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Sunday, February 14, 2010

Week-end Outlook!!!

Here is a chart that is not the bull friendly variety, the longer term weekly chart. The MACD, which topped at a decade high has now gone into a full sell signal, with confirmation on the Histo-gram's recent negative readings. And check out that Full Stochastic, completed with a bearish divergence before the SPX topped at 1150, and now with lots of room to run to the downside. Bearish, This is my prefered count on the SPX, a 1-2, 1-2 down, and now the SPX is back up in over-bought territory, and is coming up onto trendline resistances on the indicators. All though last weeks rally was longer in term of time then I felt comfortable with, it did accomplish something that was very important for the start of a 3rd wave down to have, over-bought conditions, and all that corrective price movement last week provided consolidation which moved an over-sold market back into an over-bought market.
I also wanted to talk about the channels lines, because many people have commented about the break of the upper channel line. It has been something I have been watching because a break above would be one of the first signs that the down trend was in jeopardy. The channel lines that we have now are only temporary channel lines for a larger degree wave, because a proper channel can not be established until we have a completed 3rd wave, then we can draw a trendline between the 1st wave low, and the 3rd wave low, with a parallel line coming off of the 2nd wave high, building a true channel.

Short-term, bearish, Long-term bullish. Here is the alternative bullish count I have been talking about all week, since we have had only three completed waves down from 1150, and that is a corrective number it is something to keep on the radar. Elliott Wave Principles deals with probabilities, and yes it is possible for this to be a correction. The rally from 1044.50 has been corrective, and not impulsive, so that would make the "X" wave an ideal fit for this count. As long as we keep making lower lows, the trend remains down. But as soon as we start making higher highs the trend will change. As for now, to have the trend change to bullish, we would need to break above 1104.73. And when we do make a lower low below 1044.50, the level for a new bullish trend would then lower down to where the "X" wave tops. Or in the case of my prefered count, where the 2nd wave tops, at around the 1080 level.

Ubber Bearish, The Renko chart is only concerned with price movement and is time independent and was designed as a way to follow the general price trend of an asset. The main reason I like them, is because they cut out a lot of the noise of a standard bar chart. This is the daily chart of the SPX, and is about as bearish as they get showing four Red bricks in a row. The MACD has now crossed, and is falling with negative divergence showing in the histogram that has gone on for the last six months indicating how momentum has been waning. The Histo-gram has also gone negative, with it's second "Red" shoot.
The most interesting thing about this chart is what the MACD was showing back at the sell-off in July, it never budged from it's bullish readings, the July low was hardly a blip on the radar in the Renko version. For the crowd that keeps comparing this current sell-off with the sell-off back in July, they need to pay attention to the differences. This is not the same as the July sell-off, this current one has conviction to it.
The Full Stochastics are now on a full sell, this is also something that never happened back in July.

**** Tomorrow, since the markets are closed in the US, I am planning on posting lots of my Fib fan charts, including some over-sea markets!!!


  1. Michael, the Renko is a powerful tool. Impressive......

  2. Michael great job! Any comments on the McClellan Osc?

  3. Beyond the iii down - is there a larger structure setting up? Like a 3 down - much farther down.
    Sorry but I am not very familiar with EW but I thought I have seen you had posted in the past a larger wave structure down.
    Thank you for your great work.

  4. smokeyeyed, yes, the most bearish outlooked does include the larger degree wave 3 down, but lets not get to far ahead of ourselves, lets get thru this wave iii first. :)

  5. Does the structure you are seeing with the potential wave iii down live within another wave structure that is not as large as the larger wave 3 that I had asked about earlier?
    Again I am sorry but I am just beginning to see things the way others do and I see a lot of huge wave 3 models out there that are very bearish and I have been looking at your work (which has been just fantastic) and am beginning to see the same structure unfolding.
    I have lightened up almost all of my positions and am wanting to just sit this one out if it indeed has the potential to come to past as others have posted.
    Thanks for your time and your great posts.

  6. Columbia... very good weekend post. Especially loved your Renko chart and write up. +1

  7. Michael

    free to hear weekend interview with steve hochberg of EWI -

  8. I think we're done with the opening drops and grinding back up into the close nonsense and due for a good old fashioned short seller's wet dream pop and drop tomorrow. Exhaustion gap anyone?

    Shrove Tuesday. The party's over bulls.