Summary

Markets continue to move consistent with our expectation (in itself, that’s inconsistent with recent experience).  So our  primary tasks this evening are just to review the current wave count and see if we can anticipate targets.  One change this evening is that the update is here on the blog instead of a linked PDF document.  If it works well we may make the change permanent.

Markets on Wednesday

After making fresh lows beneath Monday’s pivot high on Wednesday morning, the Dow popped following the release of FOMC comments before settling back down to nearly unchanged.  Breadth slightly negative.  Other broad indices were down slightly.  Volume remained very light. 

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Our preferred count for the move down from Monday’s peak remains the one we presented briefly in Tuesday’s update and Wednesday’s action continues to support this as our primary candidate.   The count is shown on a 15 minute chart in order to observe several technical indicators; if this is a five wave structure then it will probably last through the week, making a 15 minute chart the correct time period to use our technicals to inform our wave counts.  From this persepective, RSI made its lowest low at wave iii of (iii) as we would expect.  Both the Elliott Wave Oscillator and MACD were lower during wave (iii) than durin wave (i).  Wave (ii) saw a flattening of our adaptive channel, but it did not bend up and price did not break above the upper channel.  These are all consistent with classical observations seen in impulse waves.  However, the structure is not perfect.  or candate for wave (ii) looks somewhat unorthodox the the end of c terminating prior to the end of a.  Nevertheless, it doesn’t break any rules of wave formation. 

Drilling down to a a 2 minute chart lets us look at the technicals for wave (iii) as a completed five wave decline and verify that it has all of the attributes mentioned above.  It also shows the Elliott Wave Oscillato retracing between 90% and 140% of its wave iii nadir in wave iv and MACD, EWO, and RSI all made higher lows in wave v.  Being able to identify all of our candidate for wave (iii) as a well formed impulse further supports our view of the entire structure. 

 

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With many of these observations intact from Tuesday, Wednesday’s move to new lows counted out well as v of (iii) and led to an expected retracement for wave (iv) of [i].  We have tentatively assigned this label to Wednesday’s high, but it is tentative.  There is nothing that counts out easily in move off the lows.  However, the movement is very choppy with significant overlap just about anyplace we look; that favors viewing the move as corrective in nature.  However, even if it is corrective, it doesn’t need to be complete. 

We still consider the possibility that Tuesday’s high was wave [a] of a zig-zag correction.  However, if this scenario was playing out we would expect to see the current move down extend downward to complete 5 waves down for (i) of [b].  Nothing yet rules out this possibility even though it would likely lead to a very deeply retracing [b] wave.  The current move down does not appear to be a completed [b] wave because there are no divergences at Wednesday’s lows.  However, we should be on the look out for other possible corrective patterns.  If Wednesday’s low ends three identifiable waves down it could be [b], the first leg of a triangle [b], or a of [b] that unfolds as a flat correction among other possibilities.  Despite these options, for now we’re looking for five waves down.  If that’s what we get, the next task will be to determine whether it begins an motive wave or a corrective one.

Other broad indices look slightly different.  They’ve managed to retrace slightly deeper and have RSI lows nearer the point we’re calling wave (iii).  However, they none show divergences at Wednesday’s low.

Outlook for Thursday

As markets continue to move in line with our expectations, there is little to add to our expectations.  The one item we have to add is that EWO reached its wave (iii) extreme at -125.98 on our 15 minute chart.  Since then, the highest value recorded was 6.02, well within expectations for a wave (iv).  Should the Dow continue to strengthen and pull EWO up beyond a 140% retracement of the low to over 50.4, that would be a signal that some other structure was unfolding.  Should we see that happen, the first thing to look for would be to see if wave structure was consistent with counting Wednesday’s low as [b] of 2.

Despite little more to say about direction, we are in a position to start anticipating targets.  10,190 to 10,140 appears to be a high probability target range for the end of five waves down.  There are several levels of interest here:

  1. 10,189 is 17 127% external retracement of (iv) should it be complete.
  2. 10, 184 is a fireline in our long-term Fibonacci projection — this is one of the most significant levels there is, representing the 1.618 projection of the primary wave [1] that began in 2002.
  3. At 10,140 (v) would be 0.618 x the total distance travelled in waves (i) through (iii) and 1.618 x the length of (iv).

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10,000 is not out of the question.  It’s curious that this would represent 1.618 x the total distance travelled in waves (i) through (iii) and 2.618 x the length of (iv).  However, reaching that level in a wave (v) would be a significant move and would have odd proportions.  A more reasonable way to reach 10,000 would be if five waves down ended in our target region as wave (a) of [b].  From there, a (b) that retraced 61.8% of (a) followed by a (c) = (a) woulde end up at the same 10,000 level.  So if wave 2 is not yet complete, 10,000 is as good a target as any for and end to [c] of 2. 

If, however, the current move down represents the first small waves down in wave 3 then we still would look for a retrace.  Either way, we expect five down to be followed by a subsequent five down after the retrace.  But from there we’ll need to be on our toes to try and discern whether the whole structure is motive or corrective.    That’s likely a discussion for next week, and only if things unfold as we currently expect.

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