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Leo
Tuesday, April 21, 2009
TOO FAR TOO FAST
The bottom line is that a Primary degree wave [2] rally remains underway from the early March low (see chart 1). The near-term wave structure has arrived at a juncture that allows for a sharp decline, if certain conditions are met.
CHART 1
In the last 3 weeks I've recommended 2 trades, but the market's inability to pullback to "the buy zone" has left us waiting with our orders in place. These trades were put in with the minimum expectation for a retracement.
Let me explain; when the market moves up/down in a 5 wave structure, I expect a minimum retracement/rally of Fibonacci 0.382 in time or price. That means that if the market rises 100 points in price or 100 bars in time, I expect the market to bottom after retracing a minimum of 38 points in price regardless of time or to bottom after a minimum of 38 bars have lapsed regardless of price.
This market has not done that, It has failed to do it on two occasions.
The question we must ask ourselves is. Is the market that strong that it's not willing to pullback the minimum Fibonacci 0.382 in price or time? or. Is there something else brewing?
I believe there is a high probability that "something else is brewing". So, I decided to write this to alert you to it.
I'm going to present 2 charts to prove my point. The first chart (chart 2) I'm going to introduce is a chart that shows the basics of a trend.
In a bullish trend what you want to see is higher highs (HH) and higher lows (HL). When one of the higher lows is penetrated that alerts us that the trend has been interrupted.
The chart shows that the trend is interrupted on March 25 as the HL and the lower band of the Elliott Channel is pierced, that was the first lower low (LL).
The market puts in the second and final low on March 30 before it continues with another uptrend.
CHART 2
The second chart (chart 3) is going to measure time and price. I've labeled it with waves to help us count the sequence.
The chart tells the story. The first rise was very strong I labeled it A/1, it move up practically a point per bar, the pullback wave B/2 was very shallow in time and amplitude.
Wave C/3 comes nowhere near the strength of the first rise. Coincidently it's pattern looks like a wedge, in Elliott terms we call it an Ending Diagonal and it's length is 59.89% of the length of wave A/1, that's less than 2% of a 61.8% Fibonacci multiple.
CHART 3
Ending Diagonal
Elliott said that an ending diagonal occurs when the move has gone "too far too fast".
An Ending Diagonal is one of thirteen Elliott Wave Patterns.
It is a five-wave overlapping structure, wherein each wave subdivides into three smaller waves. It is typically an ending or terminating wave pattern and is found in the fifth wave position on an impulse wave or the wave C position of A-B-C formation.
Ending Diagonal Rules and Guidelines
Rule#1. It can only occur in a wave 5 or a wave C.
Rule#2. It is made up of five waves.
Rule#3. Wave 3 cannot be the smallest wave of 1-3-5.
Rule#4. Each wave within an Ending Diagonal must subdivide into three
waves.
Guideline#1. Trend-lines connecting the extremes of waves 1 and 3 and 2 and 4 tend
to converge.
Guideline#2. Wave 4 should end within the price territory of wave 1.
Guideline#3. Volume tends to diminish as a Ending Diagonal forms.
Guideline#4. Ending Diagonal retrace sharply back to the origin of the pattern and
more, usually in 1/3 to 1/2 the time it takes the pattern to form.
With the above mentioned we can clearly see that a possible sharp decline is lurking (see chart 4).
A print below the critical 835.58 would indicate that the ending diagonal wave C is in play and the origin of the pattern is likely to give in and because this would be an A-B-C rally the March low (666.79) becomes vulnerable.
The ending diagonal would be eliminated if the market prints above 885.20, making wave [iii] the shortest wave of the sequence.
Until next time
Leo
CHART 4
CHART 1
In the last 3 weeks I've recommended 2 trades, but the market's inability to pullback to "the buy zone" has left us waiting with our orders in place. These trades were put in with the minimum expectation for a retracement.
