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Tuesday, October 25, 2011

SPX and NDX Update: When the Rally Finally Reverses, Things Could Get Ugly

This Energizer Bunny rally continues to surpass every target I've set thus far.  My expectations leading into it were, quite frankly, wrong. 

The one consolation I can take is that -- while my price targets are being blown through on the upside and short-changed on the downside -- my short term direction calls for the upcoming day, based on the preferred count, are hitting 75% for the month. 

But getting back to expectations: a wise man once said, "Your expectations shape your reality."  When I called the Minor (1) bottom back on October 4th, I was expecting an A-B-C rally into December.  On that day, I posted the following chart with my rough expectation of how this might unfold.  On the chart, you can see I was anticipating that we would have three distinct legs to the rally, drawn in gray.  I wasn't at all expecting one giant leg like we've had.
 

You can also read the annotation "My time expectation for the Minor (2) peak is December."  I have often pointed out to people that Elliott Wave is not intended to predict time, it is based on price movement only; yet here I was, doing that very thing.

My expectations for all this were based on certain presuppositions about the preceding wave structure.  Yet clearly things haven't played out as I expected; so the logical conclusion is that my underlying presuppositions were wrong.  Forensics time... 

All the way back on September 18th, I talked about the wave structure of the NDX, and how it appeared to be further along its count than the SPX.  At that time, I posted this projection chart:


In the meantime, I began looking for ways to reconcile the two counts.  I gave more weight to the SPX than I did to the NDX, because I simply had a hard time foreseeing how the SPX could "catch up" rapidly enough to meet the NDX.  The thought never occured to me that the SPX might launch a 17% rally over the course of only three weeks... that's probably understandable.  But as a result, I was expecting the NDX to "slow down" and find a way to reconcile its chart differences with the SPX; not the other way around.  Nevertheless, as you can plainly see in the two charts: the NDX performed exactly as expected, while the SPX did not. 

This leads to the next logical conclusion:

It now seems that the SPX has done the work required to reconcile the two structures, and as a result -- assuming the big picture presuppositions are correct -- Wave Minor (2) up is probably in its final days.  If the big picture view is correct, and this is indeed Wave Minor (2), then the beginning of the Minor (3) crash wave is just around the corner.   Below are some further arguments for this case.  

The first is sentiment: investors are finally shifting away from the extreme bearishness of recent months, and new polls are suggesting they are now marginally net bullish.  Here's what I wrote on October 4th:

Keep in mind that the psychology of investors will probably become quite a bit more positive in the near future, so that by the time we reach the Minor (2) peak, the majority will be bullish again.  It always helps to anticipate the mood, because after Minor (2) completes, we will be presented with what (I believe) may prove to be one of the greatest shorting opportunities of our lifetimes (but due to the psychology, by the time Minor (2) peaks, no one will think shorting is a good idea anymore -- just as most don't think going long is a good idea right now).  I expect Wave Minor (3) to ultimately become a rapid waterfall decline to substantial new lows, although it will probably start off relatively subdued as it traces out the first couple waves.

In just three weeks, the core psychology of the trading community has shifted... a 17% rally which breaks out from a multi-month rectangle will do that.  So the second wave has done its job regarding sentiment.  It has also done its job in terms of price.  The NDX is approaching its 2011 highs, and the SPX is now within spitting distance of the head and shoulders neckline. 

Sentiment and price are where they need to be for a second wave top -- which is not to say they can't go higher, only that the second wave has so far done what it needed to do.

Further, we have a potentially big news event on the immediate horizon: on Wednesday, the leaders of the European Union will announce their plans to save Greece; protect France from downgrade; and insulate their largest banks from failure, among other things.  Certainly no small task, and one which could remind everyone that, even though we just had this wonderful technical breakout from a trading range, the world is still in pretty miserable shape.

So where do we go from here?  Here's what the charts are suggesting.  First, the 60-minute NDX chart:


Something that should also be mentioned here: The structure which runs from the red (1) to the red A on this chart requires more imagination than I can muster to label it as a motive wave.  The fact that it's a corrective rally implies new lows in the future... however, the red B-wave correction did hold above the 2035 low, so the possibility of other interpretations can't be objectively ruled out. 

