5 Waves technically completed but..

I have the market technically showing 5 waves completed from the 1560 low and the targets I had for this wave which were the 50 DMA, 1623-26 and the gap have all been met. In addition, the 5th wave from the W4 low of 1601 to the W5 high of 1626 is 25 points, which nearly identical to W1 which came in at 26 points. Now the problem with this completed count was the pre-market action, specifically the move Sunday night when futures moved to lower low on what would have counted as a C wave to the equivalent of 1597, the move I was expecting on my Friday post. So if I take into consideration the completion of the C wave at 1597, the top today is just W1 of W5 and not W3 which is how the cash market reads.  And since there is no rule written for this, I am going to log this and future instances of these cash vs pre-market counts and see what is normally the outcome as placing a trade under these conditions is a toss up. I found it unusual that the 1625-30 gap was not closed completely so I suspect the market might try again one more time.

I did not place any trades as the count is not all that clear but I will be looking again at support and resistance levels for higher reward/lower risk trades. Also, the market has closed again over the TA and more upside (specially above the 50 DMA) will turn the short term trend bullish. Last but not least, I'll make a note to remember the Russell Reconstitution next year as it is a good spot to short right into the close as the market gets flooded with shares.

Main S&P 500 Trends*

Short Term Trend = Bearish Leaning Neutral

Medium Term Trend = Neutral Leaning Bearish

Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Market Update

The market put in the W4 I was hoping for today, just too bad it had me confused with the triangle yesterday. And technically speaking, that triangle was actually the W4 for the W3 with W5 coming in pre-market. So the the initial drop today could be labeled as the A of this W4, B at 1616 and presumably the C ending near or just at the 1597 resistance. The alternative to the W4 is obviously a completed ABC from 1560 with intense selling to come on Monday but I lean towards the completion of the 5 wave structure before a bigger bearish wave. Also, if anyone is wondering why the index closed down so hard in the last few minutes it is mainly because of the annual Russell Reconstitution at the end of the day and perhaps end of the quarter activity. Which in turn might trip orders Monday morning that will allow the market to go to the 1597 area and finalize the W4?

After completing its ranking of stocks above, beginning on June 14^th, Russell publishes a preliminary list of the additions and deletions to each index.  Updates to these lists of additions and deletions will be made on June 21^st, with the final list of changes published on June 28^th.  Between May 31^st and June 28^th, indexers will begin to adjust the positions in their portfolios based on expectations for the reconstituted index.  The trading volume driven by these changes will be spread out over several weeks, but we can expect a significant concentration of volume on June 28^th, especially going into the close.

http://exchanges.nyx.com/parasnand-madho/2013-russell-reconstitution-what-you-need-know

I didn't enter any positions today as I rather wait for a higher probability set up plus I'm already long enough. I think there is a good chance July will be a turn around month, we'll find out soon..

Have a Great Weekend!

Main S&P 500 Trends*

Short Term Trend = Bearish Leaning Neutral

Medium Term Trend = Neutral Leaning Bearish

Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Gap to be challenged?

The market made it to the 50 DMA today as I had been speculating before quickly reversing. But the reversal came in form of a triangle so the most likely move now would be for the market to close the gap from last week in the 1625-1630 area. If we assume the triangle today was a completed W4, then the target will be 1638 assuming W1=W5. I was assuming we would get a deeper retracement for W4 but that's not what the market wanted to do. In fact, there is also a possibility that this triangle is just part of the W3, so this wave might get tricky for people who want to short it. Obviously, should the market sell off from here then it will mean this was just an ABC but usually C waves don't top and then move on to a triangle, they reverse quickly.

I set my automated trade trigger today at 1617 and went short with SDS but ended up closing the position near the end of the day when the triangle started to look likely. So made just enough for a few cups of joe but I will be looking for the gap or perhaps a strong close tomorrow to buy back shorts.

Main S&P 500 Trends*

Short Term Trend = Bearish Leaning Neutral

Medium Term Trend = Neutral Leaning Bearish

Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Going for 1623-26?

The bulls finally showed up today and now I have something to work with. The wave today looked like a W3 of a bullish count which easily broke the previous 1597 resistance level and now it is in the original target range I first posted couple of days ago. So assuming this is a standard 5 wave count the structure should challenge the 1623-26 level  before going into another bearish wave. However, should this wave fall short of that target by being stopped before 1614 then there's a good possibility we are looking at an ABC structure. The market has now officially corrected almost one month and a half and my guess is that we are getting closer to the end of the correction. We are still getting mixed economic reports, with the latest GDP number coming in below expectations and that will put aside the main excuse for the correction which was the end of QE. But if you guys remember, there was no excuse the day the market topped and reversed hard at 1687(other than the fact the 5th wave had ended). The end of QE became headlines after the fact, so this market will make a sudden turn to the bullish side and then the financial media will give us good reasons why the market is rallying but in the end we know it's because there was a 5th wave left :)

I was tempted to short near the high today but I figure the market is likely to challenge 1614 so I'll probably load up on some shorts there just in case this is an ABC. At the same time I'd be surprised if the market makes it to 1614 and doesn't challenge the 50 day ma and attempts to close the gap in the 1620's area. So I guess I'll get up early for a change and micro count whatever is coming.

