Market Has Topped; But at What Degree?

The market failed to complete a 5 wave rise from mid-week's lows and instead actually declined in 5 waves Friday. This behavior, along with it breaking below my key level of 1193 make me conclude that the trend is now down in the stock market. As you may recall, earlier this week I had a "flat" correction labeled with the first 5 wave decline (wave (i) or A) being wave C. This is because prior to that there is a 3 wave rise to a new high. A 3 wave rise to a new high and then decline in 5 waves is indicative of a flat correction. However I did label a very far fetched, yet plausible, alternate count for the 3 wave rise which would have it forming a major top (click here for chart from last Tuesday, or click here for full post from that day). As ugly and unlikely as this count seemed, it may hold true since we now have 2 impulsive declines sandwiching a non-impulsive rally. This is bearish. The million dollar question is, "at what degree is this top?" Too tough to tell at this point, but I did say a few times a couple weeks ago that I did feel that too many elliott wavers and analysts were calling for this monster crash that Prechter has been leading the charge for. And that the sell off of the century most likely wouldn't occur right when everyone expected it, right on time, and right on track with the short term wave count. I said it will do something to fool us, or have us give up. Well I know for a fact at this point a lot of extremely bearish people have given up on this most recent rally, and that the 3 wave rise to a new high and now two 5 wave declines is not textbook EWP at all. Could this be what I was saying about "fooling us"? We'll see. What does seem more certain though is that we have much lower levels to obtain before a bottom might be in place. If this is not the big wave [3] or C, then it's at least a moderately large A-B-C decline, which would have us finishing up wave i of C right now. If so, wave C should carry down to around 1155-1170, an area of prior congestion. If the market relentlessly continues to sell off right through this target area, and rallies continue to unfold in 3 wave moves, I'll then look to set targets that will help us determine if the current decline is in fact the big wave [3] or C.


NASDAQ 100 HEAD AND SHOULDERS




The Nasdaq 100 continues to fulfill the then speculative head and shoulders top I projected on Wednesday (click here for Wednesday's chart, or click here for that day's entire post). In addition to this, both of the Nasdaqs had their lowest daily close since April 12th, suggesting that the uptrend has halted, and the bears are now in control. The evidence is strong that continued selling throughout the overall market should resume in the coming days, if not weeks. The degree of that downtrend will be determined once the structure unfolds.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Market Surges Higher, Degree of Trend Now Key

The market surged strongly higher right out of the gate this morning and continued the rest of the day in what appears to be a wave iii. Tomorrow it's likely to get some pullback or sideways action for wave iv which will eventually give way to another surge above today's highs in wave v. What's of importance here is at what degree of trend is this 5 wave rally? Is this 5 wave rally going to complete the larger wave 5 and end the rally that started early February? Or is the 5 wave rally just a wave 1 that still needs waves 2-3-4-5 to complete wave 5? I don't know yet. What will give us some clue though is whether or not wave v ends above this year's highs in the major indices. If wave v makes it above this years highs, then it's quite possible that will complete wave 5 and create a major top and reversal. If it doesn't make new highs on the year, then it's probably just a wave 1 within wave 5, and wave 5 has quite a bit further to go. Today's rally was quite strong with almost 80% NYSE volume to the upside, so we should have further to go on the upside regardless.

So again, the key to when a top should register is finding out what degree of trend we're in right now. If wave v rallies to new highs on the year, then it may mean wave 5 is complete and a large reversal will occur. If wave v does not make a new high on the year, then it's possible the 5 wave rally from yesterday's lows in the Dow (Tuesday in the S&P) is just a wave 1 within a larger wave 5 which means much more rallying in the coming weeks.






Above at the top is the Nasdaq 100 chart again, showing the possible head and shoulders top forming. Interesting that yesterday I said that the right shoulder could carry to the 2040 level before topping and reversing and that's right about where it halted at today (see yesterday's chart here). So if we get a sharp sell off tomorrow with an impulsive structure then I'll be putting this head and shoulders pattern on the forefront of my analysis, and view the alternate bearish S&P count just above as my primary count. A break below 1193 in the S&P cash index would be a strong sign that a top was in and these two bearish charts above are correct.

So the bearish counts are a close second place as far as determining the liklihood of structure unfolding now. If the NDX's head and shoulders pattern holds, and the S&P declines beneath 1193, I'd say that a larger top had already registered and that a big and lengthy selloff is underway.




PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Flat Correction Complete, the Market Should Move Higher

S&P Cash Daily




The flat correction discussed yesterday appears to be on track. Today the Dow made a slight new low while the S&P did not. So aside from a very small and minor bullish divergence between the two indices, the Dow's rally from its low appears more impulsive than the S&P.


Today's Bottom and Rally in the Dow




Here is a close up of the Dow's potential five wave rally today. It's far from convincing, I know. The S&P does not follow this structure because its low was put in yesterday, and the rise from that low is in 3 waves. So there's some conflicting behavior here between the two indices in the very short term. But the evidence does support a move higher to new highs on the year because the recent rally to new highs that I labeled wave 'b' in the first chart, is a 3 wave advance. A 3 wave move is corrective, and since it made a new high it probably means it's part of a flat correction. Since we did have a bounce all day today, a new low beneath today's would make the wave 'c' of the flat correction quite ugly, and therefore less likely. So a break of today's lows in the Dow at 10,965 and yesterday's S&P lows at 1181.62 would put the flat corrective scenario in doubt. If BOTH those lows are broken then I would become short term neutral; but as of right now, I'm short term bullish for one final wave 5 push before a larger and longer decline occurs.


Nasdaq 100 Possible Head and Shoulders Top Forming??




