How many bearish traders do you know that have covered shorts in the past two days? I’m thinking a lot, which makes it a perfect time for a gap down. We shall see…

Here is the alternate count that has the market in Minor 2  - with a truncated Minute [v] of Minor 1.

This 30-minute XLF chart is showing some negative divergences.

Here’s a look at the TED spread, which is the rate banks are willing to lend to each other. The risk of a credit market freeze up is increasing. How banks are behaving is a great indicator for the health of an economy. One of the worst measures is consumer confidence, unless you’re using it as a contrarian indicator. Looks like its in a 3rd of a 3rd wave, doesn’t it?

Gold looks Bearish on the Monthly, Weekly, and now Daily timeframes. Check out all the negative divergences on this daily chart. I can see Gold falling down towards 1080 very quickly.

Leading Diagonal count still looks good. Market did not make a new low so a new low in a c-wave is required. The alternate count is very bearish. It has the market setting up for a 3rd of a 3rd wave lower. In case this count plays out, I want to build a 30% position short the SPY (ETFs or Jun/July Puts). I’ll accumulate as the market retraces into the target box. If the primary count plays out, I’ll look to sell somewhere near the middle of Minuette (c) down. If the Alternate count plays out, I’ll add aggressively on the way down up to a 100% position.

Keep in mind that Elliot Wave  rules require only that  Y moves above the price high of W for a valid double zig-zag. The minimum requirement is 1103.50 on the SPX.

As always, the perfect shorting opportunity will be elusive for most traders, not unlike a pitcher throwing a perfect game.

Elusive Perfect Game

I don’t need to be perfect to make money, but I need to be in the trade. I’m already exposed short and will add on strength or significant weakness.

I have about a 30% position in SPY front and near-month put options (100% is a full position)

No need to make my own chart when DanEric does such a nice job for us!  I’m on board with this count. The X wave triangle solves lots of problems.

FASB may say yes to Congress tomorrow (April 2) and help banks “boost” their profits by 20% out of thin air.

Stock bulls got the memo and are partying like there is no tomorrow.  Either credit markets didn’t get that memo or it has been completely ignored. If you look at the spike in  CMBX indices in the last one week as a proxy for pricing banks’ toxic assets, you may conclude that bond market is dissing this idea already.

To quote the bond expert, John Jansen, “it is Lipstick on a Pig” (emphasis mine):

FASB will attempt to do that later in the week when they crumble in front of the pressure to change the rules on mark to market accounting. I believe they meet on April 2 to resolve the issue.

The market is not the issue nor should it be. The market exposed this junk before regulators and rules makers. To change the rules is to obscure the problem and delay a solution.

My dear honorable members of the Congress, may your arrogance, sheer ignorance and utter stupidity be met with the right reaction from the market where stock prices are marked to their true market value!

Yes, it is good to be back. Sorry if I disappointed some of you.

1 year fib:

The 1 year fib has a trend line that will be meeting at the 795 area soon. Also the fibs line up very nicely with the current movement down towards an eventual 600 bottom from that 795 peak.

6 month fib:

If we try our best to count this as a 5 wave up on the 3 wave of the 4 of 5 wave, then we get the numbers in the pink box. This points more towards:

666-758

758-702

702-795

10day fib:

this leads me to believe there are a number of areas that will hit short term while heading lower to 702, but an important thing to note is that this 771 area looks like it’ll hit no matter what, so we’ll either head higher now, or hit that 771 point in the very near future. So if we head lower to 702 from here, that is a GOOD sign to know that the 4 of 5 is not over. This also makes me wonder if a correction is at hand in the next day or two to throw some people off.

WFC and BAC:

BAC and WFC both have room left run upwards. I think we’ll at least hit that 50ma mark, and possibly go above it if we’re headed to 795. Need to watch the banks carefully to see where we could head. Until we hit that 50ma, which is also sitting near fibs, I don’t think the run up will be over.

Conclusion:

I say we head lower at the open on Monday. We MAY see a correction, but I think we’ll see 732 minimum first, then 713, then 702. From there we’ll see 795, which may be just as fierce as the 1 wave up has been. If we head higher, I’m just going to load up more on puts, because the fall is going to happen with 771 being the absolute highest we can go.

April or May SPY puts are a good idea here, there isn’t much up room short term and the downside is a lot larger.

It looks as though today’s bullish candle was the start of wave iv of 5. However, this requires follow through tomorrow. As I pointed out in the Intraday Commentary, downtrend resistance is yet to be broken. We could still be in iii of 5.

