Did Friday's TRIN Spike Signal Bearish Exhaustion?

On Friday the Arms Index (TRIN) spiked to 13.5, one of the highest levels ever, the sort of spike seen on days like the 1987 crash. A high TRIN means it took (in this case) almost 14x the bearish volume as bullish to push the market down. As Dick Arms describes it, they represent "a sudden rush for the exits .. a sign of fear and panic." Normally they come with a downside breakout, and mark a bottom. 

We did not have such a breakout Friday. Even after the drop Monday, we remain above the Feb5 level. The market remains in a sideways pattern. This suggests more downside ahead, but Dick Arms believes it means instead a bounce is due back to Sp1150, confirming the right shoulder of a head & shoulders pattern back to the January top. Curiously, he also notes that the sideways pattern since May 6 creates a smaller inverse head & shoulders, and a bounce right away would complete it. It also targets a return to Sp1150. 

Adding this to my two prior posts gives three bearish paths ahead that should all be clarified in the next couple of trading days: 

• the LD down towards Sp970 with a bounce to Sp1100 before the Big One down
• the Mother Market surprise first to Sp1070-1090 then the Big One down
• the inverse H&S back to Sp1150 before the Big One down

Dick Arms from The Big Picture

Comments

[Hockthefarm]

DG:

"What they missed was "securitization", which enabled the debt burden to continue to grow beyond all expectations. The fact that as soon as the securitization markets started to fail, the whole house of cards started to crumble has me convinced that this was the missing factor in their forecast, which is now coming to pass quite strongly.

I remember reading that book in the early 90's. By Reese Moog and Davidson I believe. I think you make an excellent point regarding securitization. They sure we early. Maybe 10 years from now we will look back and say that Prechter missed the gubmint super debt and deficit binge. I somehow doubt it. Talk about an incontinent bombing run!

Hock

[Bird]

Kid,

Good answer. I think we can work things out just fine. Your flipping me the bird was pretty funny, I admit.

Say more of what you do. Since there are only a handful of guys checking in here, I don't see how it could hurt that we try to talk things out .

[yelnick]

Steven_737, you asked if Zoran looked into the relationships of an extended waves? He would agree that one of the legs of an impulse should expend (or subdivide). He also looked at the retracements statistically of waves 2 and 4 in various situations. Quite interesting. I have his findings in case it would interest.

On the question of whether this is an LD rather than a nested 1-2-i-ii from Apr26 where:
- 1 = flash crash
- 2 = flash bounce of at least 62%
- i = retest of flash low
- ii = 50% retrace

The current wave down should be accelerating in a wave 3. Doesn't seem to be. Hence odds of an LD are increasing. I have no reason why the wave 2 cannot go back 62%. Main weakness in the LD is the converging trendlines are fairly parallel depending on where you call the flash bounce bottom; if at the very low point than the trendlines are converging fairly sharply.

I am seeing more wave sites pick up the large LD count.

We need to break 1040 but the converging trendlines point to a stop above Sp1000. The rule is 5 < 3 so 970 is the limit, but 5 can be much less than 3. Count 3 from 1174 to 1041 or 133 pts, and 5 started at 1105. If it goes 62% it targets around 80 pts or 1025.

[yelnick]

KRG - you asked "Is the concept of LD there in original Elliott? If a overlapping 53535 is acceptable then this would add further confusion to any wave counting.. Would the LD be corrective or impulsive ; If impulsive why the overlap...The whole action may be easier to count as running correction rather than as LD, if at all the subsequent action turns out to be impulsive"

LD was not recognized by Elliott but added later by Prechter

LD does not really add confusion, and is only confirmed on the fifth leg of the structure. It always starts like a nested 1-2 where the inside waves are smaller than the outside (so waves 3 and 4 are smaller than 1 and 2). The LD gets realized when the fifth leg fizzles. A nested 1-2 is supposed to act as a coiled spring with a strong 3 of a 3 leg to follow. When instead we get a sloppy wave with less momentum, it signals the LD form.

Why the overlap? Something causes the coiled spring to sprong, usually (but I have not systematically studied this) a pending event or policy. Let me give analogy. If you consider a normal fourth-wave horizontal triangle, the leg D is taking off in direction of the eventual fifth wave thrust, but gets aborted in a small leg E, which ends prematurely and off we go in the direction that D was pointing. This can be interpreted as if the legs ABC were tracing a flat, but the C wave broke as a "3" and then reversed "prematurely" and the new direction started, and then some event (usually news) aborts the D into a jink the other way in a small E before we resume the D direction. Often the fifth wave which follows is called a thrust - a sharp move - as if the force which aborted the C leg prematurely for a flat was pretty strong. Similarly, in an LD, something slows down the 3rd of a 3rd from taking off. An LD is usually followed by a strong 2nd wave, and then the 3rd takes off.

Counting the LD as a running triangle correction will be really confusing, as the wave 2 that follows and then wave 3 will not fit.

[KRG]

Yelnick : Thanks for the explanation. I still feel that 5s mean impulse.. therefore a 53535 that overlaps goes against the fundamental logic of Elliott? The logic of a 5 wave ED with 33333 works as weakening trend and/or possibly distributing market(if it is a flatter ED)

The confusion I talked about is if 3s can extend and 5s can overlap how can there be any logical count since there is an exception to all rules..

By running correction I meant it as part of 2 or 4. But if LD were to be 1st wave, I think Neely's explanation of trend ending at higher low (i.e.the 3rd as above is actually the 1st) is intuitively a better one.

Cheers

[Steven_737]

Thank you Duncan.

"Quite interesting. I have his findings in case it would interest."

Yes I am definitely interested. Please post them.

cheers :)

[yelnick]

KRG, on whether an LD goes against the fundamental logic for impulses: an LD starts like nested 1-2-i-ii which is well within the logic, and then the next wave down fails to kick off a iii of 3 down. That needs to be explained. Neely finds other ways to count such structures but if you think of it for a second the break from a iii of 3 to an LD happens in the fifth leg of the structure, and Neely's method only works in retrospect. In contrast, an LD can be recognized as it emerges from the lack of acceleration. 

We are having a test of this right now:
the iii of 3 crowd looks at today's reversal as yet another nested 1-2, so they predict a hard fall shortlythe LD crowd sees this as wave 2 of 5the Neely crowd has a whole different count that suggests no hard fall down for a while

When this (ii) of iii of 3 ends, we should see the gap down. If not, then the better count is wave 3 of the LD. The difference is becoming dramatic, as the (iii) of iiii of 3 will drop quickly below Sp1K, whereas the LD 3 of 5 will meander down and stop short.

[yelnick]

da bear, on your chart 5-7, Zoran also used the irregular top method of RN Elliott and saw such an ABC top in 1987, 2000 and so forth. He had the followup from 1987 as wave 4 to 1994, described as a running triangle. Then wave 5 launched the dot-com bubble of 95-99 with an irregular top into 2000.

[yelnick]

Pen, interesting concept - gold returning as hard currency after an extended period of a Dow/Gold ratio below 7:1. I must confess I tend to avoid the goldbug world and do not follow this sort of thinking that closely.