Friday, May 7, 2010

Triangle Most Likley Finishing Up, Then Big Thrust Down

Daily S&P Cash Index

So the market ignored the news of a "glitch" yesterday and continued selling today. If it was all or mostly just a technical glitch causing the big selloff midday yesterday, I would expect a nice bounce back today, especially after a good jobs report for the most part. But that's not what happened, and us elliott wavers knew better, and were skeptical of the whole glitch from the beginning since we've been waiting for massive selling in a wave [3] or C. Today the market continued lower, taking back a lot of yesterday's supposed "glitch" territory. Yesterday I wasn't sure about the whole "glitch" scenario being fed to us by the media, but thought that today or Monday would tell us for sure. The fact that we didn't go flat or rally big today and in fact had a triple digit Dow decline most of the day tells me that there was probably no substantial glitch at all yesterday and that in fact, the market wants to go lower to those levels established then. And the wave count I labeled in the second to last chart shows the perfect setup for yesterday's lows to be taken out too.

With that said, just look at the above daily S&P chart. Doesn't it look ugly? If I were a bull, I'd be nervous this weekend.

Russell 2000

Just to add to what I said earlier regarding the supposed "glitch" I wanted to post the Russell 2000 chart as well. You can see that this chart is even more ugly and worrisome to the bulls than the blue chip indices. This index wants to go lower, and fast. This thing isn't messing around at all. And you can see the long candlestick wick left from yesterday's supposed "glitch" movement that has more than half of it reclaimed by the index today. So again, if it was just a glitch and all the big shots believed it, why is the market going back down to those levels that the supposed glitch caused? After seeing today's action, I don't think there was a glitch at all, I just think the market tanked. But that's just my opinion.

One more thing; you may have noticed that the financial news is reporting that the Nasdaq is now officially in "correction territory" because it's declined more than 10% from the highs. The reason they only mention the Nasdaq is because it's the only one of the Dow and S&P that has reached the 10% mark. In fact, the small cap Russell 2000 index has also reached that territory, down about 12% from its highs. The fact that the high risk Nasdaq and small cap indices are leading the market lower is another sign that a large top is probably in since these indices lead on the way up, and lead on the way down.

So, is wave [3] or C underway? It sure looks like it. But in order to have confirmed that today I'd like to have seen the market get down to yesterday's intraday lows. It got somewhat close, but closed way up off of them. I'd say it's highly likely that a significant top is in, but only a break below 1045 and thus solidly breaking the uptrend of higher lows would confirm that wave [3] or C was in fact underway. A meltdown Monday that takes the S&P below today's lows, and especially below Thursday's will create a 5 wave down pattern from the highs, either on a closing basis and/or on an intraday basis. So if that happens Monday then I'd jump the gun a bit and state that it's highly likely wave [3] or C is underway whether or not 1045 is broken or not.

S&P 4th Wave Triangle

Above is an updated chart of my proposed 4th wave triangle I put out midday today. It's possible the triangle has already completed and the wave (v) thrust is now underway. But the choppiness of the decline leads me to believe it might just have been a wave 'd' of the triangle, which means another modest wave 'e' rally to complete the wave (iv) triangle. What this means is that when the wave (iv) triangle is complete, the market will thrust sharply lower beneath Thursday 1066 low. So there's a good opportunity for the bears to get aggressive for a short term move with tightly controlled risk. I'd like to see the wave 'c' high of 1129 remain intact for this particular triangle scenario to remain probable, but ultimately only a break above 1138 would negate this triangle as a 4th wave.

Alternate Wave B Triangle

One more note: even if 1138 is broken, I still think it's possible that wave [3] or C is underway. If 1138 is broken then we can just flip the triangle and make it a 'B' wave of an ABC correction; probably a fairly large wave 2. Now this is less likely since the triangle is getting quite long for wave 'c' and 'd' already, and making it into a wave 'B' triangle would make it even longer. But I just wanted to throw this out there as a less likely alternate count if 1138 is broken in Monday's trading.



Shrihas said...

Basically, EUROZONE leaders are meeting on Sunday in Brussels. I think they will come up with some solution.

If that happens, market may jump again and as I said it will repeat pattern of the year 2008. In January of 2008 world markets fell but emerging markets survived.

Quite possible that S&P will give false upside breakout.

That will be the time to short.

About the glitch that I said (is non existent). Algos are differrent types. Some algos say "SELL AT WHATEVER PRICE", if that algo executes than it starts looking for all BUY orders till all the quantity is sold. That is what happenned other day. Someone (we will never know, who), executed that algo and sent the market down.

Matt said...

Nice work Todd, spot on as usual. I've been following this site for awhile, I wish I would have found your blog before I got short last July. Dow 8000 and I'm out.
Keep up the good work.