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Wednesday, January 27, 2010

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DG

Volatility near the bottom here does make it seem like bottoming action. Closed shorts from yesterday afternoon before the run up today and went long close enough to the lows to just sell at the close for a nice profit. Next trade will be a short, whenever the signal arrives.

I'm actually not completely convinced that the decline meets the rules for Impulse wave construction. One piece of good news for the bears is that it does look like the pattern ended at the actual price low, which means there's no real divergence between pattern and price. In November, when there was another nice spike following a Fed meeting, the market appears to have formed a Triangle to bottom out, ending at a higher price low, which boded well for bulls. One negative for the bears is that the IWM did not confirm the SPY low.

Trader-123

DG,

Care to illustrate/describe why you aren't sold on this decline down from the highs as being "impulsive" in form?

TIA

DG

Trader,

If you take the waves as charted in the post above, the subdivisions of the third wave do not really fit the Impulse rules. The first subdivision of the third wave would be 114.27 to 111.62, followed by the rise from 111.62 to 112.42. From 112.42, we'd expect an extended third wave to be at least 1.618X the distance of the first wave, but the third subdivision of the third wave runs from 112.42 to 109.09, which is only 1.25X the first subdivision down.

Granted, that's on an Hourly NeoWave chart and it does look better on a Daily NeoWave chart, but, given the "fractal" nature of waves, all timeframes should have the correct relationship between waves for an Impulse to be valid.

I'm happy to be proven wrong, actually, since I'd like to see an Impulse down.

Anyway, that's my rationale.

michael eckert

Nice blog you have going, I just ran across it for the first time, I do have a count where todays low was the 3rd wave as you described above. http://ewtrendsandcharts.blogspot.com/

yelnick

DG, take a look at the nice chart from ewtrends (the comment right after yours). It shows the alt count, and in it we have:

wave 1 goes 21 pts (1150-1129)
wave 3 goes 57 pts (1140-1083)

2.618 x 21 = 55 pts, so it is a really close fib relationship with a very impulsive wave 3

Inside wave 3, wave iii goes 38 pts and iv goes 14, or 39% - very close to a 38% retrace

We would be in wave 4, which should go 38% of 57 = 22 pts, or to 1104/1105. This puts it back into the fourth of the prior third

If we pop tomorrow, then drop in wave 5 to Neely's 1075 by Friday, we would be set up for another Monday Pump in wave 2, which could go back 50-62%. A drop in the whole wave from 1150 to 1175 means a bounce of 38-46 pts, or back to 1115-1121 area.

That wave 2 would follow a monthly pattern (not as pronounced as the Monday pattern) of a sharp rise to kick off a new month. Then a larger degree wave 3 would start, probably in the 2d week, to blow down to the next range of target levels, below Sp1000 / Dow10K.

yelnick

Michael, as you can see from my comment back to DG, I really like your chart! Great work! Curious, do you really see a triangle wave 4 developing?

michael eckert

yes, I do, normally wave 4's are more drawn out then 2nd waves, in terms of time, and they also usually push out of the trendline as the sell-off weakens, just as they have done during the rallies. I still do see the possibility that the 5th was put in today, even though some of the indicators are over-bought, but it just seems too quick in time to have all those 3-4's completed in less then 3 full days.

DG

Yelnick,

The problem with that ewtrends chart is that the relationship between blue i and ii and black 1 and 2 of blue iii is backward. In a downward moving i-ii-1-2 the second set of waves should exhibit more weakness than the first set, by having 2 retrace less of 1 than ii retraced of i. The relationship in that chart is the opposite. The first 1-2-i-ii works correctly. If the 2 in the third set had retraced less than the ii in the second set, the logic would work.

Again, I find that actual Impulse waves at what Neely calls the "Multiwave" level (on whatever time frame) are quite rare these days. People are free to think what they want, obviously, but rarely have I had to revisit a decision to say that something isn't Impulsive and go back and say that it actually was Impulsive. All for what it's worth, of course.

michael eckert

Yes, I have noticed that, and it has bugged me, the alternate though is having the minor 3 being the shortest wave, one other thing is bugging me about the move off of the lows today, a 16 point move, way back into the green, yet the Breadth afterwards was 1.001:1 decliners, not what I would expect to see for the first impulse wave of a new trend.

