Yves Alert - Rally Over!

Our guestblogger Yves put out an alert that the structure looks right to have completed the C wave of a  running flat two days ago at about Dow8600.  He goes on to note that running flats are rare patterns which break in a 3-3-5 series of waves, and often the last wave up in 5 divisions will fool most E-wavers into believing this to be an impulse or primary wave.  This is especially so since in such a flat the B wave exceeds the start of A, as here where the Mar6 low was lower than the Nov21 low.  He has been long cash and gold stocks (+20% in  3 weeks).   He adds that his recent  recommendation on Bloomberg TV of buying Uranium is sold now for over 25% return in 18 days. He will be on Bloomberg Radio tomorrow, Thursday,  at 4 ET.

We have mentioned this alt count of a wave (4) flat previously.  It counts as wave A from Nov21 to Jan6, B to Mar6, and C to a few days ago, if indeed it has ended.  The drop from Jan6 to Mar6 counts better as 3 waves not 5, and the STU had to perceive a minuscle 4th and 5th wave to make that drop a five-wave wave (5) in their count.  Hence Yves' count has a better 'look'. 

Tonight the STU noted that the break of Dow8358 means the ABC move off Mar6 is now complete, and a steep pullback is clearly on.  What they have been counting as wave [2] and Yves counts as wave C of (4) is over for the moment.  If a wave [2], it is unlikely to have concluded so quickly; typically a wave [2] after a huge 18 month wave [1] will last more like 7 months (38%) than than 2 1/2 months (15%).  Neely still expects a rise to around SP950, but advises traders to stay out.  The drop when it comes (and it may have started) will be sharp and deep, in his count.  More like the wave (5) that would follow the end of Yves' wave (4) flat. 

Comments

[Taz]

My prop sentiment indicators have turned the corner suggesting a new downtrend which I have pegged as wave 5 as well.

Here in OZ, I can count on one hand the number of bears I hear, read and see. They are EW technicians. Everyone else, and I mean everyone else, thinks the bottom is in. Our most famous permabear is bullish, at least in the short-term.

The volume on the recent rally had all the hallmarks of a bear market rally.

Seasonals, volume and sentiment are all pointing down.

Good luck to anon and all the other permabulls.

Taz

[Hank Wernicki]

INTERMEDIATE SELL <<<<

THE CHART

http://www.elliottfractals.com/YOU_ARE_HERE_5_12_09.jpg

Hank

[Forkoholic Serge of Elliott Wave Forkology]

As we're in 1st week of Mercury Retro(MR) be careful executing your orders. Check and Double-check everything. Today someone bought 100 contracts at whopping $184/each instead of $18.40/each and someone sold at $9.20 instead of $29. Make sure your stops are in place. And yes, your broker may experience technical difficulties during MR time - so you may not have a chance to enter that sell order tomorrow morning you wanted to place yesterday but forgot.

Still looking at $SPX count as an ABC down from 930. Fork down from 930 looks corrective as well - price have not crossed median line to the lower half of the fork.
Composite on the other hand has not even close to median line of its down fork and that's usually considered as a bullish divergence.

We're still beta-testing our Phi Dates Calculator. Next possible turning day is May 15th which is Lucas 521 calendar days from December 11, 2007 - it was a top of Wave 2 of 1. Our May 9th turn date worked beautifully seting up a top on 5/7,5/8, plus 9th was a Full Moon. May 9th was Lucas 123 calendar days from January 6th, 2009 top.
http://forkoholic.spaces.live.com

[Douala]

Any chance you could post a graph of Yves wave count?

[Mark]

Neely's non-wave analysis has proved itself the best contrarian indicator.

[Rob]

I don't subscribe to the STU. However,I am under the impression that the STU count was that wave 4 ran from November 21 to January 6 and wave 5 concluded on March 6. I can't see how the STU had to "perceive a minuscule 4th and 5th wave". A move from 741 to 944 and from 944 to 666 for the SPX is hardly minuscule.

I suspect wave [2] is nowhere near over. It appears to me that we are in wave 2 of [2].

Wave [2] is not likely to conclude until September.

[Upstart]

Futia says reaction is about over. This fits with Forkohlic view, and apparently Neely. Volume looked on the light side.

[Tom]

Does anyone have a sense for what price level needs to be broken for Neely to confirm that wave E of the expanding triangle is over, under rules of Neowave, if indeed 930 was the top? Similarly, how much longer before you can say that time is running out for this corrective pattern? In his updates, he stated that there should be a final advance this week or the next, but I sense that's not the maximum time allowance. The decline this week started off slow then recently picked up speed, and bullish sentiment indicators don't seem to have been fazed at all, both attributes of what he expected to see after the market topped.

