Retest Coming of the 2-4 Line

When the market drove up above the upper trendline of the whole drop, the so-called 2-4 line since it connects the tops of waves 2 and 4, it confirmed a trend change which should run for several months.  It has stalled since then, in what Zoran Gayer used to call a "thrust and a plateau."  This raises two issues: first, the Neely view, that after breaching SP850 it will fall, perhaps in a sloppy way for a while; second, the STU view, that we are in a correction that should go back and retest the 2-4 line.  You can see this in this chart which reprises the 1938 market.  The plateau has caused the STU to switch their alt count to the prime count, that wave 2 of [2] is breaking as a flat and we are in wave c.  Expect this to go at least below SP780 and Dow7438, if not all the way to the 2-4 line, which is heading below SP750 (as a declining line, it drops every day).

Comments

[Mamma Boom Boom]

>>Expect this to go at least below SP780 ...., if not all the way to the 2-4 line, which is heading below SP750<<

As you know, I've already inserted my right foot in my mouth [740-750]. Yum, tasty!

Ned

[optionist]

wave count or someone, please post us a current market chart showing the current 2-4 line that you are referring to? Thanks

[Canadian Money]

I can see how this rally may be a c wave. It is a good fit. The decreasing volume patterns during the rally on both the DJIA and SP500 are both consistent with this interpretation.

I'm not sure if the overall count is correct but that is academic in the short-term.

If it is a final c wave, then it may well be a c wave of an Elliott Irregular cw, where the end of wave b is lower than the start of wave a.

If true, this foretells more weakness to come.

CM

[yelnick]

CM, you are spot on - the STU sees the weakening volume as indicating wave 3 of [2] ain't here yet. Their count is an expanding flat, where b was higher than the start of a/end of 1.

We have an interesting junction again - Neely sees SP cresting 850 then falling, and STU thinks it will fall before getting there. I miss Xoran Gayer's view, which would have been 'this is a plateau, stop trying to count the waves and wait for the bifurcation point.' He also used Fib and Lucas ratios to predict.

[Robert Murdoch]

If the SPX were to crest at 850 that would mean that either wave 2 of [2] would end soon and wave 3 would be really short, which doesn't make much sense to me, or we are still in wave 1 of [2], which doesn't make sense to me, either.

[Jess-d]

I see a possibility that this is a running flat wave 4 of the larger wave down that started Oct of 2007. The high in Jan 2009 would be top of wave A of the running flat, the low in March 2009 end of wave B and we are now in wave C which has a little further to go (SPX ~870). Could also be an irregular flat going up a little above A. But to me the looks of AAI sentiment and Market internals (advance decline in particular) make me think a running flat is the greater possibility. I am not committed to any count however as they don't usually turn out as expected. This is to me a possibility I don't think I've seen posted.

[Taz]

By my count, we are deep within 3 of 1 of 5 of A down to new lows.

My sentiment measure says march 10 was not the bottom and that the rally since was a wave 4 up.

How can it extend into something more serious when the general populace is as bulled up as they were at the top in 2007?

Bear market rallies are born on fear, unfold on scepticism, mature on optimism and die on bullishness. We skipped the first two stages and were at the forth qiute soem time ago.

Taz

[EN]

I know tradional EW very well. In an interesting experiment, I was able to use my own wave analysis to lose approximately 50% per month in a simulated day trading account (e-minis). My daytrading results with this simulated account are shockingly consistent. Commissions play a very small role in the consistent losses.

This leads me to believe that employing this method but executing the exact OPPOSITE orders in another account would be perhaps one of the greatest methods of all time.

I used to day trade with a guy who was always wrong at market turns. When he would say over the phone that the market was headed into the abyss, that was usually within a few ticks of a signicant low for the day. Conversely, he could also call close to high tick for the day using his emotions. I suspect what is happening with my method is that my EW count is being driven by my emotional responses. In other words, what I feel is what everybody else is feeling watching the charts (herding).

Somebody mentioned this. I think it was Yves. He said his count was getting too crowded. Counts can only get crowded because bullish or bearish herding is causing the analyst to see what feels right. In other words, emotions drive EW counts.

Now, imagine this. You hire a group of highly emotional but intelligent people and set them up in front of screens for daytrading e-minis. They must know nothing about charting or markets. You tell them to read Prechter's book but no other materials. You make them think they are trading with real company money - but they will be on simulators. You watch them for say one month, then pick the biggest losers for commissioned employment. You then set up software to execute opposite orders in a master company account. As they drop out from a sense of failure and not making any money, you keep hiring more.

