Mother Market is a Big Tease

After the Flash Crash, I posited three scenarios: Summer Rally, June Swoon and Big Tease. The market has been in The Bg Tease: rather than a big drop or a new bull market, it has been teasing bull & bear alike. First it fell to a new low, scaring the bulls and pushing the small investor out of the buy-the-dips mentality; and now it is on a tear, scattering the bears and pushing the retail day traders out of their short positions. With Intel's earnings showing they are cashing in their chips, a strong start is expected Wed, and the Tease should continue; but what then to expect over the rest of the month? 

The Bulls Are Back!

This has been a pretty compelling start to the proverbial Summer Rally: since the Death Cross on July 2, the market has run straight up for six days, including the sixth 90% up day today with a 35% increase in volume (stats from Walter Murphy). (So much for the Death Cross indicator!) The bullish view is well stated today by Carl Futia: 

The chart above this post shows the cash S&P from the start of the current bull market on March of 2009 at the 666 level. I have traced in green the first upward leg of the bull market which divided clearly into a classic, five wave Elliott pattern. Elliott's theory asserts that a five wave movement up from a low such as was seen in March 2009 is never a completed bull market. Instead it will be followed by a three wave corrective movement, and then by at least one more, five wave move up to new highs.

The drop from the 1219 level of the April 26, 2010 high subdivides into a classic, three stage, "flat"correction: three smaller waves down to the May 25 low, then three smaller waves up to the June 21 high, and finally a fast, scary movement down to the final low of the correction at 1010. I have traced this wave sequence for you in red.

Not only is the wave pattern of this correction exceptionally clear, but the correction ended almost exactly at the .382 Fibonacci retracement of the five wave up leg. 

A simlar view can be found from Tony Caldaro. I have previously dissected this case, twice; and nothing has changed in that analysis. Just because we see a five wave pattern does not mean it is an impulsive wave that starts a new bull leg. It needs to follow additional rules, including:

1. Rule of Alternation. Waves 2 and 4 must alternate in time, form and/or distance. Instead, they both fell about the same distance in about the same time with the same structures (zigzags). Possibly the first drop could be said to have started on May10, not at the Jun11 peak, and broke as an irregular flat (where the B wave went to a higher high), which would alternate in time (slower) and structure; but curiously the bullish advocates have not made this case to my knowledge. 
2. Impulsive Structure: The three impulse waves 1-3-5 should have internal structures that are also impulsive (fractals of the larger wave). Instead they have dreadful internals, with overlapping waves, especially in the wave 3 from July to January. It seems to be difficult to consider the huge stairstep of overlapping waves from late August into November as impulsive. 
3. Extension: Neely adds a further rule that one of the impulse legs should extend, being 1.6x longer than the others. Instead, the first two are about the same length (wave 1 = 290 pts, wave 3 = 281 pts, wave 5 = 175 pts), and none extends beyond the others, albeit wave 5 is 61.8% of 3. Wondering whether if we end wave 1 at the early May top of Sp930 on May10 would we get an extended wave 3? Nope. 

The End is Nigh!

The bearish EWI view is that we are in a nested 1-2 pattern since the Apr26 top, and it is about to spring loose into a deep drop to at least Sp860 range. Their first 1-2 is the fall to 1041 and bounce to 1131. Their second "inside" 1-2 is the fall to 1010 and the current bounce. 

This view is about to be busted. The inside 1-2 cannot become larger and slower than the outside. The outside wave 2 ran 90 pts, and the inside one is likely to exceed 90 pts Wed in the Intel rally if it breaks Sp1100. The inside wave 2 has already busted the 62% retrace - normally a wave 2 ends within the 50-62% range - and seems likely to break the 78% retrace at 1107. Although theoretically a wave 2 can go back 99%, they rarely break 78%. In any event, the inside wave should not beat the outside. 

I don't know what alt count they will come up with, but will report back after tomorrow's STU. If we reverse right at the Sp1100 level and start their bearish fall, give them huge credit. ZeroHedge gives a good rationale for a potential pullback inthe next few days: we have seen a short squeeze play out. David Rosenberg sees a liquidity pump over the past two weeks from a sharp spike in M2, and sees it moving into speculation in the e-mini S&P futures: a swing from a 15,155 contracts net short position to a 28,172 contracts net long position in those two weeks. 

