Before The Bell

Here's an updated chart showing the subdivisions of the emini S&P futures at the 60 minute chart level. I'm still looking for an down up sequence that supports my blog post from last night. If you missed the call, read it here.

One additional thought in the way of an alternate count. It's possible to make a compelling case that the corrective structure is a flat. Notice the yellow highlighted area indicated that the decline from 1206.25 was an 80% retracement of the previous swing. An 80% retracement is a common retracement level for a flat. Knowing this, it's possible that yesterdays high met the minimum requirements to complete the flat correction. However, just because I could count from 1166.25 doesn't mean that w.iv circle is complete. We need to see confirming price action. Breaks of 1192 , in five waves could be the first clue that a flat correction had unfolded rather than the double zig-zag (W-X-Y).

Let's see what plays out.

Best of Trading

The Market Pulse

Picking up from where we left off last Wednesday, the above chart shows that I was looking for w.v circle where w.(i) had completed. Today's close above the origin of w.(i) or 1206.75 negates any interpretation of a fifth wave and my interpretation is invalid. 

Tonight we'll explore an alternate count.

W.iv circle appears to be unfolding as a W-X-Y, double zig-zag. Several Fibonacci levels ( 1120, 1228, 46-49 ) are the levels I'll be watching for failures and the termination of w.iv circle. Notice that price remains within the corrective price channel suggestion that this rally is corrective and not an impulsive move. On a closing basis, a break above the upper boundary would cause concern for this view.

Helicopter Ben's Meddling Stops The Bleeding

The rally from 1097.5 has the distinct look of Bernanke meddling. Did the market anticipate that he would leave the door open to further stimulus and then rally even more upon the FED's statement? Did the FED talk a good game and place a floor right under the market for a second time? I'll let the market provide that answer.

Even though the bulls are getting a bit brave with the Bernanke Put by their side, I see nothing to indicate that a new impulsive wave has begun. The 2007-2011 analogy that I've been following suggests that today's move, albeit slightly different, at the daily chart level (see charts below), in 2007 still suggests that a final round of selling will occur and draw prices below 1097.5.

The highlighted section shows that a new recovery high did not occur before completing another sequence of selling whereas.....

.... today's rally made a new high adding uncertainty to the overall minor degree interpretation.

 

While the daily and intraday chart levels deviates from the analogy, the monthly chart level that was show in my Global Gains video clearly shows that the larger degree is still very much intact and the rally was called for off the lows.  According to the analogy, the rally ends by months end.

Let's see what happens in the next two trading days.

Best of Trading

The Market Pulse

Tonight's blog post will be brief as the price action that transpired today didn't bring further clarity to  the overall wave count.  The fact that the market has moved sideways further muddles the wave count.

I have looked at the structure from the 1097 low for over two hours and I can count it a number of ways. All counts leave me with a degree of uncertainty. So while I have published what I would like to see happen, we must be open for other possibilities until the count becomes clear.

Trading Tip: If you can't identify a pattern within 1 minute or less - forget about trading it. Move onto the next market.

What remains clear is our bull/bear lines in the sand. They are:

Bullish : above 1152.25.... possible resumption of bull trend.

Bearish : below 1170... resumes trend down in a possible fifth wave.

Disinterested : in between 1170-1152.25 with a possible top btw 1225-30 for aggressive traders to look for failures.

So for tonight, we'll take a pass and wait to see what happens in tomorrow trade. There's nothing else to do but step aside and wait. Should I see an identifiable pattern develop, I'll discuss it immediately.

Until then...

Best of Trading

The Market Pulse

The market appears to have hit a bottom today at 1230.25 which was just points above the .382  retracement (1229.25) of the swing between May 2011 high of 1367.25 and the July 2010 low of 1006. Notice that prices are retesting the neckline of the Head and Shoulder pattern.

From a 20 min perspective, I've identified the low as w.iii circle, implying that I'm looking for w.iv to the upside, followed by a fully retracement. However, it's often difficult early on when deciding with absolute certainty which wave is the extended wave. Final reconciliation of the count will be influenced by the depth of the retracement from the 1230.25 low.

Most recent price action has been identified as a double zig-zag that should push higher to 1271-73 range with 1273 representing a .382 retracement of w.iii circle. There is also resistance at 1262 that could cap the rally but I believe the higher probability exists where w.y =w.w at 1271.75.

Tomorrow is the Jobless Claims and Friday is Non Farm Payrolls. I'm sure everyone will be looking for further evidence that the economy is on weaker footing. It will be interesting to see the extent of the bullish resolve to push this market higher in the face of strong headwinds.

Best of Trading

The Market Pulse

Announcement:

I neglected to inform readers in Monday's post that the ending diagonal interpretation was eliminated due to the fact that to many rules and guidelines were violated as the pattern progressed.

Tonight's post will be short as much of the larger wave pattern remains unresolved. Sticking with the near term wave structure, we have six completed waves if w.(b) ? has ended. That leaves one more decline to complete a double zig-zag that began at 1367.25. My target for the termination of the structure remains where w.z = w.w at 1294.25. Only a loss of 1324.5 would cause concern.

Best of Trading

 

Heard On The Street

Announcement:

This weeks edition of Heard On The Street will not include a video as I had to travel over the weekend.


Identifying, the wave pattern in the $ES_F remains challenging and the market refuses to show it's had. Until it does, all we can do is focus on one wave at a time until enough data enables the wave structure to be clearly identified.

As of the close, my best interpretation remains an expanding diagonal. If you have been reading my posts you know that the pattern has flaws. See last Wednesday's blog post for details. As of the close of Friday's trade, the weekly chart level shows the current wave labeling. Notice this week's price bar , called a "spinning top" to candlestick traders. The small real body shows that neither the bulls or bears were able to gain control. The implication is that a spinning top immediately proceeds trend losing momentum.  If this was the case we would expect a move up for the early part of next week.

The above chart shows the bullish expectations, given the spinning top at the weekly chart level. However, when I look at Friday's session, I see weakness as price closed near the lows of the session. Add your favorite momentum indicator and you will see trending momentum to the downside that contradicts the weekly implications of the spinning top. RSI is currently 44.66 and hasn't broken the 40 level which would imply that a larger decline was unfolding.  Also note that the decline from w.iii circle has been contained within a corrective price channel; is choppy and that four waves have been completed within it. The structure SHOULD be viewed as corrective.

Ok, corrections can't end in four waves so here's what I think will unfold under a near term bearish scenario. I've only labeled the waves from w.4 red low but I want you to focus only on what unfolds from 1367.25 high. If a double zig-zag unfolds as I have indicated, then I'm looking for w.(a) of w.z to terminate near 1318.25- 1317.75 for tomorrow's trade that will be followed by w.(b) up and a final round of selling to where w.z = w.w at 1294.25. Note nearby structural support of 1290.25 and the .618 retracement of 1290.50 are nearby.

In conclusion, I've given a bulls and bearish view. What should be exciting to you if you are a bull is that we know that eventually the market will make a new recovery high under either view. Only a loss of 1290.50 would imply that a more significant decline was underway and that a more aggressive bearish posture would be adopted.

I hope you found this information helpful and best of trading.