Weekend Update: SPX Count

The short term possibilities for this market are spiralling toward infinity at this stage, so we're going to wait for clarity from the price action before getting too attached to the short term wave counts.  For now, we're sticking with the preferred count, since it did us solid for so long.  As long as the market does not move above the labeled high of wave iv (blue KO line), the preferred count remains viable. 

Although the micro picture has become temporarily hazy, the macro picture hasn't changed and continues to remain fairly clear in our opinion:  This is either the complete first leg of a new bear, or most of the first leg, with wave v-down still to come. 

Tomorrow, I'm going to see about posting some charts of the NDX, and possibly the Dow, if I have time.

9-15 Update, with Bonus! Chart

No material change from yesterday.  The preferred count is still in business, and the wave labeled ii actually counts very well as an a-b-c.  If that is the case, wave ii should be very close to completion, and we should see the market turn back down soon.  Wave iii should see powerful selling, although it may start off tame as it rolls over. 

If we instead begin to consolidate around this area, it is likely that one of our alternate counts is in play.

I have also posted a more traditional chart I was playing with, at no additional charge.  The additional chart is yours to keep, even if you return the set of steak knives!  Operators are standing by, because we haven't sold enough steak knives yet to afford chairs.  Order yours today!

9-14 Update: Challenging the Chart

The market has finally challenged our preferred count to either step up or be eliminated.  The preferred count would view this most recent rally as wave c-up of an a-b-c wave ii.  It is make or break time for this count, which, we must admit, has had a very good run so far.  10 days of solid, on-the-money calls should certainly allow for a target to be overshot every now and then. 

Fourth waves are very challenging trading environments, because they almost always move back and forth over the same territory many times before making a decisive break and, due to their corrective nature, they can be very difficult to accurately count.  This has certainly been the case so far... although if the market breaks down from here, our preferred count will have passed the challenges presented with flying colors. 

Be that as it may, it is time to give more consideration to some alternate possibilities.  I have labeled three potential counts on this chart, and annotated some things to watch for. 

The preferred count has taken its first hit, but is still standing and is represented in red. 

Our first alternate would be a fourth wave triangle, shown in green. 

Our second alternate would be that Minor (1) down already completed, and we are now in Minor (2). It is shown in gray.

The market should allow us to start eliminating one or more of these counts in the near future.  The one virtual certainty we can stand on is that this entire move since early August is clearly corrective in nature, and should ultimately resolve to the downside.  Trade safe! 

Update as of 9-13 Close

Wave (2) has reached our minimum target projection, however there is some question in my mind as to whether that was ALL OF wave (2), or only wave a of (2) up with b-down unfolding now.  The possibility exists that my labeling of the bottom as "b" is incorrect, since that cluster of waves is very difficult to count cleanly.  If the (1) label were moved over to where the "b" label is currently: then we completed a-up of (2) today, and now are in b-down, with the larger c-up of (2) still to come.  This alternate possibility is represented by the gray dashed line.  If the alternate were to play out, I would watch for a "drop and pop" move tomorrow.

If we have seen ALL OF wave (2), which is still my preferred count, then we should see a strong move down start pretty much immediately.  That said, the market has great potential to close with both the preferred count and alternate count in limbo tomorrow: it could make a nice 5-wave decline, which could either be a motive wave of the preferred count, or wave c of b down of the alternate -- then bounce and close at a point where the bounce could either be counted as the countertrend to the motive wave, or the start of c-up of (2).  I may be referring back to this comment in tomorrow's update...

Beyond that, a break below the (b) wave low will likely indicate wave (3) is underway, and at that point we should see the selling intensify -- although I'd be surprised if that break happened tomorrow.  Trade safe!

9-13-11 Pre-Market Update

The preferred short term count is still looking golden.  I do have a slight concern about the failed breakdown, because this can sometimes generate large moves in the opposite direction -- however, at this time, there's no reason to think that will be the case.  It looks to me like the failed breakdown was the b wave of sub-minuette (2), with c of (2) unfolding now.  The target for preferred sub-minuette (2) is 1173-1187, but if the count is correct, the top target range is probably unreachable.  If it was reached, that might be cause for concern as it would violate the falling trendline connecting the head with the right shoulder of the now-complete head and shoulders pattern.

I have included an alternate possibility that the three prior waves down were a-b-c (not labeled) of an (x) wave.  If this alternate count were playing out, we would be on our way to new marginal new highs, probably at the top of the rising trendchannel.  Again, there is currently no reason to doubt our preferred count, but I do think it's helpful to be aware of the possibilities as part of an exit strategy, if the preferred count seems to be failing.

A break below the recent b wave low will likely confirm that wave 3 is underway.

Not much to add beyond that.  Trade safe!