Assuming this could be done legally, I would love to see the results of such a business. I remember reading a study done on brain damaged subjects (whose emotional centers had been damaged such that they could not feel anxiety, excitement, etc). According to the study, these subjects made excellent traders versus normal subjects.

[Upstart]

Well, perhaps Prechter and Neely are both wrong, and Yves is right.

[Forkoholic Serge]

Current SPX count
we either started c of C of (A) of (4)
or it is 3 of C of (A) of (4). It could take us close to 900 area.
http://forkoholic.spaces.live.com/default.aspx

[Robert Murdoch]

Expect a trading cycle low in late April/early May. That will be the bottom of wave 2 of [2].

McHugh has a phi-mate turn date of May 20+/-. That could be the top of wave 3. If so, wave [2] is not going to be a 6-month rally.

[Forkoholic Serge]

>You watch them for say one month, then pick the biggest losers for commissioned employment. You then set up software to execute opposite orders in a master company account. As they drop out from a sense of failure and not making any money, you keep hiring more.

Actually it was done already. At least I remember the story.
The point is - one time such trader was right BIG TIME, and ... was fired!
coz company took opposite trade and lost BIG

[Tartan]

Take a look at my NeoWave count - which is largely based on Neely's current count.

Please note the very precise Fib relationships that exist - both in price and time.

Here is the link: http://img16.imageshack.us/img16/1210/neo1k.jpg

[Account Deleted]

Hi yel
I am new to your blog but I find it very interesting read. I have 2-3 suggestion if you can incorporate as they make things more clear for a layman like me.
1. I will appreciate if you explain with more charts from EW and Neo.
2. More important if you can take some reports on Asian - Pacific region. I am more interested in India. But I am sure there are more people like me who look outside US also. And with your experience we can find it more easy to cover these regions

[Le Chiffre]

Nice work, Tartan!

[TObject]

Tartan,
we hit 805 yesterday morning in da futures

[Tom]

Tartan, why does wave D retrace only 50% of the entire rally instead of 61.8%?

[Tartan]

I have found a variety of other really interesting fib relationships within the recent S&P pricing.

The more I look, the more of these relationships that I am finding. It is too complicated to show them all on one chart, so here is an additional chart that supliments the one I posted earlier.

http://img5.imageshack.us/img5/2281/neo1.jpg

[Tartan]

Hi TObject: I agreed that the futures market went lower than the cash market yesterday morning. But, my chart is a cash market analysis - Neely recommends using the cash market.

Your point is well taken. Lets not ignore the fact that the futures markets has already dropped to the 61.8% retracement level.

[Tartan]

Hi Tom: Perhaps wave D will drop to the 61.8% retracement level. I have been thinking more about where wave C tops for now :-)

Neely has plotted wave D to hit around the 760 mark, but I suspect this more to show the approximate direction than to provide an absolute price projection.

[Mamma Boom Boom]

>>As you know, I've already inserted my right foot in my mouth [740-750]. Yum, tasty!<<

Today's pop doesn't change my intermediate view, yet. But, it does make me ponder what the yearly high will be. I had originally anticipated around 1200.

Anyone have a projection? (please, only professionals. no comments from dim-wits)

Ned

[DG]

But, it does make me ponder what the yearly high will be.

Whatever the high is in the next few days.

[Forkoholic Serge]

>Anyone have a projection? (please, only professionals. no comments from dim-wits)

Yes, I have a projection til mid summer
http://forkoholic.com/newsletter1.htm

[Mamma Boom Boom]

>Yes, I have a projection til mid summer<

I couldn't find it. You didn't violate the rule, did you?

[Mamma Boom Boom]

>Whatever the high is in the next few days.<

Fair enough.

[Tom CZ]

Ned - few days ago I said - the natural topping point for this up move should lie in the area of 50 - 61.8 fibo + 200 DMA. Thus we are getting to the range of 960 - 1120 - 1228 with avg of it at 1 102, so say my 2009 top target lies at 1100 based on this,

Tom CZ

ps whats your new projection and why?

[Robert Murdoch]

It appears that STU's prognostication is now blown out of the water based on today's market action.

Could someone please update what they have to say in their next update.

[Mamma Boom Boom]

>so say my 2009 top target lies at 1100 based on this<

Whatever your methodology 1100 is your answer.