[gambler]

The table below shows the weekly closing prices for Cash S&P 500. We are in week 8 of a DeMark TD Sell Setup. Note the current week is partial data since the week isn't over yet. 9 consecutive bars with closes greater than the close 4 bars ago define a completed sell setup. Typically, you will at the least see a pullback after a setup completes within 1-3 bars.

The odds favor a significant pullback or a retest of March lows since there is resistance at the previous TD Buy Setup level 890.40. The market did close above that level last week but last week’s high was not exceeded even though the market did open above that level. This means the 890.40 level was not qualified.

A low risk sell next week should the sell setup complete will require TD Sell Setup to be perfected. This means that the high of bar 8 or bar 9 should exceed the highs of bar 6 and 7. Since bar 8 (this week’s bar) has not yet met this condition, either S&P 500 should exceed 930.17 this week or should exceed it next week.

Week Beginning Close Sell Setup
23-Feb-09 735.09
2-Mar-09 683.38
9-Mar-09 756.55
16-Mar-09 768.54
23-Mar-09 815.94 1
30-Mar-09 842.5 2
6-Apr-09 856.56 3
13-Apr-09 869.6 4
20-Apr-09 866.23 5
27-Apr-09 877.52 6
4-May-09 929.23 7
11-May-09 883.92 8

[Hank Wernicki]

Friday:

3:48 PM

MOST RELIABLE FRACTALS APPEAR AT THE CLOSE <<<<< AND BEING CONFIRMED

THAT IS THE REASON FOR THE VOLUME ON THE OPEN / AND HUGE PRICE MOVES

Gap down tomorrow SPX <<< CHILD 896.37 STOP

PFE SELL SIGNAL <<

4/30 TOP 10:30 am 30 minutes PARENT

FRACTALS ARE RANDOM AND THEY CHANGE

[Mamma Boom Boom]

Hank, that one blew over my head.

[Forkoholic Serge of Elliott Wave Forkology]

New EWF Poll! Please Vote! Thanks

With Elliott Wave ABC correction how frequent is occurance where both Wave A and C are IMPULSIVE 5 waves structure?
http://www.micropoll.com/akira/mpview/586005-167385

[Neo Guy]

Hank, I am always intrigued by your posts, partly because you seem to have a better than average track record and partly because of the inimitable interesting way you write.

Like Ned, I sure would like more explanation on this last one.

[Tartan]

The lows of Mar 30, Apr 1, Apr 21 and May 14 line up in a perfect trend line when viewed on a logarithmic chart. And when I say perfect, I mean PERFECT. A break of today's opening low (and therefore the upward sloping trend line) would likely mean a quick and perhaps deep plunge in prices. Alternatively, if today's lows hold then we could then be on our way to Neely's 950+ projection.

In either case, does anyone foresee us penetrating this lower trend line by just a few points to hit today's Emergency update buy price of 876 and then continue with a resumption of the uptrend? Perhaps the time for this opportunity has passed? It feels like the trend line is either respected or gets deeply penetrated.

To complicate matters further, I am not so sure that today's rally in the S&P was violent enough to be the start of the final leg up that Neely has been looking for.

Thoughts?

[Mike McQuaid]

XLF (financials) shows a bullish engulfing pattern on the daily candle while making a middle Bollinger band (20,2) tag and closing near the high.
Since newly formed 3rd waves often make sharp reversals like XLF did in the last 4 days,the odds seem to favor the uptrend continuing.
On a 15 minute chart looking at todays action, channeling and wave count suggest a 5 wave advance followed by action including a strong B wave. This strong B wave chimes in as a fractal of the action on the daily chart off the March 6 low. Put a gun to my head this sector goes higher.

[DG]

Tartan,

You mean the trend line I've mentioned four or five times, including yesterday (in the blog post prior to this one)? Gee, I hadn't noticed it!

Anyway, just kidding. Today's action, including that trend line bounce fits perfectly with what I've been saying is the "real" NeoWave count. Go back to Neely's trading update of April 20th to see what I think is the actual formation playing out. The "c" wave of that Neutral Triangle is what I've been saying is a Diametric. As with the trend line, I've mentioned this a few times over the past couple of weeks. We overthrew the upper trendline during that time, but we quickly would get back into the channel and now have come full circle and hit the bottom trendline of the channel today. Here are the waves on the SPY and the Fib relationships between the relevant waves (b and a, a and c, d and c, a and e, f and e) and now we are in wave g. The diametric is showing a "contractionary-expansionary" bias, meaning wave c was smaller than a and e was larger than c. This would mean wave g will definitely be smaller than wave e.

