Technically speaking, today's trade could have been considerably more positive than it ended up being. The setup depicted in yesterday's S&P 500 chart at 5-minute intervals was well-suited for a strong move higher.
Not that today's more subdued outcome motivates in any way what follows. Rather the element of doubt about prospects over the coming week makes this a suitable moment for presenting a view toward developments since late-June 2010 bottom unlike any yet detailed here...
I imagine there are readers well-versed in the Elliott Wave Principle who have taken to disagreeing with the wave count previously presented here, where wave 4 of (c) was assumed to have begun at the market's early-November 2010 peak. Here, then, is an alternate view you might like better.
Quickly reviewing why I had preferred the former view, the first point of reference was my assumption going into February 2011 peak that, a "rising wedge" — a "special" Elliott wave form always appearing in the final wave within an unfolding sequence — had formed off late-June 2010 bottom to complete wave (c) of an a-b-c corrective wave up from March '09. Since every component wave within a "rising wedge" (a.k.a. "diagonal triangle") subdivides into threes — one of the features making this wave form "special" — it was easy enough to maintain this 3-wave view toward the market's advance from late-November 2010 through mid-February 2011 once the market's further advance in April killed the prospect of a "rising wedge." Forced by circumstance to assume a contracting triangle (with an upward bias) instead might be forming in wave 4 of (c) position, it was easy enough to continue viewing the market's advance from late-November 2010 through mid-February 2011 as forming wave b of 4 (rather than wave 5 of (c), as was the case when a "rising wedge" was thought forming), given that component waves forming corrective triangles likewise subdivide into threes.
Then, there was the matter of underlying internals accompanying the market's advance from late-November 2010 through mid-February 2011. This I discussed in "Assorted Nuts and the Nuts We Need" on June 8th, detailing the conspicuous performance of the NYSE Advance-Decline differential during that period. Evidence that, "something is not right" was displayed in a manner fitting a "b" wave (in this case wave b of 4).
Not to abandon this former view, but the above, alternate Elliott wave count might be thought possessing more of "the right look," as detailed in the Elliott Wave Principle. Per necessity to view the late-November 2010 through mid-February 2011 advance as subdividing into five waves (such as the above view requires), rather than three, the Elliott Wave Principle also duly notes that any 5-wave sequence can be misinterpreted as a 3-wave sequence, and so cautions the practitioner on this account.
As for other, prospective, alternate wave counts detailing the market's advance off late-June 2010 bottom, there is one thing I will say here with unbending conviction: the market's advance from late-November 2010 through mid-February 2011 was not wave iii of 3 of (c). A "third wave of a third wave of a third wave" would not be accompanied by undeniably pathetic NYSE Advance-Decline differential readings, such as we saw during the market's move higher during this period. No way! Labeling this advance, instead, wave v of 3 of (c) is as generous as I am willing to be here.
Now, as I said, today's trade — more subdued than thought likely — is not the motivation behind presenting the above, alternate Elliott wave count. Rather, this distinction rests with momentum (bottom panel) accompanying the market's recent advance (following June 23rd "capitulation"). Suffice it to say that, such a sharply positive turn in the market's momentum following many months where, the market's momentum was materially weakening simply does not pass the smell test. Today's less-then-stellar outcome, given a fairly promising technical setup (as presented at the conclusion of yesterday's ode to the cows), only further encourages consideration of this alternate Elliott wave view.
One point of similarity in formation of fourth waves since late-June 2010 bottom, however, finds precedent to the market's recent, unusual momentum surge. Check out the market's early-November 2010 burst higher during formation of wave iv of 3 of (c). Momentum had been flat-lining for about a month prior to that burst. Following this, the market gave back all of its gains made during that burst higher, and then some, to complete wave iv of 3.
So, maybe something along these lines is unfolding presently in formation of wave 4 of (c). Thus, any weakness to develop over the next week or so might best be viewed in the context of developments last November when wave iv of 3 was completing.
One other contrast I would make with last November regards momentum's absolute position, as well as its relative behavior. There are considerable differences on both accounts, now versus then. Indications of increasing underlying weakness presently abound. Thus, substantiated is both the likelihood that, completion of wave (c) up from March '09 is approaching, as well as probability that, wave 5 of (c) will not advance nearly as decisively as did wave v of 3 of (c).
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