Guest Post: Some Elliott Waves

MortiES’ Weekend Analysis 22May2010 ~ Bulls Bank Profits, Submitted by Value of Perfect Information

A Wave 4 is described as a Profit-Taking Wave. It is not so much that the Bears are getting stronger as the Bulls are taking profits off the table as they see them eroding. The mini-crash on 6May may not have been real in the eyes of many, but it did technical damage to the market. The emotions of traders are seen in the market as fear and greed have their way. That is also why I said in my post on 6May that the low of that day would be taken out, even though the massive rebound made many think it was just an anomaly. That low (1056) was broken Friday as ES dipped to 1051.25. I think we still have more to go, but I’ll take that new low for now. If that first leg down on 6May didn’t convince traders and investors that there was a significant correction beginning, then the more deliberate decline to the new low on Friday should have convinced them that there is trouble brewing with their new-Bull market. IMO, this is why technical analysis is so great. It is based on repeatable mass psychology, and it is driven by the emotions, fear and greed. Fear and greed are ever-present human emotions that form repeatable patterns in the market, whereas news and world events cannot be anticipated and measured by the lowly traders like myself.

The first chart below is an aggressively projected path for ES. As markets unfold, they reveal more information and counts can change, but for now this is how I am reading this 90 Minute Globex Chart. I am counting it as an ABC correction, making up W4 of the impulsive rally beginning 6Mar2009. I’m sure EWI – the Elliott gods in Atlanta – have this as the beginning of an impulsive move down after the completion of what they would call P2. They might turn out to be right, but that is not the flavor of Kool Aide I like at this time. I find that I have done well in analysis by not throwing the towel in too quickly by calling an end of a trend prematurely. Because this move up from 6Mar can contain a correction like the one I am proposing, I will go with it until proven otherwise by market action. Either way, I am Bearish until we end this wave and reverse into a W5.

For the new subscribers who may not have seen my Weekly chart that has the most Bullish scenario for ES, it is presented here with the newest data.

And then the most important question for short-term traders, what is it going to do Monday? Well, even during Bearish times, there are situations when we have to project rallies. Monday is one such time. I have no idea how ES will get to my target on Monday. I could take all day to form a green candle that makes it to the end of W4 or it could gap up during Globex and head down. We will just have to wait and see. W3 is at its typical, yet minimal, target level. It could also extend and continue on down to another Fib level, but my impression is that we will see a rally to at least the 1100′ish level.