Saturday, March 14, 2009

The channel is about to break

Ok, relooking over the charts I saw my mistake. I had counted my wave 4 as an a-b-c with the 'c' wave being a failed wave as it almost but not quite took out the previous low. Based on how high the wave had already gone, it made most sense to me to count it this way. Well, after Friday's action, that failed wave c was actually a small wave 2. Friday put in the other wave 4 of that larger wave. From here we will either get one more marginal price high on Monday or we will get a failed small 5th wave. In the end it doesn't really matter because price momentum is waning and once the channel breaks to the downside one of two scenarios will happen:

#1 we'll get a deep retracement (61.8%+) but it will hold. Prices are likely to touch the 686-702 range on the SPX intraday, but we will likely close above 702 for the day. This would be significantly bullish. Primary wave 1 would likely be over, and I'll have to revisit my counts. The selloff should get there 1-3 days max.

#2 my count will be correct and we'll start the last leg of this primary wave. It will either be a weak wave 5 meaning a double bottom ending in the zone 640-675 area or it will be a capitulation sell off to the 550-600 area. What I expect is that it will attempt a double bottom first. If the bounce off the bottom is weak and we end up coming below it, then the panic selling will start. The selloff to the double bottom should get there 2-4 days max. Anything else is bullish.

Here are my confirmation signals that this wave up is over:
- double close below 15min 8SMA
- break of SPX 743


  1. Rich, there is a theory going around the trader's web that we're already in primary 2. the resounding evidence of this would be if the indices go higher next week which would result in the nasdaq retreading into 1 of (5) (it's just 1 or 2 points away) territory which is a wave violation if this is 4 of (5). what are your thoughts on this?

  2. Here's my best guess on a Nasdaq count.

    The key will be the pullback. If it spx 700 holds (not sure the exact area on the nas), then that would be an important development.

  3. Rich,

    a running B wave usually implies strength in the direction of the B wave, in this case, the bears. But the run fromm 666, which you label as the C wave of 4, has registered a lot of short term momentum, and has been relentlessly strong, I know it can be a lot of late short burning alive, but still, isn't the C wave a bit too strong for an irregular flat?

    I have no position on the index, and just observing

  4. Rich, Nice stuff.

    Could you elaborate on the dow's chart.

    I have been reading about the elliot wave, just brieffly. This bull run definitely makes no sense. It will break down soon.

  5. Rich..Kidflare here...let me first apologize. No I don't follow your blog for laughs...I take it very seriously. As I mentioned before, I am a novice, and I am sure many of us have at one time or another searched hard for the "Holy Grail" of Trading, only to be dissappointed. I have purchased many techniques on line in the past year; all of which have basically failed. I have a large library of books on technical trading which has led to much confusion. I just recently ran across the EW theory via your blog and Robert McHughs I actually have not given you or the EW concept enough study time...therefore my previous words were premature. What I am finding is that one must settle on a system and stick with it; if you jump around from 1 technique to another, you will lose period. EW and Fib#'s seem to be very logical to me at this point. So when the last counts were a bit off, I "assumed" that it was all the same as the previous methods I purchased. But I went back and reviewed your previous charts and comments = Good job. Maybe, just maybe this does make sense. So, I will continue to read your blog. I use Q-charts with MACD and Momentum along with Pivots; that program shows supports 1 and 2, resistance 1 and 2 along with the Pivot pt from yesterdays trading. Larry Levin has a Value Area set up that I watch. I basically trade from support to resistance..short term trades with call options and put options the other way. When the EW info and Fib #'s equal the Pivots, usually results in a profitable trade. Yes, nothing works 100% of the time...even my present system is only about 60% correct. What I am learning is that if it isn't working, don't force it, get out! Hope will kill you. So in conclusion, please keep up the good work and again, I apologize.

  6. then why didn't the channel break on friday?

  7. kidflare,

    Your point about having to find a system that fits 'you' is critical. Everyone is different. We have different capital levels, time commitments, etc. Hopefully what I post here is food for thought and will help you in your system development. Plus I'm a believer that system development is a pursuit. You have to tweak it for different types of markets. I'm still working on mine and always getting better. My goal is to make less mistakes and follow my plan better than the day before, the week before, etc. Hopefully, I'll get to the point where following my system is 2nd nature, but I'm still not there.

    Best of luck and I look forward to many more comments from you.