As for me, I don't have a target, at least just yet. Most of my work measures strenght, it does not make projections. I had a gut feeling of 1220 +/-, based on a 5 wave retracing .618, or there abouts. But I'm starting to steer away from that. Thinking now maybe 950-1000. That's only speculation. This current leg is more powerful than I thought it would be. (scratch-scratch)

[Mamma Boom Boom]

I've updated my web-site:

MEDIUM TERM: (1 month - 5 months) - Buy - We've been on a 'buy' signal since Mar. 11th. At the time, it was an unpopular prognostication (to sugar coat it). As of today, the investing environment has gotten a little frothy. We will stay with the 'buy', but I would recommend hedging your long positions. There are a number of ways to accomplish this. If your unfamiliar, please consult your broker. Stay tuned for info on reducing your hedges.

LONG TERM: (More than 6 months) - Neutral - Stay on your toes, we may go partially long in the coming weeks.

[Bonds]
LONG TERM: - Sell - As long as we remain a 'Bail-Out Nation' I will avoid bonds. The government is the enemy. Buyers of 5 year Treasury notes are paying over half the earned yield for insurance against default from the United Stated Government. This is a bomb waiting to go off.

[Gold]
LONG TERM: - Sell - Gold, oil, iron, shipping, you name it, it's all becoming abundant. Actually, if your a seasoned 'futures trader' you could consider a whole array of sells, with stops.

[Tom CZ]

According to AAII>

around bottom there were 70.3% bears and 18.9% bulls. Now we got to bears just 37% and bulls 42.7%. Normality extremes lie int the area of 55% for bulls now and around 20% for bears so we still have room to the above 1000 targets. Also today I got fresh update on from ICI on US funds flows data. Regarding equities> market sold more in the first weeks of march than bought back at the end of it staying generally still sold out from last autumn. The only long are smart guys but the rest still underweight = we have room to go on our flight.

Tom CZ

[Forkoholic Serge]

>I couldn't find it. You didn't violate the rule, did you?

it's in my newsletter, doh!
What rule?
He Who Has the Gold Makes the Rules

[Robert Murdoch]

My prediction is the high for the SPX will be about 975 and the high for the DJIA will be about 9200. There will not be a Dow Theory buy signal because the transports will not close above their early January high close. Then down she goes.

I don't believe the STU prediction of SPX 1050 and DJIA 10000 will be met. That would blow through both the 200-day and 250-day SMAs and I don't see that happening. The 50% rally in 1929 only tested the 200-day SMA.

[Rich S]

Anyone out there entertaining a long-term bullish count? It's easy to focus on your preferred count (or that of your favorite guru) and be blind to other possibilities. In addition to my preferred count, I've been keeping an eye on Neely's, even though I've been skeptical of his triple-three (X) wave. (He even said earlier this week he may change it to a simpler count.) In any event, over the last few days, I realized that we might be in the ending stages of the bear market. This count has wave (X) as a flat from the Oct 10th low to the Nov 4th high (the same flat that makes up the first part of Neely's triple three). The action since then has been a neutral triangle, with wave C ending at the March low. That would put us in wave D, which might be ending soon, to be followed by one more down move. It seems completely plausible, and if correct, it means that although this bear market is not over, the low is in. It would also mean that Neely's forecast was way off and Prechter's was utterly ridiculous. Again, I'm not saying this is the most likely scenario; I'm just trying to keep an open mind. If you consider the fact that this bear has already been worse than any other in history except for the Great Depression, it doesn't seem that unreasonable.

[Upstart]

The ultimate low won't be seen until it at least retraces where the DOW went parabolic in early 1995.

[Upstart]

From Comstock Partners (Comstock Funds) 4/9 commentary: "We continue to view the current strength as a classic bear market rally typical of prior periods...The rally has taken place directly off a March 9 S&P 500 low of 666 without the retest that typically occurs at major bottoms. At the very least a retest of that low is a high probability, and it could very well fail. Furthermore, the fundamental assumptions underlying the rally are somewhat suspect..." I'm guessing Yves is pretty much coming from the same place.

[Mamma Boom Boom]

>>What rule? Forkoholic Serge<<

No dim-wits!

[Rich S]

Wave E would be the retest in the scenario above, but wouldn't make a new low.

[DG]

Rich,

I guess the key test for your count will be the reaction off that retest. If we don't rocket up VERY strongly, I'd suspect it was not the start of a new bull.

If we move up off there slowly, Neely's count would better fit price behavior. I didn't really understand his contention that the Neutral Triangle could be an X-wave leading to further downside, since, as you note, that would mean the upcoming E wave would move down in the same direction of the triangle's longest leg, wave C, whereas the end of a triple three leading to more downside would require and E wave that moved up.