Here's the other key point regarding the NDX: if wave (2) doesn't end very soon, below the 2438.44 high, then we have to start considering the possibility that everything we've seen so far has just been part of a bull market correction.  I'm not ready to consider that yet; I simply can't see it against the backdrop of the current fundamentals.  Granted, bull markets aren't driven by fundamentals -- they're driven by liquidity, as demonstrated most recently with QE/QE2.  But I don't yet see the source for the liquidity a new bull would need, either.  Doesn't mean it's not out there somewhere, but the market is going to have to prove it to me first, by breaking that prior high.

Should be interesting to watch, because the wave structure on the NDX looks like it want to run up very close to that prior high.  When I did some calculations on the wave structure -- barring a failed fifth wave up -- the number I came up with as a target was 2432.

Then there's the SPX and its ending diagonal count.  I first proposed this ending diagonal as a hypothetical potential back on Wednesday, based on a couple minuette wave forms I was having trouble reconciling.  I keep trying to kill this count off, but everytime I think I've driven a stake through its heart, it comes roaring back to life like the cheesy-special-effects monster in some cheap horror movie.  Monday's action could be part of a five-wave impulse up still in progress, which would finally kill off the diagonal -- or the move could fit nicely as an a-b-c, with two roughly equal waves separated by a correction:


I honestly don't think the diagonal is likely at this stage, but it can't be completely taken off the table yet... and as the chart says, the move could still end up forming a bearish rising wedge.  The 60-minute chart below has been updated to reflect the fact that the alternate count has now become the preferred count, and this is C of Minor (2):


After a little bit of consolidation, the SPX looks like it definitely wants to take a crack at 1260; then maybe at the head and shoulders neckline.  Again: barring a fifth wave failure, which could be news driven.

You could call this a crash count -- although third waves down generally sub-divide into one or two nice tradeable bounces before declining relentlessly.  But, as I see it, the rally has been too strong and too fast for anything other than a C wave... or part of a bull market, and as I said, I'm not quite ready to go there yet, unless the charts say we have to.

Once the rally peaks, we'll start analyzing the form it takes as it declines, to see if this crash count is the real deal.

The last thing I want to mention is very important in regards to yesterday's article.  A reader called my attention to the potential of a fourth wave triangle in the Dow, which is important because it raises the maximum possible price for the Dow (under the preferred count) by slightly less than 1% -- from the 11,993 discussed yesterday to 12,093.50.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

137 comments:

  1. Excellent post! Now we are on the exact same page with the wave count :)

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  2. Thanks! Did you see how the ending diagonal isn't quite dead yet? LOL, when I saw that potential a-b-c, I just had to laugh. Can't seem to keep that thing dead!

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  3. LMAO... how's that open for keeping the ending diagonal on the table!

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  4. Wave (i) and (iv) just overlapped, to create a potentially perfect ending diagonal. Unbelievable. Now we see if they can take it back up.

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  5. As posted here yesterday I flipped long to short at the close, so liking the action today. However my preferred scenario that we would hold above 1233.10 (wave 1 of 5 high) on this pullback has been violated this morning, so now my alternate comes into play where the top of wave C is in as of yesterday afternoon. So, needless to say that short trade I took yesterday expecting it to be a scalp trade now may become a long-term position trade. Perfect example of how your wave count can be off a little and still be profitable ;-)

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  6. Yes diagonal still possible but I won't be going long for it and will be holding onto my short position regardless. I have been burned too many times in the past waiting for that final 5th wave that never comes.

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  7. I just found this blog, thanks for the tips and helping me understand what side of the trade to be on.

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  8. DS- welcome. :)

    CTP- Hell no, I wouldn't be long here. Could be a nested third this morning. Even if it is a diagonal, they're notoriously unreliable.

    Updated diagonal chart, in case the lows hold:

    http://www.screencast.com/t/l9dc5mLCaW

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  9. One more possibility with wave i and iv overlapping is that this was just wave A of a triangle 4th wave. Time to sit back and observe the action the rest of the day, but staying with shorts here from yesterday's close and willing to take the drawdown if we get that final 5th of the ED. However if I see a triangle forming then I'll play the breakout of that from the long side.

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  10. NDX still above wave (i) high. If this diagonal does play out, I deserve some serious credit for one helluva call last Wednesday. :)

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  11. maybe that guy from Minyanville comments section will apologize for all those insults LOL! ;-)

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  12. Yeah, definitely not a day to try and fight the tape. Rally looks corrective so far, so usually I'd say we head lower, but if the diagonal is alive, the corrective form would be normal.