The Summer Rally!

This is becoming everyone's favorite, but can it fit a bearish scenario? 

The structure I posted in the last few days is gaining support: a running flat correction. (A flat whose B wave exceeds A was called "irregular" by RN Elliott and "expanded" by EWI. A triangle whose B leg exceeds A is called "running" and that terminology is now becoming a more popular way to describe the expanded flat.) We would not be in a nested 1-2 but still in the outside wave 2. Rather than end at Sp1131, that would be the end of wave A, and the drop to Sp1010 is wave B. 

Currently we would be in wave C. Possibly it truncates (C ends below A) at Sp1100, the same level as the outside range of the nested 1-2 count, where A=C in length. As you might expect, truncation is not uncommon in a running flat. Normally, however, C matches or exceeds A, and goes 1.618 x A in length, which targets Sp1155. Since Sp1151 is the 62% retracement of the wave 1 down (1220 to 1041), we have a target range of 1150-1155 for wave C.

If wave C goes beyond 1155, an alternative count comes into play: a leading diagonal (LD). When one sees nested 1-2s, a prime alternative is a leading diagonal, but that choice cannot resolve until the sort of circumstance we have now, where the inside wave 2 is about to exceed the outside, and the whole pattern has slowed down rather than accelerate. (A nested 1-2 is like a coiled spring that should resolve in fast move.) An LD is a 53535 pattern where waves 2 and 4 overlap, and rather than fit in parallel channels the pattern fits in a converging trend lines like a triangle, showing compression of the move.

 Daneric has gaining conviction around the LD, as can be seen by his chart tonight (below).

Since an LD ends with a compression of trend, it often is followed by a very sharp wave 2 rally that usually goes back 78%. In this case the LD would cover the whole drop from 1220 to 1010, or 210 pts, and a 78% reversal would head back to Sp1175. Hence:

• first watch a pullback quickly at 1100
• then expect a run to at least 1150
• if we pass 1155, the next (and presumably final) stop is 1175

 

Comments

[Dsquare]

I doubt leading diagonals exist. Certainly Neely doesn't describe them. Did Zoran? They don't make a load of sense, if you are going somewhere (down for instance) why hesitate with an overlapping fourth wave. Afterall, this is supposed to be an impulse starting a move isn't it? Terminal impulses (or ending diagonals) on the other hand do make sense as they anticipate the next major move in the opposite direction. No logic I can see for leading diagonals.

[lacoste sneakers]

Neither beliver nor reject anything, because any other person has rejected of believed it. Heaven

has given you a mind for judging truth and error, Use it. Do you think so?

[Chabazite]

I must admit to having become incredibly frustrated with the market, as I don't see its performance aligning with the fundamentals in the economy which seem very bleak. Back in April I made a suggestion (don't know if it was here or elsewhere) that this bear market correction may be in a very long term abc type formation. Basically strung out by cash injections from the government / public purse until such time as the debt situation becomes intolerable and the powers that be finally throw the towell in. Unfortunately I don't see that happening any time too soon. Yanks don't give in THAT easily :) I am not much good at EW but I have 'dusted off' my original chart which can be seen at http://tinypic.com/view.php?pic=2gwbbtk&s=3 Forget the 12345 labelling for the first leg of the upwave - I know people will argue about it - it is the overall concept I want to get across. Suffice to say that the 'a' upwave started at 666 and completed at 1220 or thereabouts in April. Given the recent 'b' leg took us to 1011, the target for the 'c' leg COULD be ((1220 - 666) + 1011) = 1565, which is just about in rage of the s&p all time high which I think was around 1550. This would also put us at a 'top' around August 2011 whilst still maintaining the concept of the bear market 'bounce' - albeit 100%. Would be interested in the views of anyone who cares to comment, and again I apologise if this is a bit facile for some of you teckies.

[Chabazite]

PS! - Further to my note above, I forgot to mention that it is the move over the past five or six days that has led me to reconsider this proposition. I am reminded of the first few days of the rally in March 2009, the one BIG difference being the volumes transacted. But there again, lousy volumes sustained the rally throughout the most of 2010!