You probably know that Neely's longer-term count has us in a big wave 4 right now, so I'd say that's pretty bullish.

[Mamma Boom Boom]

>>You probably know that Neely's longer-term count has us in a big wave 4 right now, so I'd say that's pretty bullish.<<

NO KIDDING! I DID NOT KNOW THAT. That fits my view, only I got there in a different way. I wonder why that has never been mentioned.

Actually, I think there is the possibility that 5 is a 'nasty bastard'.

Ned

[Tartan]

DG/Rich:

Here is the way that I understood Neely's recent comment that "additional upside last week (ie week of Mar 30 Apr 3) increases the chances that wave (X) is not a Triple Three but a simpler NEoWave Neural triangle".

I understood this to mean that the flat mentioned by Rich was wave a; the lows of Nov 21 and Mar 6 were waves b and d respectively; meaning that we are currently moving higher in wave e - which will soon end. This abcde neutral triangle would complete wave (X) and would then result in a move much lower.

[DG]

Tartan,

The problem there is that would mean that the C wave was from November 21 to January 6 was not the longest wave, nullifying the Neutral Triangle interpretation.

That said, I could be missing something because Neely definitely did not move away from his call for new lows, even while discussing the Neutral Triangle idea. Wave X could be a contracting triangle with reverse alternation, I suppose. The initial move from the October lows would be A, the move to November's lows would be B, move to January high C, March low D and now in E. That would require that the C of the C-failure flat Neely's labeled is not impulsive (which is something Rich asked about and I defended the impulsive five-wave interpretation by referring to a "missing" wave 2, but this new count would mean I was wrong to do so because that C wave was either an x or a b wave. A b wave would require the X down to the November low be impulsive, though, so maybe an x is better).

[MT]

At the end of februar I posted this chart.
It still looks o.k.

http://i366.photobucket.com/albums/oo106/mtcharts/Irregularflat.jpg

If so, wave C of wave B or 4 is in progress.

Weeks ago every one was to bearish and I was looking for a bottom. In the coming weeks I'm looking for a rise in the bullish sentiment. Volume is not showing an increase after the march low, could change, but I think it's a bigger copy of the Januar/May 2008 time frame. Many indicators are heading up into oversold but still there is room for higher prices.

[Rich S]

DG,

Agreed. For a neutral triangle to terminate this down move, we will have to explode out of it upon completion. It may still takes months for us to get there though. The current formation is already 5+ months in the making and wave D may still run for a while. I think Neely even allows for D to be larger than C, but it doesn't have to be. After that, the market may meander for weeks or months in some triangle variation before finally concluding wave E. If that triangle turns out to be of the contracting variety, which is common, the initial move down should be quite violent, which would quickly relieve excessive optimism from the current rally.

[da bear]

in my last Report at wal-streetweak.com, i wanted to see the DJIA above 7777 and that held. then i wanted to see 8,000 quickly. that happened too.

Intermediate 2 is still on in my opinion...

we are probably in wave iii of iii in this Intermediate Wave 2. Armstrong's turn date of April 19th could signal the top of iii of 2. McHugh has a turn date on May 20th or so... that could be the top of v of 2.

da bear

Wake up and smell the tulips.

[Tartan]

DG: What if the whole C failure flat that you mention in October was the A wave of the larger contracting triangle with reverse alternation?

[Forkoholic Serge]

>>What rule? Forkoholic Serge<<
No dim-wits!

I'd make a special page for assholes like you, but I don't want to waste my time.

[Robert Murdoch]

McHugh is now calling for wave 2 down to start very soon with a 38.2% to 61.8% retracement of the rally since early March.

Based on a couple of websites I frequent/subscribe to, the bottom should be late April/early May.

I suspect the significance of McHugh's May 20th phi-mate turn date is that it could be the top of wave 3 of [3], but that seems to arrive fairly early to me.

[DG]

Tartan,

I think the problem with that is Neely's description of A waves as "violent" would be negated if that C-failure flat was the A wave.

I don't like the time aspect of the A wave in that count, either, relative to the other waves.

[DG]

Rich S,

There's a "line in the sand" not too far above the market here (870-ish) that wave D would have to deal with. If we stall out there and reverse hard, I think that situation bolsters the current Neely count.

[Mamma Boom Boom]

>>I'd make a special page for assholes like you,<<

Oh, so now I'm an asshole. Your not smart enough to answer a straight forward question (and follow rules), but I'm the asshole.

You remind me of my wife, 'every time she does something wrong, it's my fault'.