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  13. He wasn't really insulting my work, he was more insulting my commentary approach... then, when I tried to be reasonable with him, he insulted me for being a carbon-based lifeform, for breathing air, and for enjoying the taste of food. Basically, whatever he could think of.

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  14. Great call so far. Early action makes a bear feel good.

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  15. Considering that wave iii was larger than wave i, this could also unfold as an expanded ED with a drop back to say 1200-1205 before a final run higher.

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  16. Are these charts a good way to tell if I should be short or long for the day/week?

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  17. Too bad I only put out a small short position at the close yesterday.... oh well C'est la Vie.

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  18. Actually how about a gap fill at 1215 SPX for wave iv of the expanded ED?... OK now more new scenarios for a while I promise ;-) ... Just holding short here until the market tips it's hand. Though I still do like my 10/27 +/- 1 cycle turn date as a low, which means either 1st wave down of re-started bear or wave 4 of something (???) to be followed by another run higher. In either case that would mean we have another day of sell-off left... Gotta run for a bit. Trade Safe :)

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  19. DS, we're likely at or forming a major top here... short term charts right now are unreliable. Once the trend starts confirming it's changed, then would be a safer time to act. Looks like going short and holding will be the next solid play, though.

    Spiker, thanks!

    CTP, it could, but I have a hard time imagining that scenario unfolding right now. I think if we whipsaw back into the range, it's probably all she wrote for the rally.

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  20. DS,

    I use them as a compliment to other TA stuff in my arsenal and yes they did get me short at the close yesterday as I posted here in real time.

    Frank,

    Some gain is better than none, and certainly better than a loss. The market will be here tomorrow so never worry about missed opportunities :)

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  21. Pretzel and CTP,

    so we can still get a final lunch to the high close to 1275 w/ SPX and 2438 with NDX?

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  22. DS- Oh, and btw, I'm not actually giving you advice. In today's world, all I can do is speak hypothetically. So when I talk about going short and holding, I'm not advising you, I'm just speaking hypothetically.

    Gotta love the world of technicalities...

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  23. Frank -- yep. That would be the ending diagonal scenario. I posted an updated chart here in the comments.

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  24. Although, Frank, I'm not sure exactly what a "final LUNCH" is. Something for deathrow inmates? :D

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  25. Pretzel,

    OK, I lied, one last scenario for the day ;-)

    How about your blue 4 for the NDX is not over yet and is forming an expanded flat with yesterday's high being wave b of the flat and now we do wave c of 4 down into my 10/27 +/- 1 cycle low window followed by the final wave 5 up. Now THAT one I really like. It's gonna be my preferred count based on how it syncs with my cycle stuff.

    OK really gotta run now.

    Best,
    CTP

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  26. Pretz, great work. just one quick question, does this mean that if we don't see SPX drop below to or below 1233 (lowest it hit early today), the ED should play out?

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  27. Certainly looks to be bouncing along the bottom of the diagonal.

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  28. Definitely. I actually closed out half my shorts at 1236 to reload for the 5th..

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  29. Anon- not necessarily. Eyeballing the chart, it could even drop down to about 1220 +/- (at the moment), and still reverse into a diagonal. Diagonals are tricky, because the waves don't really follow usual rules of structure. Also, there are other possibilities, as CTP likes to suggest to find something to jive w/ his cycle work. I think he's come up with about 30,000 just since this morning. ;)

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  30. If the diagonal is invalid, and yesterday marked the top, it's entirely possible this is a garden variety fourth wave, and we breakdown lower from it.

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  31. I'm staying short, but I put a little long hedge on this morning in buying some BTU on the earnings dip. It just feels like the market is dying to test this 200 ma and with the EU kicking the can again that might give it time to test before the fall. I'll sell my BTU up there and add to my shorts. If this thing drops below 1233, I may favor Pretzel ED scenario...need to come up with a better acronym though, ED certainly has alternate meanings, but then again, maybe it's appropriate "Dysfunction" for this rally :D

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  32. It's really just not possible to tell at this stage. Sorry. I can tell you that if we make it above 1250, the diagonal is back in play for sure.

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  33. Yeah, ED definitely conjures up images of that super-smily guy from the TV commercials.

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  34. Mispoke, shouldn't say "back in play" -- should say "more likely" above 1250. It's still in play, obviously.

