Elliot Wave Update

This post by Daneric40 has been promoted from StockTock Social. As always, we appreicate Dan for taking the time to share his analysis.

Primary Count:
Markets are consolidating for an eventual push above near term resistance areas in each index. A 5 wave move up would complete a giant double zig zag pattern

Secondary Count:
Markets are consolidating for a move DOWN to the lower end of the trading range (maybe 820). Markets may not have enough bullishness left to get over key resistance areas.

Commentary:
Yeah I know! I kinda called both sides! But for now I have to give the benefit of the doubt to the bulls. The fact is that there are a lot of indicators and indices and they are a bit in conflict at the moment. Some are bullish some are bearish.

The positive:
For instance the VIX dropped nicely at the open today. Also the CBOE put/call ratio has curled back upwards last couple of days instead of further drops. Up/Down volume favors the bulls lately. End of year window dressing and “January Effect” is likely postponing massive selloffs. NASDAQ wants to run and play!

The negative:
The fundamentals are just extremely bearish and constantly getting worse. There is just nothing to hang your hat on if your a bull. Well maybe cheap gas but oil is now holding steady. Commodity rally? Umm, ok sure. Market has been there, done that, the commodity rallies are more like corrections anyway. Plenty of commodity bulls got their hands cut off trying to catch the falling knife since summer. The pain still lingers.

No one wants to be the bagholder in this market. Now that its been a few weeks since the trip below 800 SPX, the bull party is wearing off a bit. The next slog upwards is proving to be more of a chore. Perhaps some bulls are slowly throwing in the towel and cashing back out early for the new year. We should know by the end of this week I suspect.

The real problem is there are so many unknowns still. The fact that the government has promised to play “Atlas” and catch the falling 200 ton ceiling will start to dawn on “investors” that maybe in the long run that is not very bullish at all for America nor the markets….It will dawn on them that they CANNOT catch a falling roof after all. There are still a lot of people that are going to get squished.

Credit markets are still broken and contracting. Spreads are wide. The flight to treasuries is not reassuring or is the FED buying them by the boatload to finance the bailouts? IS all that bailout money given to the banks who in turn buy treasuries and hold them on their balance sheets thereby keeping interest rates low? Of course everything has unintended consequences and what they will prove to be will no doubt be known soon.

Wave Commentary:

So lets get back to the waves. Clearly corrective. Clear triangle action going on and all three indices show something different.

NASDAQ:
This index is the healthiest looking of the waves and actually peaked when the SPX was forming doubletops. Its like a frisky puppy wanting to go out and run around the yard a while. Problem is the “older siblings” (DJIA and SPX) don’t feel like playing just yet. The NASDAQ looks like a bullish contracting triangle. The investor sentiment is good for this index and is one reason I favor further market upside. It has maintained above its massive gap area just once coming down and touching it yesterday. End of year is coming very much into play here.

SPX:
Formed a doubletop and is tracing a bear market type barrier triangle. By all rights that is usually a bearish wave but the SPX has maintained 885 on several dips above the 776 – 882 gap. In fact I believe that doubletop was the result of a “truncated 5th” since the other 2 indices made new highs at that time. That also is bearish. Financials have had one hellava run and were a bit weak today. However the index has held up and perhaps has one more 50 point move up left in the tank.

DJIA:
Peaked over 9000 and has been in retreat since. The poor DOW provided leadership all those weeks thru the bad selloffs and now appears to be exhausted. It is forming a descending barrier triangle and has retraced the move up further than any index almost 40%. Its almost like the bulls said lets get her up to 9000 one more time and call it a day….

Perhaps some rotation is going into effect here. I am not an expert in that area, but monies are no doubt shifting around shoring up what little winners anyone came claim for the year.
Outlook:
I read all these analysis saying if it breaks resistance here or there it can run all the way to 1000.

Hmm. I say bunk on that. Waves point the way. A double zig zag is a double zig zag and the top half of the zig zags don’t have the power to run as hot as the first half. So maybe 50-62 point move for the SPX if it has it in it. But its gonna take a LOT of ignoring of bad news and ignoring a LOT of still largely unknowns….CDS stories have been quiet lately yes? Their turn back in the spotlight is due….

Either way the triangle patterns are almost played out to the end and we will know surely tomorrow. They could break down filling Monday’s gaps (which I still favor before a bull move up happening first) and then reverse.

Either way, I added another small short postion today and will hold through any turbulence upwards.

Here is another one I hear a lot lately, “Market wants to go up!” Yeah ok. Sure, It already has quite a bit! maybe it is actually ready to go back down to the lower trading range.

One more Marketwatch headline of “INVESTORS BULLISH ON AUTO BAILOUT HOPES” and I personally will go on margin just to do my part as a permabear to crush this market just because I hate that headline….