[Chuck Cheese]

Nested count still good on DOW and NAS. SPX often out of sinc with EW. W3 of the rally was shorter than W1, yes it works, but for a new bull mkt? Too soon to call.

All the rules BS you people argue about, as if the market has a brain, quite comical. Carl has the right attitude toward EW, but that doesn't mean he right, yet!

Roger is putting it out there, not afraid to be wrong. Many of you bitched at him when he didn't post last week, like a bunch of 8 year olds.

[DG]

It seems to be difficult to consider the huge stairstep of overlapping waves from late August into November as impulsive.

"Difficult" or not, many will do just that. Even the Monthly chart, which smooths out the Daily and Weekly fluctuations and would be the one most likely to give a "false positive" for an Impulse wave, shows overlap during the alleged "wave 3".

All the rules BS you people argue about, as if the market has a brain, quite comical.

The "brain" of the market is human mass psychology. Last I checked, the consensus was that humans do, in fact, have brains. I agree we shouldn't anthropomorphize the market, but that's NOT what wave theory rules are about.

Roger is putting it out there, not afraid to be wrong.

What Roger seems to be "afraid" to do is to listen to others with more knowledge and experience than he has, which virtually guarantees he will be wrong.

Yelnick, your "Big Tease" forecast was in line with my "Expanding Triangle or Symmetrical" idea from a few weeks ago. If I'm right, we'll take out 1131. Waves C & D of my Expanding Triangle have shown a 1.38X Fib relationship, which, if carried through to wave E, would take the SPX toward the 1175 level. If we don't reach that level before another turn down (or, at the very least, take out the high of my wave C at 1131 prior to a retest of 1010), the Expanding Triangle would take a back seat to the Symmetrical construct, in which case we'd oscillate in the range between 1130 and 1010 for at least another month.

[Edwardo]

"I must admit to having become incredibly frustrated with the market, as I don't see its performance aligning with the fundamentals in the economy which seem very bleak."

The market has little to nothing to do with the economy. The market, as we once knew it, is dead due to who and what dominates trading, and by virtue of the fact that propping it up massively is (un)official policy. The U.S. economy can rot as far as TPTB are concerned, but these capital markets will, at least, ostensibly, be preserved. We are Alice through the looking glass in the U.S.A. Im the meantime, if you want the veil of secrecy, lies, deception, and corruption to end, I advise not voting for either party come November.

[Chabazite]

'The market has little to nothing to do with the economy. The market, as we once knew it, is dead due to who and what dominates trading, and by virtue of the fact that propping it up massively is (un)official policy.'
---------------------------------------------------------------------------------
Edwardo - yes that is exactly the point I am driving at. I know that Prechter advises that the market takes precedence over the economy, and that politicians have no control over what happens. But policy can sure as hell INFLUENCE the economy. For me the $64 dollar question (I once had $64,000 but unfortunately I blew it all trying to short the market) is how much longer this nonsense can continue. I am also seeking a plausible wave pattern that takes this bigger socioeconomic scenario into consideration.

[Roger D.]

Looks impulse down,we shall see.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/3515ac20-7922-449f-b6fd-d293d2814a24

[Les]

There should only be one red line in the Futia chart.

The green lines are drawn using the ZigZag chart tool on the weekly scale.

The red lines are drawn in by the author and use the ZigZag in the daily timeframe.

It's an attempt to make it appear there's been more corrective action than has actually occurred.

[Bird]

We are in a window for a top on the 60 minute sometime around now till noon. Doesn't mean it will, but it can.

[Gooner70]

Hi Yelnick

Anythoughts on the Ad-decline line... I think this may give some clues ... I've been bearish since early May... but looking at this is making me think the bear is dying... I've done some analysis on this, in relation to price moves at corrections and the ad line. see: http://hometraderuk.blogspot.com/2010/07/goodbye-bear-hello-bull.html

Cheers

Gooner70

[Michael]

Liquidity driven markets have very little correlation with what people believe to be the Economic Fundamentals.

