Weekend Update to Short Term Elliott Count

Last week played out almost too perfectly, as the market almost seemed to be following my chart, instead of vice versa. 

There are only a few things to add over what's already been said in prior posts.  My preferred count is still that we are in v-down of minor (1), with 1-down, 2-up complete.  The move appears to be subdividing for the 3rd wave down, as anticipated.  At this point, I would expect a wave (2) rally to take us back up to test resistance in the 1174 area, and possibly as high as the gap at 1187.  After that, I would expect a strong reversal; wave 3 should see stronger selling pressure than wave 1 did. 

I would be very cautious about holding longs overnight in this environment since the market is likely to gap down one or more times during the 3rd wave, which could start at any time.  Personally, I don't trade counter-trend during nested 3rd waves, as they can be very unforgiving to people on the wrong side of the trade.

So far, there's been nothing to cause me to alter the target I set a couple weeks ago for wave v of minor (1) to bottom in the 1060 area.  We'll have to see how the 3rd wave structure unfolds, and I'll alert you as soon as possible if I feel the target might need to be adjusted.

1204 is now the key level to maintaining this count, and an upward violation there would tell us that the triple-zigzag alternate count is probably unfolding.  Given the action last week, I don't anticipate that level being broken until this wave is complete, but stranger things have happened.

Big Picture Oil: Time for Some "Crude" Comments

I know what you're thinking, but this isn't an article about Roseanne Barr: it's about crude oil. 

I'd like this post to mark the official announcement that I will be taking "chart requests" on weekends.  Please use the comments section of this post to request specific charts.  I'll try to get to at least a couple of your charts each weekend. 

Speaking of, our first chart request comes to us from little Billy in Arkansas:

Dear Mr. Logic,

Your blog has been up for a whole week now, and I have yet to see a single chart of crude oil.  Wut up wit dat, yo?

Sincerely,
Billy "Please Don't Call Me Little" Popolopogus
Arkansas, TN

Well, little Billy of Arkansas Tennessee, you're in luck, because today we're charting crude oil!

Crude is one of the few commodities that can be accurately tracked at cycle degree.  As such, I believe we topped Supercycle I back in 2008.  By the way, despite the current "peak oil" fearmongering, this argues that oil will likely be with us for a long time to come -- although it's prolly gonna get way 'spensive at some point, in Supercycle III (of course: doesn't everything), there is no reason to believe that the market will continue to tighten in the foreseeable future.  We are currently undergoing a correction in Supercycle II.  It remains to be seen if this correction will be A-B-C for ALL OF wave II, or if this will be A-B-C of a larger A-B-C... but it doesn't really matter as far as the immediate future is concerned, so we'll drive our gas guzzlers across that bridge when we come to it.

The first thing we notice about this chart is the giant parabolic of wave V and the subsequent wave A crash of 2008.  This is fairly typical of commodities as they often form extended fifth waves which retrace quickly.  Add that to the fact that this is a crash not of primary degree, but of Supercycle proportions, and you get the picture.  The second thing we notice is that wave B appears to be complete, with three farily-clean waves that count nicely in a 5-3-5 pattern.  C-down looks like it's in the early phases. 

Assuming that we are in wave C now, that leads us to a count of 1-2 complete, nesting what will likely become a smaller i-ii count.  It is important to note that we arrive at this nested count out of necessity, based on the overlap in the wave structure and the placement of the two triangles.  Now, we are operating under the presupposition that this is wave C, and our preferred 1-2 count hinges on that.  Our alternate, the potential bullish count, would have us in wave (b) now, with new highs to follow in (c) of B.  The market is currently in a state of equilibrium (since either count is viable) and is, in essense, issuing a direct challenge to Emperor Bernanke as to how far he's willing to take the destruction of the dollar.  In the alternate count, we can see that which we already know: the only thing monetary policy could create here would be another, larger bubble, since there is no true creation of wealth except through production.  The wave C crash would still follow that bubble as surely as the sun follows the rain; all the printing press could "accomplish" would be to delay the crash for a time... and ultimately the delay would only make the crash that much more painful. 

So our fate is sealed one way or the other, which appears to be the nature of choosing certain paths in life.  Once you pass the point of no-return, the road leads to a certain logical conclusion no matter what you do thereafter.  We have clearly passed the point of no-return in this particular economic experiment.

Back to the preferred count:  Wave i of the preferred count looks like it needs a slightly lower low to complete, which should then generate a month or two of snap-back rally before the wipeout phase hits.  It remains to be seen whether the Fed will decide to prolong the agony or not, and their actions could potentially shift our alternate count into the preferred role.

This Chart Has Been Gold

Anyone who's been following this chart since this week's pre-open owes me a coffee... or, depending on the size of your trades, a Lamborghini.  (Please hit the "Donate" button if you're feeling like sharing some of the spoils, although I may have to take direct shipment on all forthcoming Lamborghinis.)  ;)  This chart has been dead-on money so far.  Will it continue its win streak?

Before I fall asleep (4:40 a.m. here in HI), I wanted to update to give you an idea of what form we're looking for from this wave structure.  It should look *something like* the drawn-in grey lines.  As I type, it looks like we're in the process of forming a minuette fourth wave, which should lead to a new low.  Currently the larger wave appears as if it will end up being the 1st wave of the sub-dividing 3rd of v of minor 1.  At this point in the wave structure, bears want to see it grind sideways at times, then fall lower.  What bears don't want to see is it turn up from here and become the c wave of b of c of (z) of the alternate count ("Giving the Bulls Some Airtime" post below). 

