Wednesday, August 13, 2008

August 13, 2008; Impulsive Decline??

The selling pressure continues today as I called for yesterday. But the key question is whether this is a correction before another rally to new highs, or if wave 3 of (3) is underway. Right now, it looks like an A-B-C correction is unfolding, and you can see my EWP wave count a couple posts ago under the one titled "August 12, 2008; Nothing New After Today".

But I keep looking for a possible wave count that would have this as an impulsive decline, combined with NYSE breadth being 90% down volume and at least 3:1 decliners vs. advancers. Well, so far today (11:25 eastern) NYSE down volume is only at 65%, which is about 10% less than yesterday's close which was actually 25 points stronger. This is bullish because it shows the downtrend is weakening internally. Because of this, it seems another strong blow off type rally may be coming which will rally the Dow over 500 points POSSIBLY, only possibly, so I bought DXD put options today to protect my tail in case this happens. DXD has rallied yesterday and today, making the put premium attractive on it.

With all that caution and possible bullishness said, I posted a possible wave count that would mean wave 3 of (3) is underway. The main problem I had with this being an impulsive decline was with the first wave which ended very choppy. But it's possible to count that as an ending diagonal 5th wave, however I feel I'm forcing it a bit in doing so. But it is possible so I posted the wave count on 3 minute closeup in the above chart. The red line in the bottom right is the projected near term path. After posting all the numbers I realized my degrees are off from the first wave to the last wave. But you get the point I'm making here in the chart regardless.

For the record, I'm just posting this as a possibility. Right now I feel the evidence does not support this wave count, and that wave 3 of (3) is not underway yet. But this count needs to be at least considered.


Anonymous said...

Man you are so right. This is where we have some hard work in front of us. Every time we get something that looks good to the downside we project the 3 of (3) starting. :-) Dangerous business. Hard to say at the moment which way the wind is blowing.

I'm still looking at the seasonals to help me find my way. However, the EW count will still be the over riding heavyweight here. I'm going to stick with the high coming sometime around the week ending the 22nd OR at the latest the 29th. Your 500 point blow-off sounds very very plausible and would be welcomed. More points to the downside when it comes. :-) It would certainly limit the risk as well.

You called today's decline right on the money. CONGRATS! Now the trick is calling tomorrow. What have you done for me lately! LOL. GL, Diver

Todd S said...

Lol, I'm working on tomorrow but want to see how we close today before I make any conclusions. I can count a full 3 wave correction to the downside complete here today with the current rally to -80 in the Dow. Plus this rally could be unfolding impulsively. So we're at a bit of crossroads right now. The action into the close should tell us a lot.

Keep me posted on your time analysis.