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  35. well, SPX seems to have stablized quite a bit and is testing new highs for today. If it goes to 1250 I am all in :)

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  36. Pretz, by the way, do you have new insights on RUT?

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  37. RE: the ending diagonal -- if it gets to 1250, it's likely going to 1260 or the neckline. IF it gets to 1250, then the safe way to play it, hypothetically, is to wait for a breakdown of the lower trendline that's now in place between (ii) and (iv). One wouldn't leave too much on the table then, and wouldn't be exposed to who knows how much upside. Ending diagonal fifth waves can often overthrow the top line of the trendchannel before finishing.

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  38. i guess as long as you can afford to hold, 1250 wouldn't be a bad place to short? Seems like we may actually see that level today..

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  39. Take a look at the updated chart I posted... it could end anywhere in the yellow target box. So, 1275 or so is even possible.

    http://www.screencast.com/t/l9dc5mLCaW

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  40. 1250 actually implies we go higher. 1250, imo, is a breakout point.

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  41. unless you were scalping, or using tight stops. but, don't listen to me, i can only speak hypothetically.

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  42. RUT should still hold below 739... IF that count is accurate. No guarantees there of course. The labeling is always interpretive, so if my label for wave 1 is off, the RUT could go higher before reversing. Interestingly, the current short-term structure on the RUT seems to be targeting 739 almost exactly.

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  43. Pretzel,

    If it just goes down below intraday low of 1233 on the SPX then this potentially marks the top of Wave C?

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  44. Thanks for the clarification. To be honest, when I overlay the macro news now and what is likely to come out, I can't see how SPX can go to 1275, but then again, I have been wrong many times.

    By the way, do you monitor Asian indices like HSI?

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  45. Hi Frank,

    I was just checking in. I know you asked Pretzel and his take my be different than mine. But FWIW my take is that if we drop below intraday low today then 2 potential counts. First is that wave C is indeed finished. The other (and the one I prefer) is that NDX is still in wave 4 of C which is unfolding as an expanded flat and we get 'c' down of the expanded flat over the next 1-2 days and then a final 5th up to finish the big C off the 10/4 low. As far as what that would correspond to for SPX, I would think it would probably end up being labeled as an expanded ED 5th. So, in that case my SPX downside target for wave iv of the SPX expanded ED woudl be a gap fill at 1215 SPX, then final v of ED up to 1275.

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  46. I would essentially agree, except I really have a hard time seeing us move out, whipsaw in, whipsaw out, and then whipsaw back in again. Dunno, just seems too much technical damage is done if we move back to 1215. Don't you think?

    Also expanding ending diagonals are actually pretty rare beasts. If we break the 1233 low, that will sure start to look impulsive at that point, with us being in a fourth wave of 1 now.

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  47. Pretzel,

    Agree with your reservations, but remember this is a "news driven" market so whipsaws are par for the course. Also, they are not going to make it textbook and easy for bears to get short. Expect maximum confusion at the top IMHO.

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  48. Re: asian indices. Occasionally, but not religiously. Hang Seng looks to be in bad shape long term.

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  49. Agreed about maximum confusion, for sure. The "they" always make tops much harder to call.

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  50. Other think is that gap up to start the week. If left unfilled it would be either a breakaway or a measuring gap, either of which would have had massively bullish connotations. Alternately, it could have been an exhaustion gap which certainly would fit with the end of wave C yesterday in which case it should be filled quickly. The final interpretation is that it is a common gap and we fill it, find support then and then resume the rally. That is the one I am going with but it is purely based on my cycle work.

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  51. Thanks CTP and Pretzel,

    Psychologically this would be so perfect to plunge one more time to fake out the shorts and turn around and head higher to 1275 to fake out the longs, and flap around there at the 200 day moving average for a few days to tire everyone out while the big boys "distribute" the merchandise (the apples and the amazons and what not) at the higher prices before it plunges? Or am I delusional?

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  52. If this is the top, I think we did a bang-up job here. Almost nobody else I've seen predicting it. Hurst guys I follow were looking way up after yesterday... Elliott guys almost all looking for a big C wave to 1350, etc.

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  53. Yeah, Frank. That's not a bad scenario. You ARE delusional, of course, but not in this particular case. ;)

    Have to see. Like I said, one more thrust below 1233, and that wave is sure going to look impulsive. Could just be A of an A-B-C i suppose...