Start Finish
a 78.33 84.61
b 84.61 81.54 0.488853503
c 81.64 87.65 0.957006369
d 87.65 84.15 0.582362729
e 84.15 93.15 1.49750416
f 93.15 88.5 0.516666667

The reason today's move wasn't "violent" is because we are in all probability going to end the formation below the high of wave e. If we don't reach 90.30 on the SPY by 10:43 Eastern Time, we are officially behind pace on a "strong" wave g. If that happens, we will probably end below that 93.22 high some time early next week (or, we could gap down hard Monday and never recover) and then start wave "d" of that Neutral Triangle from the April 20th trading update. Although Neely never says so anywhere I've seen, my guess is that wave g will need to be at least 38.2% of wave f and the max size of g is determined by how large e was. That's why I'm looking at the ratio of retracement to time. Wave f was 1160 minutes, so 38.2% of that is 443 minutes and the 38.2% retracement of the move from 93.22 to 88.5 is 90.3. Wave f bottomed today at 10:00, which is how I got my time target for 90.30.

Zooming in on the 78-minute chart, today's end of day weakness makes me think we are already in wave B of wave g, or in an x-wave of a complex correction formation for wave g. With the exception of wave e, which took 11 trading days, the average wave has taken just a bit over 4 days. Honestly, I'm not completely sure when to start wave a, on April 1st or March 30th. The move on April 1st was more violent, but one could make a case for an elongated flat starting March 30th as wave a. Still, those extra two days don't make the calculation much different (or make the Fib calculations much different, either). Neely says that all waves in a diametric should take about the same time (which is one possible issue with the count, since wave e is much longer, but it's also the longest wave in the formation, so one would expect it to take a longer time and the Fib relationships work), so we should not expect wave g to take much more than 4 days and 2 days would not be completely out of the question.

For all of these reasons, tomorrow, if we don't hit 90.30 SPY by the time I mentioned, I will be taking on a portion of the short position I want to have when the market tanks. My initial stop will be 90.86, but we'd have to reach it by the 50% time retracement, i.e. 1:00 Eastern Time. If we don't, my ultimate line in the sand stop will be the 61.8% price retracement of 91.42 SPY. Even if we don't make it there by the 61.8% time retracement. I'll simply wait for a "larger, faster" correction than any other within the confines of wave g to get short again, unless we end the day near the highs because then I'll get short based on the notion that we could gap down hard Sunday night and I don't want to miss that. If this count is right, we're probably not going too far from here. But, anything other than significant weakness to start the week next week will cause me to close that and step aside.

On another note, if this count is right, we've seen the highs for the next possibly couple of years and we could see sub-500 prints on the S&P within months. Again, check out Neely's April 20th trading update for a view of the implications.

[Rob]

Watch for the SPX to close at about 900 tomorrow, which is the site of peak open interest for put and call options. I suspect at that level that the house doesn't lose money.

I am looking for a bottom on or about May 20th.

[yelnick]

Rob, the miniscule part was the final two of five waves within the move from Jan6 to Mar6. The whole move was not miniscule! It just appeared to break as 3 waves. They compared this to the 1938 pattern, where again the same wave at the same moment looks more like a 3 wave than a 5 wave. You can see charts if you scroll down the main page.

[vipul garg]

DG, those are a lot of calculations!

for me , structure alone is not enough, behaviour must be in line also

since october lows an expanding triangle is a bizarre count as wave b and d show loads of weakness .. the only way behaviour is going to be confirmed in wave E is it shows spiky behaviour and takes much longer than usual ..
as per time , usual time is up, so it must continue the trend now and show real strong upwards action..
as mr. neely says take a level where we all will start thinking of becoming bulls , market is going to get really close to that!

[Tartan]

DG: Great post! I really like how you factor in time to your analysis.

Question for you - my understanding of a neutral triangle is that wave C is larger than A or E in terms of percentage gain. On the S&P (I don't use SPY), if wave A was 672.8 to 823.7 (22.4% increase) and wave C started at 783.11, then we would expect wave C to rise to at least 958.78 (22.4%). Would this movement from the March lows be a contracting triangle if we have already seen this highs at wave-e of the diametric?

