle and we should have accelerated once we hit 875. I think we'll end up going back to the prior primary count and that the move above 875 will have been a huge fakeout. We need to break 83.61 on the SPY for me to feel more convinced of this, but I think that's what's going on.

[Canadian Money]

This downturn, at the apparent end of a triangle pattern, has the potential to be the end of the entire rally that began in early March.

If so, then we may be looking at the start of a healthy correction within a larger up move, or a more important downturn...one that will now take the markets to new lows.

The triangle pattern looks good on the TSX 60 Canadian Index.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=CA%3A89199008&sid=0&o_symb=CA%3A89199008&freq=1&time=6

CM

[vipul garg]

manish.. i work in delhi.. u?
i am a complete believer and follower of wave theory ( actually neo wave theory)

an ending diagnol or a terminal exists in c waves of flats and zigzags , wherein the b wave must take more time..in this case it doesnot
further if the b wave retraces a very small percent of wave a implying a very strong conclusion.. a terminal in that case cannot develop until c wave reaches and becomes greater than wave a .. hence it is only a bearish triangle

mr neely is absolutely not comfortable with the count and that is why in his own admission a rare alternate count as, for a typical C to A leg relationship a move to 900 odd is required, which on extrapolation will mean that market will try and test the next higher resistances on 950 odd ..and hence mr. neely's alternate count.

[vipul garg]

also to add here, it is for everyone s benfit that the sp500 should rally much higher coz if it ends below 839 , from october it will be a running correction and will be a total catastrophy..mr neely 's saying it will reach 400 will look optmistic since it will correct atleast 65% from the conclusion and reach 275 or lower..
even a rally to 950 will mean a much lower conclusion ..for any pattern which concludes 10-15 % lower from the top on something like sp500 will mean atleast a correction of previous magnitude in percent terms ..

[Jess-d]

Tuner Radio Network report. Claim to be leaked bank stress test results. Grim if true. http://turnerradionetwork.blogspot.com/2009/04/leaked-bank-stress-test-reults.html

[Account Deleted]

BY Now the writing should be on the wall as to which NEELY count is active.Fortunately NEELS ALternate count remains an alternate only.DOW headed for a massive disaster.

Regards
VB

[Forkoholic Serge]

Respect da fork! As was reported in Friday's Blog post :
"Today SPX reaches the outer limits of Blue fork.
...At least some resistance (and possibly
a bounce off) is expected i.e. like with green fork..."
This is yet another confirmation of EWF's "Two strikes and you're out" fork rule.
http://forkoholic.spaces.live.com

May the fork be with you, trader!

[Tom]

Is anyone else surprised by Neely's decision to go long in today's trading update? As DG mentioned, it appears that the 875 touch on Friday was a failed breakout. Regarding the length of wave C of the contracting triangle with reverse alternation, it looks to be very close to 0.618 of Wave A. Is that enough, or is Wave C >= Wave A a strict rule to follow if Wave B is short? In addition, his Neely River Trading became bearish on the hourly timeframe when the June futures fell below 834, so now we should be bearish on an hourly, daily and weekly timeframe. If the wave count was unclear and offered two scenarios, why choose the route that goes against your trading system?

Vipul, I believe if the S&P falls some more here (to mid 700s), then retraces a bit before making the final waterfall decline, it would be a running triangle which are fairly common rather than a running correction. A running correction would only be labeled as such if we move straight down to 666 without pausing and yes, that would be pretty bad.

[??]

Tom, why do you conclude "his Neely River Trading became bearish on the hourly timeframe when the June futures fell below 834"?

Not saying I am bullish, but it seems subjective interpretation.

[DG]

Tom,

My understanding is that the Fib relationships between waves A and C should be the same in a contracting triangle with reverse alternation as in a regular contracting triangle.

The move down accelerated into the close after the downward drifting consolidation all day. That makes me think we get more tomorrow. After-hours action was a bit strong, but since that doesn't get charted it might not matter come morning.

I think Neely fixated a bit too much on that line in the sand without considering the fakeout possibilities inherent in a contracting triangle with reverse alternation. Or, maybe I'm fixated on that old count, which is also possible.

