Clarification - Finally

As we approach the end of intermediate wave (4) of primary wave 1 down, the picture is becoming increasingly clear. The action of the last 4 days has completed a small symmetrical triangle that is clearly evident on the intraday charts. For starters this means that the trend is clearly down, which agrees with our trend following systems. The reason is that a triangle always precedes the last wave of a movement. If the market goes up tomorrow, then the small triangle is part of an upward abc correction to be followed by another decline. If it goes down tomorrow, then the small triangle is wave b of D of the wave (4) triangle or wave b of C of an ending diagonal triangle. At this point, the most probable outcome is a bearish descending triangle is nearing completion with wave c of D down to come over the next few days. Once complete, we will see wave E up, which may last as long as 5 days. The current Gann turn dates that appear to be in play are January 31 and February 6. January 31+- should mark the end of wave D and February 6+- should mark the end of wave E.

If the November lows are taken out on the next decline, then we are in wave c of 3 of an ending diagonal triangle with waves 4 up and 5 down to go.

The least likely, yet possible scenario, if the market goes up tomorrow is that we will be going down in wave 3 of (5).

Interestingly, back in November and December I commented on the lack of equality in time between waves (2) and (4). The triangle pattern makes waves almost equal with wave (2) at 57 days and wave (4) around 70 days (by 2/6/09) for the Qs.

Traders should continue to look for the short side until there is resolution. While I continued to look for a breakout in January that never came, the trend models are short now and should stay that way for some time.

The above elliott wave analysis helps give a context for the market action and what we might expect, but the important point is to realize that the trend models brought us to a confirming conclusion without knowledge of the pattern. There are many different elliott wave patterns, and sometimes, the patterns are clear enough to trade, but knowledge of the pattern is not necessary for successful trading.

I am now and will remain 50% short during the completion of wave D down. I will exit short on approach to the November lows, and look for a new entry point on the next rally with an initial position of 50% short. As (and if) price rolls over after wave E up, I will be 100% short.

The triangle pattern projects a low in late February or early March with the Qs retesting the 2002 lows at or below 19.72. Wave E should retrace back up to today's highs or slightly higher offering traders with a chance for another 30% gain in wave 5 down.