Above is a 30min chart of the Nasdaq 100 showing what might be a head and shoulders top forming. This is very speculative since there's really no evidence of the right shoulder being printed, let alone having a right shoulder topping. But it's something to look for. It's possible the S&P and/or Dow will make slight new highs and the NDX will fail to do so, creating the projected right shoulder and creating a bearish divergence between indices. So if the lows in the Dow and S&P mentioned above are not broken, and the rally continues the rest of this week, watching the Nasdaq 100's structure compared to the other indices will be interesting. We may be able to look at the 2040 area of the NDX as a possible topping point for this index since that marks the topping area of the left shoulder, and perhaps the entire market will be topping when it reaches that level too. Just a thought, and something to watch.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

4th Wave Flat Finishing Up, then Higher

S&P Cash Index Flat Correction






Well I wish I didn't post anything yesterday because I was wrong across the board. I tried going long today on the stock market and was long the EUR/USD yesterday and was stopped out on both at the end of today's US session. For those of you who subscribe to EWI's Short Term Update, the above outlook is nothing new to you. With the ending diagonal and 4th wave triangle now eliminated with today's action, it leaves the high possibility for a flat correction for wave 4 as shown above. The structure is near perfect as the rally to a new high from the wave 'a' low was in 3 waves which is wave 'b', and then the ensuing wave 'c' decline today is composed of 5 waves. All this is a textbook EWI flat correction. What this means is that wave 'c' should bottom soon, if not already, and give way to more rallying to new highs for the year before topping. A break below 1165 tomorrow or Wednesday in the S&P cash should be enough erosion in support in fast enough time to suggest that a larger top was in and the flat correction is probably wrong if a new high on the year is not acheived first. So if we get a large rally tomorrow that does not make a new high on the year and then declines to beneath today's low in 5 waves, then that too would probably eliminate the flat correction and open up the door to a more bearish scenario.


Unlikely, but Possible, Bearish Count on the Nasdaq Composite




Okay, I'm almost embarrassed to post this but I feel I have to just to leave open the possibility that a large top was put in today. I've said here quite a few times that I feel "the top" will surprise everyone, including elliott wavers. "The top" will probably not unfold in perfect 3s and 5s patterns and make it easy for us to call the exact top print in the market. So with that in mind, I see the 3 wave rise to a new high and 5 wave decline today and it certainly gets my attention because most wavers will think that 3 wave rise is a corrective move within a flat correction (just like I do, as stated above), leaving elliott wavers vulnerable to missing the top and being "surprised". Unfortunately from an EWP perspective there's not much support to suggest "the top" is in. The best I can see right now is in the example of the Nasdaq Comp. shown above. It suggests that a 5 wave rally occurred into "the top" and the 5th wave was truncated. This is very unlikely with just the shape, size and time length of the 4th and truncated 5th, along with the apparent triangle for wave 4. But I wanted to throw this up here still, just to keep our eye on it if the S&P cash were to break below 1165 soon. Being on the alert for "surprises" to a market the top, it keeps my on guard.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Stock Market in Wave ii; EUR/USD Giving Good Bullish Opportunity

S&P Cash Index




The S&P appears to be in a wave ii correction as shown above. The behavior of the overall market is a bit suspect if it's in a wave (iii) as I have labeled. And what I mean by that is that the Dow was strong today while the S&P was substantially weaker, and this wave (iii) continues to get more and more sideways. If the market is in a wave (iii), I'd expect all major indices to be sharply moving higher in unison in a nice healthy rise with strong volume and internals. Nonetheless, it's still quite possible and it sets up a good bullish opportunity with a stop just below 1190. If the market continues on sideways without shooting higher like a wave iii of (iii) should, then I'll look at less bullish sideways moves that would fit into the current market behavior better. I don't see any reason evidence suggesting a top is in at this point, so shorting right now does not seem wise. If anything, I'd be looking to get long for a short term trade with a stop below 1190 if a good opportunity arises.


EUR/USD Daily




I haven't talked about currencies for a while because I haven't seen any good opportunities lately. But I do see one in the EUR/USD. Looking at the daily chart above we can see a clear 5 wave drop which has now resulted in some sideways action. A 4th wave triangle is ruled out because it just recently made a new low (what I labeled wave 'b'). But the 3 wave rise from 1.3266, then decline beneath the wave 5 low, tells me that a "flat" correction is probably unfolding. If correct, we should now be in a 5 wave impulse rally for wave C. Wave C's of flat corrections normally go just above wave 'a', but since wave 4 is so close by, and it would fit EWP's "right look" better with a bigger and longer correction, I think the wave C rally should carry just above 1.3817. So I'm long the EUR/USD from current levels with a small position and will add to it if it falls lower. My stop level is at 1.3197. So right now I'm risking 188 pips to make a possible 432 pips.



PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Market Continues its Push Higher

The market continued to push higher as the evidence Thursday presented. The bullish count I have is very aggressive at these overbought levels but I'm going to start with a very bullish account, and then downgrade it as the market movement and structure requires. The current count will allow for wave ii pullback soon but will lead to a wave iii of (iii) of 3 higher, which will have to a sharp big strong rally. So if the market doesn't rage higher after that wave ii, I know I'll have to restructure the count. There's also the possibility of a large 4th wave triangle unfolding, or an ending diagonal for a 5th wave right now. But these seem a bit too large and time consuming at this point, and I think it's a bit too early to start looking for a triangle or diagonal at this piont. Once the market starts going more sideways without a 3rd wave sharp rally move occurring, then we can focus more on the triangle and diagonal structures.

So that's it for now. The market's larger trend appears to be up, but the overbought and jubilent mood right now warn that the higher it goes, the faster and larger the ensuing decline will be. When I think I have an idea that a top might be forming, I'll post it here.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.