If you are a trader, it's a big mistake to think otherwise. A HUGE mistake!

And by the way, this is nothing new.
If you were around trading back in 1981/1982 you know exactly what I am talking about.

[Michael]

"Roger is putting it out there, not afraid to be wrong. Many of you bitched at him when he didn't post last week, like a bunch of 8 year olds." - Chuck Cheese

The reason why he isn't afraid of being WRONG is because he never has any "skin" in the game... There's no penalty for being WRONG on an anonymous internet blog. He doesn't TRADE.

Period.

[Account Deleted]

Dow Jones trading below 50% fibonacci level
http://niftychartsandpatterns.blogspot.com/2010/07/dow-jones-fib-levels-in-daily-chart.html

[Bird]

Roger has been wrong the way Prechter has been wrong, just on a smaller scale. But both Roger and Prechter may one day look like the ones that really got the big picture. As they say, time will tell.

[Mamma Boom Boom]

"The Federal Deposit Insurance Corp. (FDIC) has started laying a foundation for lawsuits against the senior executives and directors that the agency claims were responsible for their bank failing. Apparently, the FDIC has already sent out hundreds of demand letters that warn officers and directors about the possibility of civil charges, and announce formal investigations into individuals and subpoenaed directors’ financial statements, among other documents.

FDIC says they want to assess accountability for the multitude of bank failures and perhaps take shot at replenishing the Deposit Insurance Fund while they’re at it, and the letters set the stage for civil lawsuits and monetary settlements, if appropriate. Some industry people say the FDIC is only targeting the bankers with the most money, including those with insurance policies that will pay damages.

[Roger D.]

The last gasp....say good-bye to the bull guys.

[Michael]

"Roger has been wrong the way Prechter has been wrong, just on a smaller scale. But both Roger and Prechter may one day look like the ones that really got the big picture. As they say, time will tell." - Bird

And just what is IT in Roger's knowledge base of Elliott Wave that gives you confidence in his prognostic methodology?

As DG has stated on several occasions, his "interpretation" of EWT is highly suspect.

So I ask you again, what is it about how Roger constructs his methodology that gives you confidence in him?

[Mamma Boom Boom]

Looks like we'll see that 1101, yet.

[yelnick]

Gooner70, interesting chart on A/D line. I defer to EvilSpeculator and Mole on this issue - they have been doing pretty interesting analysis. Mole, if you are tracking this, take a look at Gooner's chart and please comment.

[Xui]

b-wave

[Bird]

"As DG has stated on several occasions, his "interpretation" of EWT is highly suspect.
So I ask you again, what is it about how Roger constructs his methodology that gives you confidence in him?"
__________________________________
It is not that I have confidence in Roger's methodology, it is that I don't have confidence in Neely's methodology. If Neowave is the guide, then it should be right when all other wave rules aren't. But DG appears to agree that this isn't quite the case, but rather the rules are still just probabilistic, maybe to 55%. If this is the case, then there is going to be some room for other approaches. Instinct counts too.

Now, Roger has not at all proved his instincts. But he has stuck with his longer term bear call. So I credit him for that. Soon I may discredit him. But the time has not yet come when any of us can say we know.

But Michael, you tell me, what hard and fast rules do YOU think we can absolutely stand by, not just 55% of the time?

[Xui]

b-wave chart is from here:

http://www.marketoracle.co.uk/Article17976.html

[Roger D.]

The Dow

http://www.screencast.com/users/parisgnome/folders/Default/media/7fcc1056-0dbc-43c6-8177-8b10c0d6b303

[Michael]

"But Michael, you tell me, what hard and fast rules do YOU think we can absolutely stand by, not just 55% of the time?" - Bird

For starters...

Trade what you see.
Not what you HOPE to see.

That's the single biggest "rookie" mistake that I see young people make when first getting their feet "wet" in the market.

For example, people like the Daneric's of the World continue to "fit" their bearish bias onto what the market is actually trying to tell them in the charts. They throw up all sorts of uncomfirmed "predictive" indicators at a wall and HOPE that some of them "stick" so that they can RATIONALIZE their bearish position even further. They only "see" what they WANT to "see".