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  54. I quit trading in the past because it seemed like I was always on the 'wrong side' so the charts and information here are a good starting place for me.

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  55. I am simple minded I guess, I just drew the Fib from the swing high on 7/7/11 to the low on 10/4/11, and I truncated the tails on the candles, only using the candle bodies to define the range, and yesterday close and todays open are right at the 61.8% line.... it's a "logical" place to reverse???

    Is this too simple minded?

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  56. Pretzel,

    About AAPl shares, whether the stock is a top we have yet to see... but the Iphones are entering a mania phase...

    I have friends buying up the 4s in the market to try to "distribute" them at higher prices... pretty soon they'd come up with futures and derivatives on the iphones.. :-) Sounds like Tulip Mania to me... What does it say about the stock?

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  57. Pretzel,

    Yes we have done well calling the turns. Much better that the majority. Let's try and make this the smart money blog :)

    Also, I find it ironic that all the Hurst guys were bullish yesterday while this Hurst guy was flipping long to short at the close ;-)... It is pretty common though, I have found that the traditional Hurst guys and I are usually 180 degrees apart in our forecasts. And that's just the way I like it ;-)

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  58. I think we need summary statements to all these comments...lol

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  59. Frank- i use fib lines all the time. pretty key component of EWT.

    Re: Apple, I really just focus on the charts. News is noise.

    DS- glad you like it, hopefully you'll find it helpful. :)

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  60. Frank,

    No not too simplistic. It is certainly a good place for a good "scare". I am going to wait and see what happens at the 1215 gap before I am convinced either way.

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  61. it looks like tomorrows announcement will be a letdown. I feel like going all in on shorts

    http://www.reuters.com/article/2011/10/25/eurozone-summit-outcome-idUSL5E7LP3VP20111025

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  62. One technical analyst on CNBC yesterday pointed out the similarities between this correction and the one in 07/08. Both started with a rolling top head and shoulder formations, and then in 5/2008 the SPX did retest the 200 day MA before heading lower.. it kind of looks like where we are at today? So I can definitely "imagine" and "understand" the SPX can shoot up to 1275 there and flap around for a few days...

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  63. Anon,

    Be careful when being reactive to the news. Yesterday the news look great and that was when I was shorting. Today it looks bad, might soon be time to go long (not yet IMO). Remember they aren't going to make it that easy that we can just react to the headlines. Not yet at least, but once the impulsive phase to the downside get started then we can be reactive to the news. Just my 2 cents FWIW...

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  64. True, but I suppose that the bad news coming out of Europe will cause the market to drop and increase the VIX?

    I learned not to over weight the news last week when I lost money on FAZ when all the banks reported bad earnings covered up by accounting tricks.

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  65. Yes I do think market will drop, but I am not convinced the THE top is in... YET.

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  66. euro bad news can cause the failed fifth?

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  67. DAX dropped w/ the SPX this morning, but has retraced enough where its potential wave 4 and wave 1 are overlapping. Could be a tell that we go higher. Or... it could be a nested 1-2 and means we're going much lower.

    Don't have time to analyze it too deep right now. Need sleep. 5:40 a.m. here in Maui. At least next week, after the mainland does DST, the market will open at 2:30 here, instead of 3:30.

    GL all.

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  68. As far as news goes here's how they might jerk the tape around over the coming week... "No deal." and market sells of sharply. Next day "Possible compromise found deal to finalized at at G-20 meeting on 11/3-4" and market rallies back up squeezing early bears and sucking in bulls. Then deal is half-baked band-aid and get big "sell the news" reaction.

    All that was totally hypothetical and things may play out differently. That's why I don't trade news. I trade solely based on the charts and my cycle work. As the old saying goes "news is for suckers". I have certainly learned that the hard way over the years.

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  69. Another reason I suspected the change in trend might happen today had been the number of comments made here yesterday - a full 100 - and off the charts compared to the recent past... ;-)

    I therefore also added a little more to my short position. What can I say?

    My name is Jaco and I am a Bear

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  70. Anon- it could. If we're entering a third wave down, there are no guarantees to the updside. Failed fifth was just speculation if the bad news is dire, and it would catch the longs off guard, cause everyone and their brother is expecting a test of the 200 DMA.

    Okay, gotta run.

