Friday, February 3, 2012

Line in the Sand....the Rubicon 1370.58

February 9, 2012: I don't have anything new to add. The Dow made a new high while the S&P has so far lagged behind, failing to exceed 1370.58. If a reversal occurs with the S&P failing to make a new high above 1370.58, then there would be a major intermarket divergence in place suggesting a major top had formed. But entering short prior to that is purely speculation in my opinion. I'm waiting for a reversal pattern to form, and if it occurs before the S&P can exceed 1370.58, then I'm jumping in big on the short side. Until that happens, I'm simply waiting, doing nothing but trying to determine if it's possible to twiddle my thumbs long enough to burn off the two donuts I ate this morning, and to see if I can twiddle them fast enough to break the sound barrier.

Internals illustrate a typical Friday behavior where volume is fairly soft and a large majority of up volume accompanied the rally relative to down volume.  Nothing conclusive here since price moved right in line with these internals as would be expected.

I thought today would be a great day for a nice reversal to the downside and hopefully leave a setup to either short today, or early Monday.  But Mr. Market wanted to annoy me today, and he succeeded.  The rally remains intact and I see no reason to "guess" and just short here unless you're a gambler.  I'm waiting for evidence of a reversal, and will load up on the short side upon confirmation of a reversal if it's not too late when that happens.  The market is moving higher, contrary to what the evidence I see suggests it should be doing.  When this type of thing happens, I want to simplify things and focus on the bottom line.  The bottom line is that 1370.58 is key to the bearish wave count, and the bearish case as a whole.  The Dow came within just a few points of exceeding its wave ((2)) high today, so things are a bit shakey for the EWP bears right now.

But as along as 1370.58 in the S&P cash index remains intact, the bearish wave count remains valid and so any good sign of a reversal on the short term charts is worth taking a shot at the short side with a stop at the day's high, or just above "the Rubicon" level at 1370.58.  A perfect scenario for the bears would be for the Dow to exceed its wave ((2)) high Monday while the S&P stays below 1370.58 and then a big reversal occurs.  This type of divergence in two major indices would be deadly bearish.

Learn Elliott Wave Principle (EWP)

Although the euro has been able to make a new low and has not been able to make a new high, there has been no follow-through to the downside.  As a result, there has been a net sideways action the past week or so.  This consolidative pattern conveys a similar message that an EWP triangle conveys; which is that the euro is pausing from its uptrend before it thrusts higher in a sharp and deliberate move to new highs.  Now since this is not an official EWP triangle the euro has formed, so I can't say the thrust to a new high will happen with any level of certainty.  But I will say that the odds are slightly tilted toward the bullish side for right now.

Technical Indicators: A Love-Hate Relationship



Fuckualittlebit said...

"so things are a bit shakey for the EWP bears right now"

do you want to say u are not one of them?

Strubel100 said...

Looking at the NASDAQ smashing through new highs I was wondering what it means when some indexes make new highs but others don't. I see some are focusing on the Wiltshire 5000 to determine the ultimate market wave structure. What happens to the wave count if all but the wilsthire make new highs ?
I live in Australia which is a backwater and the market is doing hanging around with no real non htf volume it's almos as if real money clients are just waiting for it to implode and yet it does nothing...
I must admit I'm tired of this thing it may be more productive to try and apply e wave theory to a women's mood then the market.

PrincipleAnalysis_Blogspot_Com said...

I am not "shakey" because I manage risk properly and am never nervous, or scared, or shakey over any market move.  Gamblers get shakey or nervous, but not me.  Losses are part of the game.  However I will say that the bearish analysis for the EWP IS in fact shakey right now.  There's no doubt about that.

PrincipleAnalysis_Blogspot_Com said...

You would have to count the Wilshire as if Primary ((2)) already topped while the other indices you'd have to count as just finishing Primary wave ((2)).  The Wilshire is a broader index and therefore a much better "crowd mood indicator" so I'd put more weight in that index in my view.

The market has worn me down too, but the key is to be patient and wait for opportunities.  I tried shorting a couple times on reversals the past few weeks but had stops tight and got out fairly quickly.  Holding short during this entire rally the past several weeks would be tough.  So I'm simply waiting for opportunity.  Without volume in the market, that's often the best option in my view......waiting.

Strubel1000 said...

That's the whole problem with applying technicals to the current situation. Everyone knows how rotten the system is another dexia type collapse or portugal going over the edge and we would have a dooms day situation overnight. Down here in sleepy Australia we have four banks with balance sheets 2X GDP with trillions in derivative exposure and yet markets just brush all this aside. Being long because the trend says so is dangerous in my view.

Doubleug said...

DJIA line in the sand broken today. SPX soon to follow?

PrincipleAnalysis_Blogspot_Com said...

Odds would say "yes" the SPX will follow.  However if it doesn't.....if it fails to make a new high with the Dow, and then reverses lower, it will leave a huge divergence between the two blue chip indices and a great shorting opportunity.  I'm not making a move on anything yet, but a divergence of that significance would get me on the short side quick.

PrincipleAnalysis_Blogspot_Com said...

Yes, it is dangerous.  It's all about risk/reward, and although the reward may be on the side of the bulls recently, that's only in hindsight.  The amount of risk out there is far too great to get seriously long term long here in my view.

Aaa said...


can you suggest a new wave count for the Dow after it have new highe (so it cann't be wave 2)

PrincipleAnalysis_Blogspot_Com said...

Most likely the Dow simply did not complete its Primary wave ((2)) and is doing so right now.  The other option is that the decline from last may was a wave (A), the rally up to yesterday was wave (B) of a large flat correction, and now wave (C) down to below wave (A) will get underway at any moment.  Both counts suggest that the bearish side is the side to be on when opportunities arise.