Taz

Cheers DG,

Over here in OZ, we have not yet had any confirmation that a top is in. I want to see our index down another 100 to 150 points by Monday to be confident. Otherwise we may have a diametric in play with one last run to a top.

Taz

yelnick

Michael, what if blue i ended slightly later than you place it, at a slightly lower point? Your black 2 would retrace about the same as blue ii. It also took less time than blue ii.

michael eckert

If I understand you correctly, that is where it is supposed to be (the blue "ii"), one of the problems with Stockcharts is that the notes float around too much, but the "ii" is at the low of that wave @ 1114.84

yelnick

Michael, got it. Then how close are blue ii and black 2 in length and time?

DG

Taz,

Hey! Yes, a Diametric is still possible here. My wave count on the IWM up into its high from the early November low was actually a Neutral Triangle, so having a wave-f sneak in here wouldn't completely shock me. That would imply that wave-g would need to be larger than wave-e on the IWM. I have wave-e running from 62.26 to 64.87, or 2.61, meaning that if wave-g started at today's lows, it will reach a minimum of 63.32. Since wave-f took out the lows of waves e and d, implying a lot of market weakness, I would suspect wave-g will reach the minimum, but not much more, or, if it goes much higher than that, it would end at a lower high. Today's rebound off the lows and what looks like will be follow-through tomorrow would likely be the wave-a of a Contracting Triangle for wave-g.

Taz

Thanks DG

I have finanly been able to avoid our web nanny patrols and access your website from my work so you will hear me more often on your blog. Keep up the good work. You too Yelnick.

Over here in OZ, we have quite a few confirmations of tops in the sub indices except our banks which make up circa 25% of our index and the industrials.

I am using our October drop as the benchmark and our headline index ASX 200 is still a few % away from confirming a major top. I do have a major issue with time but I am able to sidestep it if I measure off the lower recent high (which I have issues with) or I measure from the Oct price high(which I have issues with as well). I would prefer for us to break 4500 (currently 4673) in the next few days to help clean up these niggling issues but I don't think the market will co-operate.

While I have the US dollar index going to 81 inside 4 weeks, I dont know how much more damage it will to do the metals complex with our gold sector near support and so too our materials index. I think the divergance between spot gold and our gold sectr is short-term bullish. I bought a ton of gold stocks today (though I think there mught be one more down day) with the view of selling for a 10% profit on what will be a B or an X wave.

Taz

yelnick

Taz, if the USD runs like that, and the Chinese really get serious about pulling back, won't the AUD drop to around 82? That should pummel the ASX

Perigee

Yep, Yelnick. We (Oz) are in for a run down to end Feb/early March just like US market and then one final run up - whether we get a new high now or make it in 2nd quarter 2011 is debateable - either way come early March if the market has been going down into that date, you will want to be a buyer here and maybe moreso US. There are so many time setups pointing to this that it is high confidence. It will take until 2011 for the property market here to start to crater, but when it goes, heaven help those who are ill-prepared. Our RBA (central bank) are mindless fools no different to Bernanke who think they have magical powers and have saved Australia from recession etc - unfortunately the economic knowledge possesed by our RBA is equalled only by the journalists in this country who are, at best, a bumbling bunch of idiots looking for their next free lunch. Lucky country - I doubt it - same sort of idiots running the money in this country as the US. We are on borrowed time.

DG

I have finanly been able to avoid our web nanny patrols and access your website from my work so you will hear me more often on your blog. Keep up the good work. You too Yelnick.

Great! I look forward to your commentary.

cloudslicer

Here is a fly in the ointment.

On the mini charts showing pre/after hours data the high of the market was 11th not the 19th!

This matters because what you are looking at now is the 3rd wave down from the 19th, not the first wave down.

Given that this market is now truly global in nature and the fact that your site has called this the zombie market since so much action takes place outside of normal market hours I think using mini data makes sense.


Mamma Boom Boom

So much for the triple bottom theory. Also, I see the China-mans index is looking stressed.

cloudslicer

Simple question, have we had a 9-1 down day at any point in this decline yet?