That is a most dangerous methodology in my opinion. If they actually TRADED in a fairly active manner, they'd never be as stubborn as they have shown themselves to be...because the market is very good at telling you whether or not you are right or wrong, and it penalizes you when you ARE wrong. Enough said.

Use backtested MA's to help identify and confirm the trend on a Daily, Weekly, and Monthly basis.

If you are able to DEFINE the trend and trade accordingly, you have much of the "battle" already won.

I would also advise against strictly charting and analyzing the S&P, even if you are strictly trading the E-Mini Futures on it. I find it most valuable to look under the "surface" of the market and see how some of the biggest market-cap weighted sectors are acting... like Banks, Energy, Semiconductors, etc.

The markets move so swiftly these days that a human being cannot possibly PROCESS all of the information that he can be faced with... trying to filter out what is significant, and not so significant. As a result, I am a big fan of the KISS method and concentrating on trading one single stock sector.

Those would be a few basic tenets from my trading experience and methodology.

:)

[Bird]

Good answer Michael

[yelnick]

Xui, Neely has a view similar to this B wave idea but a bit more sophisticated. The ABC the MarketOracle pundit posits is very unbalanced for what looks like a zigzag - long A, short C. Neely views the rise as starting in Nov08 and having a large triangle with an X wave in Jan-Feb 2010. This makes the pattern since Feb5 an AB with a C to follow to possibly new highs. We would be in the B, and it should last a while longer before the C up. That B could give us sideways trhough the rest fo the year, with some large swings, allowing a Summer Rally and an October Fall but still within a range.

[Michael]

"Any thoughts on the Ad-decline line... I think this may give some clues ..." - Gooner70

I love using the NYSE cumulative A/D line, but make sure that you use the one that has no ETF's, no closed-end funds, or preferreds to skew the data.

Interestingly enough, in many of the Elliott Wave blogs on the internet, this classic indicator is the most conveniently ignored.

It was one of the reasons why the EWT "perma-bears" missed the launch off the February lows and stayed bearish for far too long before changing their primary count to yet another "alternative" count.

:)

[Chuck Cheese]

I think you guys missed the point. I don't give a shit if Roger is right or wrong, wasn't my point. You guys act like 8 year olds in a sand box. There is good info here but damn.....

[Chabazite]

Thank you for the chart and article Xui.

[yelnick]

Dsquare, Zoran bought into Neely's view that the LD was really something else, usually a triangle. Key is to appreciate that Neely and Zoran usually call the end of a move not at the high but at the subsequent bifurcation out of a trading range. All markets plateau near the top, and do not have to fall sharply at first. Zoran adhered to a triple top (or bottom) to terminate a move.

[Roger D.]

If my theory is right about the irregular supercycle top,this wave down should be the start of the "great unification" wave down.

Roger D.

[Michael]

Feds conventional view now has changed to the Economy needing 5-6 years before it can get back to sustainable job growth and to fully recover. FOMC sees risks "tilted to the downside" and notes deflationary risks...

[Canadian Money]

Yelnick,

The first chart in your post may not go back far enough to show what may be happening.

The possible 5 wave count up to the Apr 2010 high may still turn out to be the end of a final C wave of a large/longer term Irregular Correction, one that began in late 2009.

If so, we should expect to have an ABC, 3-3-5 wave pattern. The complete pattern may have finished at the high in April 2010.

Figures 22 and 25 of "The Wave Principle" show the bull market version of this corrective wave scenario.

One must draw them upside down to see the bear market version of the pattern. For the bear market correction, B rises above the start of A and C drops below the end of A. The end of wave A would be the March 2009 bear low to date.

This interpretation may fit well with a "double dip recession scenario".

[Waver]

"I think you guys missed the point. I don't give a shit if Roger is right or wrong, wasn't my point." - Chuckie Cheese

So basically... you just enjoy posting meaningless gibberish while making no point whatsoever.

Congrats.
Thanks for stopping by!

[Roger D.]

http://www.screencast.com/users/parisgnome/folders/Default/media/d51aca7f-7542-4675-8aab-c8cbee676147

Roger D.