[DG]

vipul,

I am not completely convinced of the Expanding Triangle count, either. One could even go back to the April 17th trading update and say that's the "real" count and the wave C Diametric I was outlining simply went over the top of wave X due to the reverse alternation in the Neutral Triangle. If, instead of reverse alternation and a short wave b, we had a "typical" wave b in a triangle, which retraces a minimum of 70% of wave a, with the current length of the wave c Diametric I'm seeing, we would not have topped the beginning of the X-wave down that started in February. That is why I said Neely was paying too much attention to the 875 level.

You are right that post-structure behavior needs to confirm all of this and my count does allow for new highs, it just says that wave g cannot be longer than wave e.

But, as I always say, that is forecasting. The post above contains specific trading levels and times that will form the basis of my risk management approach to the opportunity. If the count is right, we are heading down below 800 quickly and if I'm wrong, I will be stopped out for a small loss, which is a good risk/reward ratio.

[DG]

Tartan,

That's a good catch. We are right on the cusp of the Neutral/Contracting triangle divide on both the SPY and the S&P. One thing I would say is that since it is unclear when wave a of the Diametric started (March 30 or April 1?), it's unclear which of the two triangle types are in play (if any!). That's my main reason for always looking at the risk management angle on a set-up. If we are about to enter wave d of either a Contracting Triangle with reverse alternation or wave d of a Neutral Triangle, risk-reward looks good. I'll put the trade in with a tight stop as mentioned above and take my chances. I don't want to get steamrolled by a runaway train up to 1000 but if that forecast is based on an incorrect analysis of structure, I don't want to have to wait for Neely to come to that conclusion when I've already concluded it with my own analysis.

[DG]

If we don't reach 90.30 on the SPY by 10:43 Eastern Time, we are officially behind pace on a "strong" wave g.

First short position in place based on this. While it's early, notice that 10:43 was also the timing of the day's high so far.

[Laurent Gosse]

Hi! If the flat pattern turns out to be true, i think i've been the first person to propose it for free on the web: see http://www.leblogfinance.com/2009/04/eureka-la-vague-5-cest-un-flat-335.html

It's been published on april 13 and then further developed as time passed. Especially for european traders, the CAC 40 perfectly satisfied the right levels which characterizes the "expanded flat" pattern. See again: http://www.leblogfinance.com/2009/04/explications-sur-larticle-dhier.html

According to this wave count, we are slowly entering bear wave 5 of the downside market started end of 2007.

[DG]

I don't see an impulse 5-waver up to end this flat. Also, one would expect a Terminal formation for the C wave of a running flat, due to the weakness implied by the extended B wave, as well as the possibility of a C-failure formation. Instead, the C wave of the flat you're proposing is actually nearly 1.5X the A wave on a log chart. That's quite strong.

Here is what Neely says about Irregular Flats, which this is on the verge of becoming:

"Despite what many readers may believe, this pattern is actually quite abnormal and infrequent. It creates a state of 'self-contradiction'. Why? When the b-wave of a pattern exceeds the beginning of wave-a, it demonstrates the power of the trend of one higher degree. When the c-wave turns around and exceeds the end of the b-wave, it nullifies the power exhibited by the b-wave creating an illogical condition. This behavior is acceptable in Terminals and Triangles, not in Flats."

I figured a Frenchman would appreciate the "philosophical" tone of that analysis.

[Laurent Gosse]

I'm proposing actually an "expanded flat" and it is the rule for this pattern to have the C wave measuring 1.618 times the A wave. For US indexes (except NDX 100), the developing pattern seems to be more exotic.

[DG]

If an "expanded flat" is the same as what Elliott originally called an "irregular flat", then that is what I was saying is actually quite a rare structure. Prechter discusses this pattern on page 46 of "The Elliott Wave Principle". He wrote then that he thinks they are quite common, which is why he did not continue to call them "irregular flats". Neely might be making a point directly aimed at Prechter in his comments about "irregular flats", a name which Neely kept, rather than use the "expanded flat".

Anyway, even if the pattern is rare, that doesn't mean is is impossible, but there is still the issue that the move up from March lows in the S&P is not an impulsive five-wave structure. There is way too much overlap in the April movement to qualify as five waves.

If by "expanded flat" you mean what Neely calls an "elongated flat", which does typically have a C wave 1.618X the A wave, two other features of that pattern are that the A and B waves are typically equal and the pattern is most frequently found as part of a triangle, not a pattern that stands alone.

I think that we are going to go down again to new lows, so I don't disagree with your price forecast, I am just pointing out some of the things I think are incorrect in your wave count.

[Laurent Gosse]

Actually, the S&P pattern keeps on being quite mysterious to me, but as the one on the european indexes especially CAC 40 was looking much clearer, i pointed it out.