Let me explain; when the market moves up/down in a 5 wave structure, I expect a minimum retracement/rally of Fibonacci 0.382 in time or price. That means that if the market rises 100 points in price or 100 bars in time, I expect the market to bottom after retracing a minimum of 38 points in price regardless of time or to bottom after a minimum of 38 bars have lapsed regardless of price.
This market has not done that, It has failed to do it on two occasions.
The question we must ask ourselves is. Is the market that strong that it's not willing to pullback the minimum Fibonacci 0.382 in price or time? or. Is there something else brewing?
I believe there is a high probability that "something else is brewing". So, I decided to write this to alert you to it.
I'm going to present 2 charts to prove my point. The first chart (chart 2) I'm going to introduce is a chart that shows the basics of a trend.
In a bullish trend what you want to see is higher highs (HH) and higher lows (HL). When one of the higher lows is penetrated that alerts us that the trend has been interrupted.
The chart shows that the trend is interrupted on March 25 as the HL and the lower band of the Elliott Channel is pierced, that was the first lower low (LL).
The market puts in the second and final low on March 30 before it continues with another uptrend.
CHART 2
The second chart (chart 3) is going to measure time and price. I've labeled it with waves to help us count the sequence.
The chart tells the story. The first rise was very strong I labeled it A/1, it move up practically a point per bar, the pullback wave B/2 was very shallow in time and amplitude.
Wave C/3 comes nowhere near the strength of the first rise. Coincidently it's pattern looks like a wedge, in Elliott terms we call it an Ending Diagonal and it's length is 59.89% of the length of wave A/1, that's less than 2% of a 61.8% Fibonacci multiple.
CHART 3
Ending Diagonal
Elliott said that an ending diagonal occurs when the move has gone "too far too fast".
An Ending Diagonal is one of thirteen Elliott Wave Patterns.
It is a five-wave overlapping structure, wherein each wave subdivides into three smaller waves. It is typically an ending or terminating wave pattern and is found in the fifth wave position on an impulse wave or the wave C position of A-B-C formation.
Ending Diagonal Rules and Guidelines
Rule#1. It can only occur in a wave 5 or a wave C.
Rule#2. It is made up of five waves.
Rule#3. Wave 3 cannot be the smallest wave of 1-3-5.
Rule#4. Each wave within an Ending Diagonal must subdivide into three
waves.
Guideline#1. Trend-lines connecting the extremes of waves 1 and 3 and 2 and 4 tend
to converge.
Guideline#2. Wave 4 should end within the price territory of wave 1.
Guideline#3. Volume tends to diminish as a Ending Diagonal forms.
Guideline#4. Ending Diagonal retrace sharply back to the origin of the pattern and
more, usually in 1/3 to 1/2 the time it takes the pattern to form.
With the above mentioned we can clearly see that a possible sharp decline is lurking (see chart 4).
A print below the critical 835.58 would indicate that the ending diagonal wave C is in play and the origin of the pattern is likely to give in and because this would be an A-B-C rally the March low (666.79) becomes vulnerable.
The ending diagonal would be eliminated if the market prints above 885.20, making wave [iii] the shortest wave of the sequence.
Until next time
Leo
CHART 4
Thursday, April 9, 2009
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Friday, April 3, 2009
Wednesday, April 1, 2009
LOCK AND LOAD
That's the theme for this week as the market moves further down into the Fibonacci retracement zones and gives us another opportunity to make a little money in these difficult times. I'm not expecting a deep retracement off the March 6 low rally, but a rather shallow one.
The five wave structure off the March low is the IMMEDIATE DOMINANT TREND, with that said, the march low should not be violated for now.
In the 3 charts below, there is an area where I believe is a good place to buy and participate in the next market rally.
Good Luck,
Leo
The five wave structure off the March low is the IMMEDIATE DOMINANT TREND, with that said, the march low should not be violated for now.
In the 3 charts below, there is an area where I believe is a good place to buy and participate in the next market rally.
Good Luck,
Leo
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