DG

Given that this market is now truly global in nature and the fact that your site has called this the zombie market since so much action takes place outside of normal market hours I think using mini data makes sense.
---------------------------------------------------------
Neely strongly advises against that. Overnight markets are the reflection of a few large players, not mass psychology, which is what wave theory requires for the highest levels of accuracy it can achieve. Best to stick to cash markets for wave counts.

Skeptic McDubious

how about

Five Wave Down Has Ended but It's Easy to See Whatever Waves You Want to See and Even If You See the Waves You Want to See They Won't Help You Make Money, In Fact You Will, on Average, Lose Money Because You Lack Inside Information - Bounce Ahead (Maybe)

?

vipul garg

i would like to hear from someone who has a bullish view on the market, esp commodity traders.

big bull boy

i have a bullish view and am a commodity trader

i am 5'7" medium build

i like italian food, elliott wave, dancing, neely, precter, and soft music

not very interested in politics

big nature fan, walks through forest, woods, near streams

very VERY bullish on commodoties but open to other ideas (wink)!

Above-average Height Guy

i am 5'7"
-----------------------
5'7"? You should change your handle to "little bull boy". No wonder you post such tripe. You've got a Napoleon Complex, a.k.a. "Little Man's Disease".

Run along, shorty, adults are talking.

Mamma Boom Boom

Let's see if any of you 'over-achievers' can get a count on this move since the 19th.

Michael

Lots of short covering ahead of the Bernanke Cloture vote. If they get 60 votes during Cloture, they then take the vote for confirmation.

Big Elliott Boyman

Height might make might but it don't make right. I am bullish and a commodities trader and I am happy to meet new exciting people especially wavesters like me. I also like windsurfing (I've only done it twice but WOW!)

I like Neely and Precter and I like checking this site and bull not bull also TechTIcker on yahoo finance.

I LOVE LOVE LOVE some of the wave counts on this board. I am scrupulous with my wave counts and a very gentle, cultured person. I am happy to meet other boys (big, small, above average, WHATEVER) to talk waves and share counts and quiet moments.

There is no wrong wave, just like there is no wrong behavior, if it feels good and if the probabilities are right. You can ride a slope of hope or catch a tidal crest or even just correct in a nice expanded "flat."

cloudslicer

"Neely strongly advises against that. Overnight markets are the reflection of a few large players, not mass psychology, which is what wave theory requires for the highest levels of accuracy it can achieve. Best to stick to cash markets for wave counts."

Neely is entitled to his opinion. For individual stocks I agree with him.

But, for the major indexes I think there is sufficient volume to take the moves seriously. What you are seeing are actions of the Asia/European investors. As the share of the world market cap of the US shrinks so does the influences of the after/pre-market increase.


Taz

Hey Yelnick,

I suppose 82 is possible but I am only looking for 86 on the downside for now. Our currency has held up much better than the market. Not sure if this means we get another high in due course (are banks a tell here too???) or whether we have not yet seen the high (in terms of Neely) and the final top is a lower high. I think commidities may decpuple from the $ in the near-term but only for a short while.

Ou Aussie gold stocks tested their 200 day MA yestrday and I think gold might want to test 1160 again before we see an any real downside traction. And our material stocks are also at support.

DG

But, for the major indexes I think there is sufficient volume to take the moves seriously.
------------------------------------------------------

One of the main points of Zero Hedge's analysis of the overnight action, which you referenced earlier, was that the reason whoever was buying overnight was buying overnight, rather than during the day, was because it was easier to move the market overnight with less capital. Push it up overnight and then let the people who are actually concerned about things like fundamentals sell it down during the day. Since the overnight traders apparently don't care about pesky details like actually making a profit from their trades, what does it matter to them if all the overnight gains go away by the end of the session? If that is the profile of the overnight buyer, how is that in any way indicative of mass psychology?

During the day, billions of shares change hands, not a few thousand futures contracts. The prices are much, much more reflective of mass psychology during the cash session. That's not an opinion, it's a fact, just based on the sheer number of dollars involved.

