Sunday, February 27, 2011

2/27/11 - 9:57 PM Update

9:57 PM Update

Some possible ways to count ES tonight at 9:57 PM. We'll see what happens overnight.

5 min

Just some additional thoughts on a Sunday of the near term picture and the most recent decline and bounce.

A few days ago I posted my thoughts on the leg down and how it counts better as a corrective. I still believe this is the case.

First off, I am still seeing folks count that steep drop as a wave 1. To me, that looks more characteristic of a third leg down, whether a wave 3 of C.

In my case it is best represented as a wave C. Look at subwaves a and b red above. Folks counting that drop as a wave 1 seem to ignore those other waves that clearly make it a three wave structure.

Now say that wave 1 is correct, well what would be wave 3 just looks to choppy to me. Take a look at the 1 min chart on that and you will see how much overlap occurs. Hardly characteristic of a third wave.

So with that in mind, I still say odds are greater this move down since 2/18 is corrective.

However, for this time frame, all the above may not matter because you see, the first three waves at the larger in any direction are still three waves whether you count them as 1-2-3, a-b-c or w-x-y.

I'm just putting this out there for folks who are learning EW and the need to understand that technically it is still important to realize the difference here because the waves are working at all degrees.

Where one will get in trouble is at the larger degree once it all plays out. Folks counting this as an impulse down, without recognizing that this may very well be corrective, may be hoping for a much deeper pullback beyond 1280 unnecessarily.

Enough on that for now. So for the near term bounce, I'm still looking for a target of 1325-1330 along with other folks.

I have a potential triangle working out before a final wave c of y targets those areas. On the chart I show some other levels matching Fibonacci targets based on the length of wave w blue and wave a green.

I have mentioned that I am keeping an eye out for a potential flat or triangle to play out at the larger degree for wave [4].

A hint that a flat may be in the works is a 90% retracement of this decline. If the flat is to play out, the market will have to rally back to 1340. The EW rule for flats is that wave b must retrace wave a a minimum of 90%.

For a triangle, typical subwave retracements are 62-80%. The market is nearly there.

Now, if the correction here is going to take on a steeper double zigzag targeting 1280, this bounce cannot reach the 90% retracement and must drop back below 1294.

If you have made it this far, just a summary of what I'm thinking will happen over the next few days:

1. Market hits 1325-1330 and pulls back. If the next leg down holds above 1294 and then bounces up and takes out 1330, most likely that leg up will target at least 1340, which would bring the flat into play.

2. Market hits 1325-1330 and then trades between 1294- 1330 over the next several days, a triangle may be working out.

3. Market hits 1325-1330 and pulls back taking out 1294, then 1280 is most likely where it is headed.

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