I'm not surprised that he went long, though. The potential risk/reward was about 10-1. I almost went long, but held back because of what I've been saying. I will go long on a move back above Friday's high, though. Need follow-through tomorrow for me to gain more confidence in my count (which is really just Neely's old primary count), but we broke the 83.61 support (April 15th low) level on SPY that I mentioned. The fact that there was such a crappy bounce off it tells me something could be up, too. Even if we bounce tomorrow, we might need to retest that 81.60 SPY area (April 8th low).

[Tartan]

Tom,

I was not surprised to see Neely take the opposite view of most other Technicians and go long here. I really did not feel comfortable with the ending diagonal (or terminal impulse) that everyone has been talking about. I don't think that we had an ending diagonal and I don't think we are going down to the levels that this pattern would imply (779-783).

Lets assume that we are in fact in wave E of an expanding triangle as Neely suggests. Then, we must apply the rule that wave E of an expanding triangle is usually the most time consuming and most complex. This means that Wave E should last at least another 15 days in order to be longer than wave D. Also, perhaps this is why Neely suspects that the structure of wave E will be a Neutral triangle. A neutral triangle for wave E will place the high point of wave E at 950 to 1000 in the next 1-3 weeks but will place the end point of wave E will be at a later date. This neutral triangle would satify both the time and complexity elements of this rule.

Also, as Rich mentioned in his post on Saturday, "some of the other scenarios discussed recently are still in force. We might be in wave (D) of either a neutral or expanding triangle, with the latter resulting in a new bear market low by the time wave (E) completes the formation." These other scenarios also call for a movement higher.

[Tom]

The Neowave trading service said on an Hourly timeframe, "Bullish, perspective may change at 834 June" and it usually does change when it hits the cited levels. Daily and Weekly timeframes were already bearish.

DG/Tartan, thanks for your insights. I think if we end up falling below 780 on this decline, Neely will go back to his original count because that would confirm wave C is over.

[optionist]

Doesn`t this diagonal fit well into Yves`s Running Flat wave 4. Is wave 5 unfolding now?

[??]

I still have high expectation. but he was wrong on Euro and Treasury, and missed S&P rallies after march contract was expired. The fact that his recommendation is not daily is huge limitation to take advantage of smaller market moves.

[vipul garg]

tom, as per mr neelys count an expanding triangle ended at cash levels of lets say 837. since then sp500 is in a corrective , whether x ,b or any other label..and whatever structure..now, if this corrective were to end below 837 , it will be a running correction , which means that the down move will be 1.6times the previous correction in percent terms...this move will almost be like the end of the world scenario move

[Donna Kline]

Tony Caldaro vs Yves : http://www.donnaklinenow.com/?p=1201 I present both scenarios, PLUS, watch the Euro as we near critical 780 area.

Thank you Yelnick for this blog and forum. I have learned a lot about EW.

[vipul garg]

by today close it dow is not below 7660 levels, then it is really time for going long..
the minimum implications of the bearish triangle have been met...so may be a couple of days consolidation and then the rally to 950+ levels..

[Puravida]

Zero Hedge Blog of Tyler Durden highlights Structural Logics review of George Lindsey's "three peaks and a dome" add on to EW theory.
Implications are dire. Setting up for a fall.

Beyond my ability to comment further on the TA, but I appreciate Planet Yelnick and all contributors.

http://zerohedge.blogspot.com/2009/04/some-more-technical-analysis.html.

[Puravida]

Sorry about the missing link above.

Go to http://zerohedge.blogspot.com/

Mouse down to Monday's, April 20th -

Some More Technical Analysis
Posted by Tyler Durden at 3:21 PM

[DG]

vipul,

If you are saying that a triangle may have ended today at the low, I think that the "thrust" would need to start immediately, so any consolidation would make that count more doubtful. If we don't take out the Friday high tomorrow, I would say that the thrust hasn't done it's job.

Where are you starting your triangle? The best I can make out on a daily chart is that you are talking about an ascending triangle starting from the high on March 26th. If that is so, that triangle has quite a significant upslope and might be better counted as a zigzag and the reversal that started yesterday is not the wave e of a triangle, but a new leg down.

Or maybe I'm completely missing what you are saying. It's clear you know NeoWave very well, so I am curious what you're seeing.

[Tartan]

I noticed that today's bottom was exactly on the A-C line on Neely's expanding triangle. Neely placed his stop at 822 for yesterday's "go long" call. This stop was one point below the A-C line. Consequently, we were within one point of being stopped out (that was stressful!).

I also notice that the S&P500 went up through this A-C line on April 9 and since that time it has acted as stong resistance.