Intra-day Update, Short Term SPX Count

It looks like I was a tad premature in marking the end of sub-minuette 1 down.  The fourth wave at micro degree was a "running" fourth and initially looked like waves 4 and 5.  A running fourth is characteristic of an unusually strong or, in this case, weak market.  Interestingly, the market broke right through the rising trendchannel that's been support since the wave iii low, and it found support instead at the head and shoulders neckline. 

The head and shoulders pattern is now complete.  Ideally, we do not want to see the market break above the falling black trendline which connects the head and the right shoulder.  Probably not coincidentally, that trendline crosses right through our wave 2 target box.  I would expect a brief rally here, though we may test the neckline once more before moving toward the target retracement.

If the market fails to rally and instead breaks down from here, it is likely that the previously suggested scenario of nested 1-2's is playing out.

A More Immediate Bearish Perspective

As I write this, ES futures are down about 19 points, which does not in any way invalidate my preferred count; however it likely means I was early in marking sub-minuette wave i as complete.  This opens up the potential that all we've seen so far is a nested series of 1-2's -- and depending on where wave i bottoms, there may finally be cause to lower our 1060 target.  We'll have to see what the open brings.  If you read my Weekend Update, you'll recall that I said I don't trade counter-trend during nested 3rd waves... this is another reason why.  The waves are often so forcefully skewed in the direction of the trend that the minuette waves and smaller become hard to count, so trying to trade the small squiggles can be very hazardous to your wealth.

Anyway, this article is to present another alternate count, one which I've hinted at a few times, but have never expanded on.  Of all the potential counts outlined, this one is the most immediately bearish.  This count hinges on the idea that Minor (1) based at 1121, in a truncated 5th wave.  I've explored this count on my own several times, and decided against it as my preferred count for several reasons:

1)  The current wave structure has stayed almost perfectly contained by the i-iii trendchannel (the large turquiose colored channel), which argues that it is all the same wave-form.

2)  In this alternate count, wave iv would be a sharp correction and a simple a-b-c structure.  You can see that wave ii was also a sharp a-b-c.  This violates Elliott's Rule of Alteration, which states that corrections tend to alternate between simple and complex forms.  This rule is not intended to be set in stone -- it is more of a very strong guideling -- so it can be violated without ripping apart the space-time continuum, but it is unusual nonetheless.

3)  The physical time taken up by wave (2) is very short relative to the preceding wave.  Wave (1) took 3 and a half months under this count; wave (2) would be about 2 weeks (although: the timeline would work better under the alternate count (on this chart) of w-x-y, which would stretch out the correction).  Again, not a concrete rule, but another clue.

4)  The preferred wave iv stays perfectly within the red channel, again arguing that it is all part of the same wave, as opposed to this alternate count which would have the red channel contain waves iv and v of minor (1), as well as all of minor (2). 

Those are some of the reasons that, in my preferred count, I've chosen to view the current decline as being a continuation of minor (1).  So what would be the arguments in favor of this being minor (2)?  Here they are:

1)  The wave labeled (1) in the chart counts very well as a five wave move.  In fact, when it unfolded, my initial reaction was that it was a truncated fifth and that minor (1) had completed.  

2)  The decline off the high so far has been quite powerful.  This is characteristic of a higher degree 3rd wave, much more so than it would be of a low-degree fifth wave (of 1).  The trick here is that if my preferred master-count is correct, and this is a Supercycle C wave, then (I assume, anyway) none of us have ever traded in an environment this bearish, and moves are likely to surprise to the downside over and over again.  Indicators which worked in prior bear markets as "buy" signals are likely to fail repeatedly.  It wouldn't surprise me if a "Supercycle Minor (1) of C" is as powerful as a Minor 3rd wave in a "normal" bear market.

3)  As I've pointed out in several previous posts, a large number of big-cap stocks look like they are completing, or have completed, 2nd wave retracements (Apple, for example).  If Apple starts crashing in a minor 3rd wave, it's pretty hard to imagine that the SPX, Dow, and NDX are going to be trading in the green.

4)  One word: "Plastics!"  No, sorry, just a little Graduate humor there.  Three words, actually:  "Black Swan Event."  In this environment, there lurk many potential crash-inducing events which could change alternate counts into preferred counts in the blink of an eye. 

So there you have it: both sides have been given equal airtime and the same number of bullet points.  Ultimately, interpreting market moves is always up to the technician, and all good Elliotticians must weigh similar arguments many times each week to decide which count has the highest potential.  Nobody can be right 100% of the time; but the successful technicians are humble and light on their feet, and able to evolve their counts as the market dictates.

So... if there seem to be reasons to start favoring this count over my preferred count, I'll alert my readers immediately.