At present, it looks like it's roughly targeting the rising trendline that's been support for this market since the 1101 print low.  Ideally, we want to see the current wave test that line or come close.  I would expect a bounce at that point, and then a strong move through it.  More later.

In case you weren't following, here's how the chart looked before the open this week:

Giving the Bulls Some Airtime

It always pays to play devil's advocate against yourself from time to time.  I decided to take another hard look at the wave structure of this rally, and see if the more bullish (short term, anyway) alternate count I suggested a few days ago could have any credence.  It does.  There are a few areas of the chart that are a clusterf*dge to count, but there's nothing that violates any rules.

One thing that gives this count a bit more weight, in my mind, is the way that time and price will coincide with the c of (z) target to bang it right into the top trendline to finally complete wave iv.  It's almost too perfect.  After taking a close look at this chart, I am now completely on the fence as to the preferred (see preferred count a couple posts down) vs. alternate count.  Today's action should clarify things one way or the other, and by the time I write the next update, I should be able to give a better idea of where this market's headed over the short term.  I'll try to do a live update during the day if possible.

A couple things to watch for:

1)  an upward break of the 1204 high, depending on the internal structure of that wave, might indicate wave c is unfolding

2)  a break of 1121 obliterates the alternate count (I know, that's a long way down)

Sorry I can't give you much else at the moment, the market has stalled at a place that puts both counts in limbo; tomorrow could head either direction given the current wave structure... and the advanced notice of which direction has been chosen will only come from the internal structure shown in tomorrow's price action.

As an aside, usually when I decide to give a lot of credence to an alternate count, the preferred count is within hours of proving itself correct.  If that tendancy holds, the futures will start crashing almost immediately after I post this.  ;)  Trade safe!

The Confirming Indicators Who Cried, "Bear!"

Many folks are wondering if the market action of the last few months is simply a correction in an ongoing bull market, or a brand new bear market.  

Here's a snapshot of some of the confirming indicators I use periodically.  If you've looked at my long-term Elliott chart (if you haven't seen the chart, it's the link to the right titled "The Big Picture"), you already know that I believe this is not only a new bear market, but that it will likely be worse than 2008.  If I were writing an advertisement for this bear market, I might say:  "It's a New and Improved Bear Market!  Now with more bear!"  (As a totally unrelated sidenote: I've always wondered about the common advertising expression "New and Improved!"  If it's truly NEW, how can it be improved already?  It's new.  If it's been "improved," it's not new; it's refurbished.  Something can be "Old and Improved!" but I suppose that lacks the same pizzaz.  Anyway...)

So, what are these indicators telling us?  For the past 12 years, each of these indicators has stayed within a pretty well-defined range during each prior bull and bear run.  All three of them have recently jumped back into bear territory.  Not only that, but they have done so with authority; much more violently than they have at the beginning of the past two bear markets.  This may argue that this is going to be the worst bear of the three.

I've also included a couple quick charts as an addendum.  The first one shows the hyper-volatility in the recent market action.  Scanning back the past couple years, the last time we find this type of volatility was right after the last big trend change, which is what the second chart shows.  Does it prove anything?  I have no idea, but I found them interesting nonetheless.

So without further ado, here are the charts:

 

Update as of 9-7 Close

Just a quick update right at the close, as I have some errands to run this morning (yes, it's still morning here in Maui ;)  ).

The 1204 gap target looks like it may have been it for the preferred wave 2 counter-trend rally.  However, the market has not given us official confirmation yet:  so far off the 1204 high, it has formed either a 1-down 2-up 3-down; an a-down b-up c-down; or a nested 1-2, 1-2.  We need at least one more impulse lower to form a 5th wave and confirm the larger impulse move down.  It has left itself in the perfect setup for a nice gap down in the morning, especially if our preferred count is correct and this is 3 of v, but it's not required to confirm the wave. 

Even if we get the confirmation of this small impulse, it's not completely clear sailing until the 1121 low is broken, but we'll worry about that if it starts to look like this leg down is just a larger a-b-c correction.  For reference, see the "first alternate count" -- second chart down on the post immediately below this one.  So, as we say in the biz: "Don't count your waves before your chickens hatch! Or before the cows come home to roost, whichever is greater."  Or maybe I'm confusing the saying with something else.

Either way, the preferred count is looking very promising, and I'll come back and take a look at what the futures are doing later this evening.

Updated Short-Term SPX Count

Despite all the panic from bears today, thus far the wave 2 snap-back rally has been only slightly more energetic than we anticipated.  Our target of 1195 has been met and marginally exceeded.  Barring immediate reversal, our next targets would be the gap at 1204, then the .786 retracement at 1210.  Keep in mind that 2nd waves can retrace up to, but not over, 100% and still be within the guidelines.

I'm not terribly pleased with the labels on the ending formation of this wave, since it currently counts best as an expanding ending diagonal.  This is such a rare formation as to be almost non-existent, placing it in the same category with things such as pregnant virgins, government spending-restraint, and super-smart statements from Paris Hilton.  Tomorrow's action should clarify the wave currently labeled "a-b-c-d-e?" as the next few squiggles will reveal to us what the pattern actually is.

We are still unable to rule out our alternate counts, as until the key levels are broken either to the upside or downside, this could all be nothing more than noise.  Our 1st alternate count would be that we are forming a w-x-y-x-z triple zigzag for wave iv, with w-x-y-x being complete (see 2nd chart below).  This would take the current wave up to a marginal new high before we drop.  Our 2nd alternate would be that we bottomed Minor 1 at 1121 in a truncated 5th wave, and this is part of the Minor 2 rally.  We have no reason to give any credence to either alternate count at this point, but it always pays to be aware of the possibilities.

Our first alternate count below: