My proprietary weekly breadth indicator gave a negative divergence sell signal as of Thursday 10/1/09. This is only the second time since I started calculating this indicator in July 2006 that it has given a negative divergence sell signal. The last time was just before the July 2007 top. The signal then was about 4 weeks early, but it definitely provided a warning. I think it is warning us again. We may see a new high for the rally, but it will probably be an opportunity to sell.
The traditional McClellan Oscillator in the above chart also gave an interesting signal on Friday. From the September 23 high to the October 2 low, the oscillator has swung from a new high for the rally to a new low for the rally (discounting the initial surge off of the March low). This type of swing can be an indication of the initiation of a new downtrend, as it means the selling pressure is the greatest that it has been since the rally began.
At the moment the rally could be labelled as a 3 wave abc pullback, but that could change next week. Near term, the turn dates are 10/7, 10/9, 10/14, 10/23. I am looking for a bottom on the 10/7 or 10/9 dates and a top either on 10/14 or 10/23. Allow a window of 2 days either way for these dates. Do not trade these dates. Wait for confirmation of a turn.
5 comments:
According to TLaundry's update message yesterday, "envelope theory" stipulates that the mid-Oct correction corrects the ENTIRE March rally - down to the green line - NOT just a half channel correction.
Assuming that the March rally is going to be a full 5 waves up, Elliott Wave would call for just a correction of the move from July - most likely down to the previous 4th wave of lesser degree.
How do we square that circle ?
I agree with TL that the upcoming correction will correct the entire rally from March. The ensuing correction will be wave B of X.
While I may have momentarily succumbed to the emotional forces of greed (I think we were both frothing at the mouth), I came to my senses when I realized that, as has been the case many, many,.. times before, when I see the most bullish outcome, it means that others are seeing it too and greed is running rampant, which means that I need to be doing the opposite of what my emotions are trying to seduce me to do, i.e. I realized that this was not going to resolve into a 3rd of a 3rd.
The most likely wave count is that we are finishing up, if we have not already done so, the last subdivisions of wave c of A.
The second best count is that we are in wave 5 of A ( impulse instead of zigzag ). This would require at least one more high before we roll over.
However, in neither case would the 4th wave of lesser degree apply as the overall pattern, the X wave, will likely be a large ZZ. So wave B of X can correct all or more than all of A (ie expanded flat, wow that would be a great buying opportunity, but won't happen). I don't think it will, probably just 38.2% to 50% worst case. 38.2% would put the Qs right on the 200dema, which is my optimal downside target.
I guess I should really do a chart with a wave count on it, since we have discussed so many possibilties.
If the move from July is w3 and we haven't put in a 5th wave yet, why would we be correcting the entire move from March ?
Every illustration one sees of EW has a proportional correction of the 3rd wave and the 3rd wave only.
The only way i could see us justifying a correction of the entire move would be if the entire March rally was going to be finished after 3 waves. That is the entire March rally was only going to be comprised of 3 waves.
My working hypothesis for the wave count is that wave X will be a double zigzag, meaning that wave A is a zz, 3 waves, wave B can be almost any corrective wave: triangle, flat, expanded flat, zz,etc., and wave C will be a zz. I realize that we (perhaps me to be correct) have gotten sloppy with the nomenclature. I intend to rectify that soon.
To my knowledge any 3 wave rally can be fully retraced. I don't necessarily see that as the likely outcome.
It is possible that we will see a 4th wave in October followed by a 5th wave at year end. The reason I don't like that as an alternate is that it doesn't fit my cycle work, and while my short term analysis with turn dates is not always on target, for the last several years, my cycle analysis at intermediate degree and higher has been spot on. This is due to the fact that I have developed an understanding of the variable periodicity of the cycles and their superpositioning.
I should be able to post a more detailed analysis this weekend.
Hang in there, it will get clear very soon, I believe.
All the best,
Craig
"How do we square that circle ?"
Because "X waves are almost always 3 waves and usually zigzags." That allows us to correct the entire March rally instead of just the move from July.
Do i understand correctly ?
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