Main S&P 500 Trends*

Short Term Trend = Bearish

Medium Term Trend = Neutral Leaning Bearish

Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Weak counter rally so far

The market rallied to the 1590's area today but the wave looks weak so it might not even get to the level I mentioned yesterday. The counter rally doesn't look like a 5 wave count and so far it is looking like a zig zag but I rather put labels once it once we see how the coming bearish wave evolves. To be safe I took profit on the SSO I bought yesterday and I'm waiting to see what the market does in the next couple of sessions. I will short it if it gets up to the 1597 or 1614 area or go long at support again (1577, 1560). The intermediate trend is probably going to turn red by the end of this week if we don't see a rally past 1614 so it is just another reminder that one has to set tight stops with long positions. If you are trading short term that is.

Main S&P 500 Trends*

Short Term Trend = Bearish

Medium Term Trend = Neutral Leaning Bearish

Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Market Update

The market chose to put in one more bearish wave and with it another lower low so now I have the structure finished at 1560 (as a stand alone W3) and I am expecting a bounce to the 1597-1614 (the 50 DMA ideally) area before possibly seeing another leg down for another low. The combination of stimulus tapering and the artificial credit crunch has negatively affected sentiment and my guess it will take a few more weeks of this before the market finds a bottom. My position in China is officially underwater but I'll just be patient and wait it out, in the end it will all pass eventually.

Also, the intermediate might turn negative if the market does not recover strongly from here so that will be something to watch for. I bought some SSO today and position traded FXI.

Main S&P 500 Trends*

Short Term Trend = Bearish

Medium Term Trend = Neutral Leaning Bearish

Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Market Update

Not really much to add today as the market has the same count as yesterday despite a lower low at 1577. The market seems to have started its counter rally so we'll see how the market deals with resistance as it goes up. Should the market put in one more bearish wave then it will just mean the bounce today was a W4 but at this point I favor a rally. Also, as regulars on this blog are aware, I only follow counts that have the highest probabilities in materializing based on the trends I track as many of us are trading these waves. So I wanted to address the most bearish count out there, which is the one by Elliott Wave International. First, I'll admit that anything can happen in the stock market as nobody really knows the future. With that said, the long term bearish bias by EWI is based on some deflation scenario that Prechter (Psychologist by training and NOT an economist) came up with in order to justify his DOW 400 target which is 50% less than the DOW's annual earnings and less than 1/10th of the DOWs book value (Why would you sell your belongings, your house, your car, etc. at a 90% discount?). Which economically speaking, it is a delusional target as the lowest book value ever recorded on the DOW was 1.7. Secondly, the Feds will not let that happen in this lifetime, this is why we have all those QEs in the first place. But many traditional EW folks follow the EWI scenario and keep on betting on some market crash that is very unlikely to happen anytime soon. So I am going to take a guess on this one and say that bearish count they have with a W1 that looks like a zig zag and the supposedly W3 currently taking place will end up like every single major bearish nested 1-2 count they have posted since August 2009 (which have been so many I've lost track already). And once we see new highs, they will move the bearish count one notch up and tell people to keep shorting. This crazy type of advice has led many people over the last 4 years to lose a fortune and this is the reason I've pulled all their ads off my site. So yes there is a probability the market is going further down but chances are pretty close to 0% on the DOW reaching 400 by 2016 as predicted by Prechter.

Here is a link for a good laugh:

June 2010

"The topping process is over for the countertrend rally that started in the first quarter of 2009. The next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 sell-off. ... Gold poked to a new high, but in doing so, likely completed a pattern in mid-May that will lead to a multi-month selloff. ... The U.S. dollar index DXY +0.82% is fulfilling EWFF's forecast for a strong advance."

All of which fits right into Prechter's repeated predictions of a massive coming deflation."

http://www.marketwatch.com/story/elliot-wave-predicts-triple-digit-dow-2010-06-17

If I had a penny for every dollar that was lost on that call, I would probably have millions.

Also, I appreciate the comments on the FXI. Some have been right in pointing out there is a potential Head and Shoulders on this ETF. But the issue is FXI is made of Chinese stocks from the SSEC and the SSEC is technically finishing its C wave of a W2, so the H&S on the FXI is not reflected on the SSEC at all. In fact, there is an Inverse H&S on there. I forgot to add that if we applied the current PE for SSEC to the S&P500, we would get 730 and 740 using book value. And since I missed my chance to more than double my capital from the 2009 lows on the SP500, this time I am going to be patient and stick to my call. Had I known then in 2009 what I know now, I would be more than retired.. but as I said yesterday, you live and learn.

Have a great weekend!

Main S&P 500 Trends*

Short Term Trend = Bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.