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  71. Pretzel

    the SPX is no longer trending the lower trend line of ED but rather bouncing off the 1237 level. what do you make of this

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  72. Lol, Jaco.

    Yes, I completely agree w/ CTP regarding news. As I said a few posts ago:

    News is noise.

    That said, black swan events don't qualify. Black swan events, such as Lehman Bros., can be tradeable.

    Alright, really gotta run now!

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  73. G'night Pretzel, thanks for hosting this excellent blog!

    Just one more observation then I have to split for the rest of the day too. Always pay attention to market internals. Yesterday I the early market internals were 9 to 1 positive that was a tip-off that we were likely in a trend up day and that the market would likely close near the highs which is why I waited until the close to flip from long to short. Today internals are decidedly negative which is why buying in hopes of a rally back to the highs today is likely premature. For this reason and per my cycle work I plan to remain short the rest of the session and re-evaluate tomorrow.

    Allright I'm outta here for the rest of the session. Trade safe! :)

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  74. It's hard to exactly time the top ... as long as we get close enough ...

    I guess we can "dollar cost" average up/down and be "short and hold" investors ? :-)

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  75. unless you use leveraged ETFs to short, without daily reset

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  76. Pretzel,

    Big move on SLV today toward the yellow zone on your weekend SLV chart. Is this a head fake?

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  77. Euro meeting is cancelled for tomorrow

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  78. Do you have a public list on Stockcharts so we can see your charts in real-time?

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  79. Just dropping by quickly to mention that certain data sources have the intraday low at 1233.14 while others have it at 1233.10 ... Of course which was is correct would have implications on whether or not the ED criteria have been satisfied yet.

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  80. CTPtrader, which one do you think is valid?

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  81. it seems like it keeps bouncing off that 1233 level.

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  82. Above I should have said 1233.14 and 1233.02 (not 1233.10 that was the wave 1 high)

    I think the 1233.14 low is the correct one because both of my broker's real time price feeds show that as the low tick.

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  83. Pretzel and CTP,

    Indexes are probably deterioating into the close. AMZN is reporting after the close. AMZN reversed from the top on 10/17 and formed such as beautiful bearish falling 3 methods formation from 10/19 to today. Today selling volume is high too. Does that mean the market is telegraphing to us the earnings won't be good? Not to mention the RSI divergence... Or is it too obvious? It looks so perfect to short.. Could this be a bear trap?

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  84. Anon,

    The reason it is bouncing there is because bulls are fighting tooth and nail to hold above the 1233.10 wave 1 high.

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  85. Frank,

    My read of the tape is that we have further to go on the downside at least another day of selling before a meaningful bounce. My cycle methods are in agreement with this as well.

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  86. so if this thing rallies off 1233 and closes above 1240, are we saying ED is a go?

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  87. If 1233.10 is taken out then I expect the die hard bulls to puke up their longs en masse so we should see some downside acceleration soon IMO.

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  88. Rocky,

    That is Pretzel's preferred count, but I am not in the ED camp at the moment. I think we head lower next 1-2 days and I am looking for 1215 SPX gap fill.

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  89. 1233.01 OK it's official now that we have wave i and iv overlap.

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  90. gotcha, so this last 15 minutes should be telling eh?...why 1215?

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  91. My cycle stuff says tomorrow is the earliest to look for a ST low, so I'm sitting tight with shorts put on at yesterday's close.

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  92. Rocky 1215 because is is gap fill of last Friday's large gap open higher.

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  93. looks like you may be right, VIX is starting to explode up...I realize your preferred count is that this is a move 4 lower, but what odds do you put on this being the C top?

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  94. It's all about 1215 now IMO. If we find support there then there can be one more assault on 1275 SPX. If we give up 1215 without much of a fight then wave C is complete and down we go to new lows for the year. FWIW based on my cycle methods and my preferred count I still think 1215 holds and we get one more squeeze but will cross that bridge when we come to it. For tomorrow holding short.

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  95. definitely passed 1233 lol

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  96. Anon,

    Yep, I was finding it amusing all day how these pathetic bounces kept occurring at 1233 as bulls tried in vain to hold the wave i high, all the while market internals and my cycle stuff said they would fail

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  97. OK folks gotta run. See you later tonight. Best to all and trade safe :)

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  98. Hope youre right, holding on to my shorts as well

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  99. 1233 is taken, SPX down to the toilet.. :-)

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  100. yeah, this is going to make for 'some' bearish engulfing candlestick for sure...I'll watch 1215, gonna stay nimble and look for a break off that level. Good call CTP.

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  101. I miss the red/black candles... they finally return... :-)

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  102. Apparently AMZN wasn't a bear trap but a bear party... Sometimes the obvious works! Such a giveaway...

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  103. Now let's all be aware that as hard as it was for many to consider shorting the close yesterday when all looked rosy, we have the opposite scenario at the close today.

    I would expect the bear will be coming out of their caves in droves, and excitement level will be high. I have learned over the years to be aware of my own emotions and when I start to feel excited about one direction or another I start looking really hard for traps.

    My cycle work which led me to short the close yesterday is now telling me to be alert for a reversal back up as early as tomorrow intraday. So my advice is stay objective, stay alert, and keep trail stops on those short positions. If/when I see signs of a turn tomorrow I'll post it here. 1215 SPX gap fill is key area to watch for support.

    Best,
    CTP

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  104. Thanks CTP,

    Good point indeed. Bear market rallies are ferocious in nature, as what we have just witnessed since 10/4 indeed. Shorting too late we'd get run in.

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  105. I am loving this BLOG already. Thanks Pretzel and CTP for sharing your brains. I learn something everyday from you guys.

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  106. Me too Frank! :)

    All the credit goes to Pretzel for posting his top notch analysis and creating the kind of atmosphere in the comments section where an open minded approach and free exchange of ideas is encouraged. So, many blogs out there are run by egomaniacs and/or rigid ideologues that this blog is truly a breath of fresh air. Kudos to Pretzel for all his hard work and dedication maintaining this top notch blog! :)

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  107. I agree, CTPtrader and Pretzel make this blog one of my first morning daily reads. I get excited to read their analysis' and thoughts

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  108. next week looks rather significant as far as headlines go...ISMs, Chicago PMI, FOMC meeting and announcement, Jobs report, 11/3-4 Euro meeting. Could be a run up to 1275 on QE3 talk and then a crash when Bernanke fails to administer QE3, Euro meetings disappoint and jobs report falls flat....but then again, maybe all three deliver and we break above the 200 day. Should be very interesting, but I would fully expect we are sitting at 1275 at some point early next week laying in wait for a verdict. IMO

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  109. ...sorry, I know this is an EWT blog, just thought i'd through that macro commentary in for good measure :)

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  110. Just a quick note. I have been looking over the charts in a little finer detail in preparation for tomorrow's entry into my 10/27 +/- 1 cycle turn window and I am going to revise my 1215 SPX support level to the 1220-1215 SPX range. It looks to me like if we can find support at 1220 SPX (lower parallel channel line of ED and minimum gap fill target) tomorrow morning then Pretzel's ED may be the right count after all.

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  111. Funny, I was just looking at the charts and about to post that 1220 looked more likely than 1215.

    Thanks for all the kind words earlier, guys. :)

    I definitely want to encourage an atmosphere of open exchange here. I can't imagine why some blog owners *wouldn't* encourage that?

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  112. And yes, definitely want to warn bears not to get too excited too quickly. Until we get through that 1215-1220 zone, this could just be a normal back-test of a prior resistance zone.

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  113. Thanks Pretzel,

    Look forward to tomorrow's update

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  114. So far the decline has only formed what looks like an a-b-c, so no confirmation of a top yet at all. Also, it seems "too easy" here for bears. I suspect we need to see another run higher to break the bears' will a bit more... but that's just conjecture at this point.

    The canary in the coalmine might be the NDX here. NDX has broken what could only be its wave (i) high (unlike the SPX, which has many more possible labelings). The only bullish potential I can see for the NDX (at quick glance) would be an expanding triangle 4th wave. Lots of chartwork left to do yet, though. My wife is eventually going to kill me for running this blog. All I've done is chart work and articles for pretty much every waking minute since Friday night. :(

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  115. Pretzel,

    FWIW my preferred count for NDX is that we are still in 4 of C and that yesterday's high was the 'b' wave of this running flat wave 4 and today's drop was the start of 'c' of that wave 4 flat.

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  116. :) ty, CTP-

    Just now looking at NDX chart, and was seeing that possibility. The move up was a clear three-wave move. But you also have to account for the move on the 18th, which was another 3-up... so if you label that as "a," this would be wave e down.