Taz

Hey Perigee

I agree with you on property and our estemmed RBA but on the market I have us going down into early 2011 based on the wave structure. This ties in closely with Marty Armstrong's work of alow in April 2011.

Mamma Boom Boom

>One of the main points of Zero Hedge's analysis of the overnight action<

Don't you think they, often, make claims without having supporting evidence. I like that story but it's difficult to get excited without proof.

Promoter Inc.

In my opinion, the yougsters at Zero Hedge are always suckers for a great CONSPIRACY theory... it sure does attract web-traffic, but not much else!

Perigee

Taz

April 2011 will be a high in my books so perhaps your cycle will flip polarity (or possibly mine). Either way, the date is probably more important as we can always see what the market is doing into it. FWIW I have Oz market down to late Feb/early March (4300 or so), up into mid year (possible new high) and then a panic decline to October which may be a good buy for a high in April 2011, though we may get a retest before 2011.

Wavist

Totally with cloudslicer, there may be many shares traded by many parties but really the market's movements are almost entirely down to the top few holdings traded in bulk by a small number of institutional investors. All the rest is penny trading. Where there are (usually pretty minor) differences between Dow Futures and European markets on the one hand and the results of cash trading during the main session in New York on the other then sure you'd want to go with the most heavily capitalised market, but here there is no equivalent cash data saying otherwise, so use what's available. The available data is that the DJIA Futures, SPX Futures, FTSE, DAX, ASX are all in agreement that the top was on the 11th. Seems pretty settled to me at least.

DG

In my opinion, the yougsters at Zero Hedge are always suckers for a great CONSPIRACY theory... it sure does attract web-traffic, but not much else!

-------------------------------------------------------
If by "not much else" you mean they got Congress to seriously consider a bill to audit the Fed and look into the impact of HFT on the market and got Goldman to respond to accusations of front-running its clients using data captured through their "Goldman 360" web portal, then, yeah, there's "not much else" going on at Zero Hedge.

BTW, remind me again what impact YOU'VE had on discussions in the financial markets? Oh, yeah, that's right. NONE.

Taz

Cheers Perigee

Sep is also a Gann 90 months from our Mar 03 bottom and I do have a bottom for commodities pencilled in for this time.

DG

The available data is that the DJIA Futures, SPX Futures, FTSE, DAX, ASX are all in agreement that the top was on the 11th. Seems pretty settled to me at least.
---------------------------------------------------------
OK, so you're going to treat on an equal basis the hours between midnight and 5AM Eastern time when a couple thousand contracts are traded with the opening and closing hours of the ES contract when about 300K contracts are traded and hundreds of millions, if not billions, of shares? Whatever.

I remember when Forkaholic Serge would post his wave counts incorporating the overnight sessions. Somehow, the overnight sessions always seemed to be difficult to integrate into a coherent count. I wonder why.

I used to do a little bit of trading in USO and it was the same thing when the oil pits closed. There was no point in trying to chart USO once that happened because it was basically a flat line.

Here I am trying to save you guys some trouble and all I get is grief about it.

Wavist

Vipul I've been bombarded with marketing from Gann Global saying that the commodity markets are getting ready for a huge advance and that this decline has is setting up an historic buying opportunity with potential gains of 10:1. Even they say that the stock markets are only about halfway through the correction though. Obviously whether they're right or not is anyone's guess. Personally I don't believe that we are in an impulse down and belatedly accepted that the 2007-09 bear market was not impulsive once the rise from March 09 proved not to be a fourth wave, there is just no way to count that March bottom as an impulse which shows the whole thing isn't. I'm still bearish timewise though, expecting the advance to be retraced in one big quick sharp drop. Pricewise I'm with Neely in just seeing volatility after the drop for years to come.

Canadian Money

I continue to see the rally of the March 2009 low as a possible fourth wave. I would like to hear reasons why that cannot be the case under the EWP.

Wavist

On several indices the advance has overlapped with the would be wave 1 namely FTSE, ASX, NDX, NASDAQ and RUT. Even on those that haven't the size and proportions of the advance are in excess of those normal for a fourth wave.