Here’s a weekly chart with my Elliot Wave count. The a-b-c correction is not drawn to scale. I am merely identifying the structure that should play out.

Primary Count: Subwave [v] of 3 of (5) continues to advance downward to capitulation low.

A (close) alternate: Wave 3 of (5) bottomed today at 677.93

I’m still bearish for a few reasons:

1. VIX is still lower than the wave 1 of (5) VIX reading of 57. I expect the FEAR on the bottoms of wave 3’s of this size. So far, complacency still rules. One reason is because the markets have OBEYED a  neat, concise, trendline for almost a month.  A break of that trendline would likely finally induce the proper amount of fear and panic selling-type capitulation bottom.

2. CPC is not yet where I expect it to be.  Is getting there, but along with the VIX, it needs some more movement to put-heavy in my estimation.

3. The intraday wave pattern looks goofy if that is the “end”. It has a valid count and structure, but it looks like it wants to “fool” us into thinking its all over.

4. If that was the “bottom” of wave 3 of (5) I expected a violent rally. So far futures are very tame indeed.

5. VIX closed over 50 and its ascending triangle and DMA’s look on target to break above 53 and then 57.

The perfect way to end this wave 3 of (5) is a plunge and VIX spike to 60+ ( I have 65 as an ascending triangle target for VIX). The panic bottom could trace out quite surprisingly low.

Bull’s case: There is positive divergence on all charts for the past week. I show 3 charts. 

1 chart shows the primary scenario (plunge) and the second shows today as the low. The 3rd chart shows the month long trendline, that if broke, would surely panic even traders….

Primary Count: SPX has finished tracing out subwave (iv) of [v] of 3 of (5).   It should now work down toward a capitulation bottom for Minor wave 3 of (5). Rough target is now 679 SPX plus or minus…

Alternate Count: SPX is tracing out the beginning stages of a wave 4 of (5). That would imply that 692 was the low for wave 3 of (5).

It was a weird 2 days. Last night A/H’s the e-minis sold off to 681.5 thereby giving credence to a plunge and capitulation today as I suggested in yesterday’s update. However things never work that simple and stocks were too oversold and there was too much bearishness for it to materialize today.  And as I noted on my 1 chart last night, there is a chance wave (iv) of [v] of 3 of (5) still needed to retrace a bit. That was indeed the case today.

Also pink wave (iv) hadn’t met any kind of normal retrace Fib targets such as 38%. It pretty much met that today.

Everything is pointing to a plunge tomorrow on Thursday. Things are better aligned at this stage then they were yesterday so chances are much higher that a sub 700 move is coming. Here is the evidence:

1. E-mini Futures are now aligned to drop.  Take a look at the MACD and Stochs on any 10,15,30 or even the hourly chart and they are now again “high” enough to all0w a considerable selloff to occur.

2. The VIX is aligned for a move higher. a)  Hammer daily candle. b) clear ascending triangle formation on both candles and RSI and it hit “e”.  c) 5,10,20,50,200 DMAs are now properly stacked including now the 5 DMA. Its ready to move over 53.

3. CPC is moving toward where I have it targeted for wave 3 of (5). Although the day was bullish, for most of the day, the CPC was put heavy until the end of today. I expect this trend to continue tomorrow, particularly as the end of day selloff was severe.

4. SPX Inverted H&S target was met.

5. SPX Ascending triangle was met.

6. Rising wedge in the SPX.  Very rough overlapping waves. Sound familiar?

7. Wave (iv) of [v] has now retraced sufficiently in time and Fibonacci percentage.

8. Market left a 2 point gap at today’s open. Didn’t even try to close.  I realize there are gaps higher, but what gap gets closed first? Teh hard to reach one(s) higher or  the easy selloff in brutal bear market?

The wave structure is not too complicated looking.  My chart *looks* correct.  So as long as pink wave (iv) of [v] of 3 of (5) has peaked at 709.93, then the bottom of wave 3 of (5) should be upon us perhaps tomorrow in a final capitulation-type plunge and selloff.   I look for a VIX reading of above 57 for confirmation.

Everything is lined up for a 668 wave 3 of (5) bottom.  That would be a 1.5 Fibonnaci expansion ratio for Minor (blue) wave 3 of Intermediate wave (5).

If this indeed plays out tomorrow (capitulation) look for a violent rally to the upside.    Wave 4 of (5) may eventually within a week or so retrace as high as 775 SPX to shake out the bearishness.  I look for at least a gap fill at 753.