Weekend Thoughts - [9/5/11 Update]

[9/5/11 Update]

With ES down over 28 points, I wanted to show this chart below. Last week I pointed out in the chatroom how similar the two tops looked. So far the second drop has mimicked the first.

Without cluttering the chart, the first retracement was approximately 78%. This second one is there now. Will it bounce from here? Will the lower end of the channel provide resistance?

I've added the yellow channel for spx. This may be a possible target should ES hold through the night.

9/4/11

Some who follow me in the live chat room  know that I believe counting out the longer term waves is more academic than it is practical for trading. Though it does provide a potential road map for the future path of the markets, the fact that so many options exist and the time it takes to validate or invalidate those options makes it impractical to set proper stops without losing your shirt.

So with that, here are some options to think about that may be more practical for trading near term.

6 month

The yellow and blue options pair up with the long term primary bull count below. The purple label pairs up with the longer term primary corrective count. 

Based on this 6 month chart I am proposing that a potential corrective rising wedge  or leading diagonal triangle may be playing out should this rebound not be complete. A break of 1135.91, however, increases the odds that the rebound is over. 

So whether bull or bear, shorter term, we may see a rebound to 1200 to complete wave e blue or as high as the 50 day SMA near 1250 right now. 

Should the market find a way back towards the 50 or 200 SMA, one must then begin to think about a potential leading diagonal as it could pair up with the longer term bull count and one of the options in the longer term corrective count. 

Either way, this would still fit with the bearish view that this entire rebound was a wave 4 and a 5th wave down is due to come.  ( I still don't subscribe to that count but it doesn't really matter since they all imply the same thing here) That 5th wave down, if you subscribe to the bearish view, is equivalent to a sharp wave 2 pullback for the leading diagonal case. Since it will be sharp but fall short of making a new low, the wave 4 camp will call it a truncated fifth. 

Again, it doesn't matter because both counts then imply a much sharper rebound is to come. As a trader do you really care (at least for the time being) if it's a larger wave 2 rebound or the start of a larger wave 3 up? As long as you are on the correct side of the trade that should be all that matters. 

Once the waves begin to develop, only then should we start to reassess what the bounce target will be.

I hope this all makes sense and if it doesn't, I apologize because I'm just trying to post my thoughts quickly so that I can enjoy the rest of my weekend. 

Please feel free to comment on this or add to the discussion. 

2 year

The charts below highlight the battle between bulls and bears longer term. Notice how the above charts may be taken 

Primary Bull

Primary Corrective

EOD Update

EOD Update

Another 2.5 % day for SPX and RUT appears to be working on a very clear five wave impulse down.

Below I've made some final adjustment to the options, which for the most part remain valid. I added a purple count option, which I think could be a serious contender should the market continue to trade sideways in this narrowing range.

The red count, as was shown earlier, had the biggest change and that was completion of the correction for wave B yellow at the 8/31 high. But until the market breaks below the red X wave low, we must give consideration to the blue and green options as well.

For the bigger picture see the daily chart below.

60 Min

Daily

The 60 min chart above is looking for the completion of wave B yellow. Once complete I'll be looking for a wave C low between the 1011-930 range.

9:04 AM Update

Though the red count should be treated as the primary, I still like this option. Let's see if wave iv blue retraces to 1193 with v then completing back near 1172 at the 20 day SMA.


7:30 AM Update

Unfortunately I had to update the counts. The red count has been restored to it's original labeling with the blue counts taking the alternate seat.

In the live chat room I mentioned that I wasn't too sure about the blue count at this point, however, the second chart below was something I posted yesterday for signs of a wave 4 bottom. Well with the 4-1 overlap today, it cannot be a wave 4 and hence the X wave option.

Bottom line is I think that hourly MACD TL will be telling. If it provides support, the blue count option has to be considered.

6:32 AM Update

If you have the balls to stop in front of this and buy here.

6:28 AM Pre Market Update

10 Min

Some Fib extension targets for wave 3 of c blue.

6:11 AM Pre Market Update

ES so far has found support at the lower red channel.

Will also add that for cash, the 13 day EMA is currently at 1185.

5:51 AM Pre Market Update

With ES trading -19 points so far, I had to take a better look at that h/s target. 1183 is lining up with the 50% retracement and the open gap below.

Let's see how cash reacts at the open. I recall not too long ago that ES had been trading -15 pre-market and into the open. Once cash had opened it only traded down 7 points. We'll see...

6:04 PM EOD Update

6:04 PM EOD Update

Here's another look at today's wave structure using TOS. I like the channeling tool on this platform more since it is more accurate than placing them manually on Strategy Desk.

From the 1230.71 high, we clearly have a three wave structure down, which I have labeled wave a (not in the chart above but the one below) and a clear three wave structure up, which I have labeled wave b and nearly a textbook flat setup due to the 90% retracement of wave a.

Using the EW channeling technique, I have drawn this channel connecting waves 2 and 4 with the lower channel set off wave 3. There are five fairly clean waves down and the fifth certainly looks like it is completing an Ending diagonal. I also like how it terminates right at the mid-channel, which often times it does when using the channeling technique to project for wave 5.

Typically in flats, wave c, which should be a five wave structure, extends slightly beyond wave a. In this case it has extended just over 110%.

So as far as I am concerned, this corrective pullback has met all the requirements to call it a completed flat. So that's what we'll call it for now until the market tells us more.

Of course, 5 could extend further towards the lower end of the channel but for now, because of the wedging nature of the structure, I'm leaning towards that ending diagonal for wave 5.

I also will leave room for the possibility that I may have labeled the ED early as well. It's very possible on the first three waves of the ED have completed.

The 1194 level shouldn't be ignored though either since it represents the 38% retracement of wave 3 and pretty much the head and shoulders target I presented in the chat room earlier today.



1:24 PM EOD Update

60 Min

Here's something else I'm looking at that may imply a wave x bounce tomorrow before another leg lower for wave y. Since we would expect (but not required) 4 to travel across to the lower channel and the fact that the hourly MACD is heading towards it's TL support, I believe this is what may happen.

1:02 PM EOD Update

30 Min

This is the primary count. I believe an a-b-c flat correction for wave 4 blue completed today. Wave c was just over 110% of wave a. As far as channeling targets are concerned, the wave structure may have fallen short.

Notice that wave 2 wave fairly sharp so we may have to expect that wave 4 turn into a complex double. If this is the case, I believe we should see a wave X bounce tomorrow if 4 is not complete.

However, if wave 4 blue is complete, wave 5 should begin tomorrow.

I don't really like the red and green alternate counts so much anymore but they are still valid so we must be prepared should the market take a different direction from the blue primary.

See below for the squiggle count of the falling wedge.

3 Min

An anatomy of the falling wedge.

I'll look and possibly post more charts later. Gotta run!

11:12 AM Update

11:12 AM Update

The red and blue counts may be considered complete for wave 4. However, we must be prepared for a potential larger double zigzag. So one must be aware that my wxy blue may represent a larger degree wave W or wave A (if a flat is playing out).

10:35 AM Update

So long as 1209 holds, the last two charts below are something to think about. The 30 min chart below is still in play with it's options.