[yelnick]

Canadian Money, there is an intriguing count that Neely still holds to that the end of the waves down in 2008 was in Nov, and then we started the Hope Rally. In that the A went to Jan, the B to Mar2009, and then pick your poison on what followed. June high is C and July low D, then the run to Jan is E? If so the drop in Jan/Feb 2010 is X and since then we have had an A to Apr26 and a B to 1010 (or we are still in it).

[Chuck Cheese]

My point was about Carl, 8 year olds and now to say "Nice Call Roger" and "Looks like we'll NOT hit 1101, yet."

[Waver]

For most traders, today's HIGH at 1099.08 is close enough to 1101.

[Mamma Boom Boom]

Chucky Cheese, your bright, your good looking, but do you provide any value to this site?

Well, do you????

[Chuck Cheese]

I am bright and good looking? But you are right, I got nothing compared to hammering Roger all day. But if you let me stay, I'll throw sand too.

[Gooner70]

Michael

Re:Adv-Dec line - thanks for that.I take on board what you say re securities versus stocks, these securities will be skewed by the low interest rate environment.

Cheers

Gooner70

[Roger D.]

Not real clear is it,but looks to be a topping process with a "c" up in progress. After the "c" we should move down.

Roger D.

[JT]

"I doubt leading diagonals exist. Certainly Neely doesn't describe them. Did Zoran? They don't make a load of sense, if you are going somewhere (down for instance) why hesitate with an overlapping fourth wave. Afterall, this is supposed to be an impulse starting a move isn't it?" - Dsquare

I would tend to agree. The LD that Daneric presents in his chart is a complete mess... not sure how anyone can go about identifying that wave pattern as it is happening REAL TIME, as opposed to labeling it after the fact.

[Michael]

More BEARS than Bulls...

http://www.bloomberg.com/news/2010-07-14/stock-bears-outnumber-bulls-for-first-time-since-april-09.html

At least our friend Roger is in "good" Company!

:)

[Mamma Boom Boom]

Soom might say this was a 'zero' day. But, I think it was bullish. Bulls beat back some bad news.

[da bear]

The 'e' wave may be topping out. You can notice a clear downtrend from the 11,200ish double top. Sluggish trading today. DOW 10,400 could be incredibly important. Also important is DOW 10,000. Once stocks fall below that... well, See Ya Later!

The rally from the 9,600 level to now is about the same length as the 'c' rally from 9,800 to 10,592.

A start to wave 3 of 3 of 3 (aka Wave 'F' down) next week?
If so, Proverbs 7:22 could contain sage financial advice.

da bear

[Roger D.]

Goldman and many other stocks have a possible island caused by Tuesdays gap up opening and todays opening.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/f92ab7c8-0c7a-4ab0-bf5b-e9e9621828e6

[da bear]

yeah, I just drew a line connecting the 11,200 double tops to connect with the 10,592 wave 'c' high. The DOW hit right up against that. Wave 'e' of 2 might already be over.

A decline below 10,200 would be ominous.

Is there a turn date coming up?

here is the link to the chart I am using:

http://bigcharts.marketwatch.com/print/print.asp?frames=0&time=7&freq=1&compidx=aaaaa%3A0&comp=NO_SYMBOL_CHOSEN&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=4&unused=0&o_symb=djia&startdate=&enddate=&show=true&symb=djia&draw.x=64&draw.y=9&default=true&backurl=%2Fadvchart%2Fframes%2Fmain.asp&prms=qcd&sid=1643

The last EWFF had the rally into DOW 10,592 as 'c' in their alternate count. Thus, the wave 'e' rally started on the day the issue came out. As of now, wave 'e' is basically equal to wave 'c'. And the downtrend line was hit.

At the very least, we are in the latter stages of wave 'e' of 2 up.
The irony that the next wave down would be wave 'f' aka the 3 of 3 of 3 drop would be interesting... to say the least.

da bear

P.S. Tesla completed a five wave throw over of its lows from last week. Tesla sold off rather noticeably at the close.

P.P.S. It looks as if the minimum requirements for a complex five-wave Wave 2 correction have been completed.

P.P.P.S. a fall below $1,200 again in gold would be another bad sign.