Wavist

I don't think anyone is trying to cause you grief DG your posts are appreciated and are in any case respected for your work on wave theory by everyone here. Nonetheless I stand by what I said that whilst the data it can be conceded is not of as high a quality outside of US trading hours the markets on both sides of the Atlantic have been married for years and unless the cash markets act in a way to negate analysis of the futures markets which during the British and European sessions are reflective of reasonably large market participation there is little positive reason to ignore large movements beforehand especially as they are directly responsible for apparent jumps on the opening.

BMZ

Canadian Money-

I've been in the same camp as you for the entire rally. SP 1146 was my target- we exceeded it by 3-4 pts. I think Wave 5 has commenced- with a vengeance.

DG

Wavist,

"Grief" is probably too strong a word, but I guess I don't understand why you would want to go down the road of incorporating overnight prices into wave counts. At best, they are redundant to cash prices and at worst, unrepresentative.

Plus, the idea that the count is wave-1 down from the 11th overnight high, to the bottom of the 12th and wave-2 up to the non-futures high of the cash SPX session of the 19th is laughably bad wave counting. Wave-2 retracing 99% of wave-1 at a MAJOR turning point in the market after a 10 month rally? Come on, that's almost completely illogical. The reason why Neely says that the first wave down of a change in trend is rarely retraced more than 61.8% (and even when it is, that initial retracement is part of a more complex pattern, which, when it ends, will end lower than the 61.8% retracement of the first wave down) is because there is a major shift in mass psychology from one view (in our case bullish) to another view. That psychological shift shows up on the charts as an inability of the market to retrace the initial break. It is not as extreme as the break at "the point of recognition", but it certainly doesn't make sense that wave-2 would retrace that much of wave-1.

In fact, I would argue that the real "psychological" high, which is what wave theory is concerned with, was the open of the cash session of the 21st, peaking at SPY 114.27. If you look at the drop following the high on the 11th, the subsequent decline during the cash session contains many overlapping bars and is generally quite slow. The drop from the high of the 19th to the low on the 20th is much faster and the drop from the high on the 21st to the intraday low of 111.62 was faster still. Again, logic dictates that a real change in psychology will manifest itself in extreme price behavior.

Keeping all of these logical and visual elements working in concert to create a coherent view of the market is key to not allowing bias to dictate what we think the market is doing.

tom

DG,

Very well put.

Thank you. You are truly an EW guru, way ahead of Prechter!

Tom

tom

DG,

Very well put.

Thank you. You are truly an EW guru, way ahead of Prechter!

Tom

Greg

Again, logic dictates that a real change in psychology will manifest itself in extreme price behavior. Keeping all of these logical and visual elements working in concert to create a coherent view of the market is key to not allowing bias to dictate what we think the market is doing.

...That's right!!!

Wavist

See you're in no shortage of fans! To me the initial move to a decline is a tentative expression, where dormant bears begin to assert themselves after an uptrend. The initial retracement is the bulls believing themselves to still be in charge viewing the decline as a buying opportunity, as a result stampeding back in to keep what they believe to still be an uptrend in motion. At the end of a sharp bull run I would expect the bulls to be highly confident in prices heading higher, it is only when they fail despite all their efforts to breach the high that the moment of realisation sinks in and the decline proceeds in earnest. At this point you have a new trend emerge and market participant's fear snowballs. At market bottoms hopeful buyers get to work as so often before and this time it proves contagious, with all the others desperate for the market to recover happy to pile in; the difference between advances and declines is that advances are driven by market participation, declines are caused by investors withdrawing their holdings, contrary to expressions in the press short sellers have little impact in causing declines, being heavily outweighed by those sighing and cutting their losses, this is why tops and bottoms look different. I understand that Neely prefers to label movements as beginning with a widespread shift in consciousness but to me that seems to require labelling movements based upon interpretation whereas taking the turn as the place that price actually topped or bottomed means taking the market at face value, letting the market tell you where the last trend finished. Really how it is labelled is just a question of definition and what it is that is to be considered the prime focus of attention. Strictly I don't regard this decline as an impulse in any event and I think that what people generally view as impulsive as often as not is just a hesitant beginning of a new movement followed by a strong move, regardless of internal fractal structure.

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