    Good news for bears is this would definitively argue that we only have one more thrust to the highs, as triangles only form as the penultimate move. Unless the triangle is "B" -- still not ready to go there, though.

    Either way, until it breaks 2220.96, bulls could still make another run to fresh highs.

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  117. Whoops, meant to say if you label that as "b" -- "a" would be the 17th.

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  118. Nice head and shoulders top formations on Dow and SPX. Actually, looking at the Dow w/ my preferred count there, and we just had a nice 5-wave move up off the low of the 20th, which barely exceeded my target, and held below the 11,993 implications of that count. The Dow chart argues that might be it for the rally, (still no confirmation until we get a 5 down).

    But if that's the case (rally over), we could see a gap down tomorrow as this would be the third wave down, and it would further trap the bulls at the highs.

    I know that flies against your cycle work, but hey, if it were an exact science, it wouldn't be "work." :)

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  119. This blog is addictive, I can imagine how much time the charting must add in.

    Thanks for the warnings, it is tempting to think bearish right away, especially after waiting out that big rally.

    I moved my 401 to a bond fund. Maybe a bit early, but not high risk. I am waiting for a last rally and confirmation signal to add to short positions.

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  120. You keep mentioning the 1215-1220 zone, how did you find this as the support level? I'm new to this and learning alot here.

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  121. DS - I asked this earlier, supposedly this is where the gap up move began last friday, that's what CTP was telling me. Looks like the neckline of this small head and shoulders too...but maybe there is more to it than that.

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  122. does that mean that this is "the" drop?

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  123. how can we know if we gap down?

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  124. Pretzel,

    Am I imagining things or is the drop from yesterday afternoon's highs on the 5 min SPX chart a fractal of the drop from May-October on the daily?

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  125. not necessarily, there are several alternate counts out there still, but I'm reading that a convincing move below 1215-1220 signals more selling...per Pretzel and CTP's posts above.

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  126. sorry, that was a response to ANON...

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  127. futures are up as of right now. casts doubt on CTPtraders 10/27 +/- 1 if it stays this way?

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  128. There are two ways to look at the decline, using the Dow chart.

    1) The decline was an a-b-c. Wave b was a triangle.

    2) The decline was a 5 wave move; wave 4 was a triangle.

    Option 2 is the one I am currently favoring. I would expect we go up in the morning to back-test the neckline of the head and shoulders, then down from there.

    I've actually spent most of the day w/ my family, so these are preliminary observations. I'm just sitting down now study the charts in earnest. Should have everything posted before the open.

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  129. Well just when things looked like they might be starting to clear up regrading the wave count this unexpected futures ramp muddies up the picture. A couple thoughts on what may be afoot:

    1) As I had mentioned previously my 10/27 +/- 1 cycle turn window does not specify polarity, but my preferred interpretation of this one was that it should be a low. I suppose it is possible (although I still think unlikely) that it will instead be a high.

    2) Another possibility is that today's decline was only the first subwave (a or 1) of a decline into this cycle turn window and today's bounce is a 'b' or '2' before the downside resumes.

    Tough call at this point, need to see how the market trades after the open.

    FWIW, for now I am sticking with short side with stop at 1250 SPX in case I am wrong.

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  130. I guess I should add a 3rd scenario is possible where the futures fade between now and the open and everything goes according to the origincal gameplan with test of 1220-1215 SPX. Would that be too much to ask? :-)

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  131. Ok guys I gotta admit yesterday's closing is smelling more and more like a bear trap to me. I am going to be looking for a place to get flat (ideally on a pullback) early in the session, and maybe even start nibbling on the long side.

    If yesterday's low holds that is a MAJOR sign of strength as it would be in my cycle work what is the equivalent of an e-wave truncated or failed wave.

    From an e-wave perspective Pretzel's ED could be playing out here, but also it is possible that if we move the wave 4 low to 1197 on 10/20 then yesterday's high could have been only wave 1 of either an ED 5th wave up or a standard impulsive 5th wave up.

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  132. Assuming futures hold for the next 30 min and we gap open higher then a gap fill would make for an ideal place to cover shorts. But if we don't see a gap fill quickly and internals are strong then the squeeze could be on and I for one wouldn't fight it.

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  133. Sheesh, barely got that posted in time. 2 minute before the open.

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  134. leaking lower...chance to cover shorts? or should we wait to see if it reverses above yesterday's close?

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