~ This post by DanEric40 has been promoted from StockTock Social.
It now seems obvious that the market is heading straight down in an effort to test the 2002-2003 lows. The Elliott Wave analysis of the VIX and $SPX very much supports this.
The $SPX Minute wave iii appears finished. All the waveforms “fit” and look correct and obeyed the rules and guidelines. It managed a Fibonacci 2.501 expansion and that is within 3.5% of 2.618, a key Fibonacci expansion (extreme).
We are likely already playing out Minute Wave iv. The key question is, how long will this take to play out? Well, it already hit the upper green trendline, so perhaps Friday was the high. I have good reason to believe this will play out as a “flat” structure and that may take all week. Why a flat? Because the guidelines of alternation between corrective waves 2 and 4 suggest a flat because the minute wave ii was a powerful zig-zag on 19 Sep. But that 19 September powerful zig zag was helped along by the PPT short squeeze which may or may not have altered its natural play. But we shall assume it is meant to be.
So Minute wave iv could likely play out as a long, scary contracting triangle this week. This action will allow the VIX to correct back for its own wave 4.
Any move upwards is likely to be met with spades of selling for those who bought on the way down. That is why a flat, or sometimes the longer contracting triangles form. Every further push up is met with more sellers and less buyers. So the pattern plays out until it hits the end and collapses downward. Very easy to spot in a bear (or bull) market. They happen on large scales and small.
I would expect that kind of action this week. So a huge oscillation of the market, perhaps on less volume, will likely play out. Will it break above Friday’s high? It could, but that has not been the pattern for these correctives. They initially achieve their peak on the intial move up and then start to play out in a “flat” pattern.
There is a chance that a significant zig zag could play out and push the market a bit higher on Monday, but that is low probability I would think. Perhaps this minute wave iv becomes a bit more complicated structure than a simple flat, but for now, I think Friday may be the high of this wave iv.
Foolishly I should have sold at the Friday highs but wasn’t thinking objectively. I even half called a near term bottom likely to last a few weeks. That too was a premature call based on nothing but hope. Hope likely cost me a bit of profit. Always pay attention to the charts. So I will likely sell and take what profits I can iduring the pre-market Monday.
I have to play the waves and the odds. And everything points to Friday as being the high for this wave iv. Thats just they way they have been playing out.
VIX has completed its wave 3 up. So it requires a wave 4 small correction period to coincide with the correction period for the $SPX.
So retest of the 2002 lows is indeed in the cards (or the waves). Will it bust through those numbers? It very well could. That would be pyschologically devastating and I don’t think we are yet ready to go there in the wave structures. I would think that comes in early 2009…but we shall play the waves as they come. And right now, the huge daily moves and startling VIX fear readings suggest we should be getting a test of 2002 lows within 5-7 trading days.
I think that is all the market is looking for…support and affirmation that the 2003-2007 runup wasn’t in vain and that we aren’t going to hell in a handbasket. By then the market will have gotton so extremely oversold on every time interval chart you can think of.
The ensuing bounce will be violent.
~ Also, check out DanEric40′s post: Fibonacci, Elliot, & Social Mood
Daneric, are you bearish again? I am not going to sell into a potential day one of a multi week rally because that would just be a waste of the risk I took getting long last week. I urge everyone to read Jesse Livermore’s books. If you have a profit Monday, don’t be in a rush to sell. Don’t be fearfull when you should be hopefull. Worst case is that you sell at break even and wait for the market to put in the true bottom. The goal is to catch the big moves. I know I have missed out on taking some profits before, but that is ok because the purpose of this trade for me is to catch a big rally which is what I was expecting by putting the trade on last week. Now I need to be true to that plan. If you went long expecting a tiny rally by all means sell. If you went long with the hopes of a violent bear market rally then be true to that and wait and see if it plays out.
I can only play the waves. From looking at the past, I think Minor wave (3) has to finish before a huge spike up. Minute wave iii likely ended Friday.
But then again the market is gyrating by 8-10% a day it seems so rally is a releveant term nowadays LOL
I also have other strong evidence that teh true bottom will be placed on the week of the 20th.
Regardless I recommend a full sell on Monday. Corrective waves play out in deep correctives like the Mar – May rally and the July to Aug rally. So sell at Monday highs and buy back low when it retraces deep if you think this is a rally that will take us much higher. That way if we stay bogged down, at least you’ll have one cycle of profit locked in.
I will likely keep my Apple and 1/2 QLD but sell most or even all of my SSO
There is still a lot of beat downs that need finshing. GS is one of them that will help keep the markets low. Its going to get crushed.
I don’t think you can predict the exact week when the market will bottom. I think we really need to watch the strength of whatever rally we get, if we get one. If the volume looks weak or it just doesn’t feel earth shattering strong, then its time to bail. I am worried about the margin levels some of these hedge funds had, like 11%, come on thats just like back in 1929! I do want to point out that most ‘crash’ moves happened near market tops and not during market bottoms. But then again every bear market is unique.