GDX B wave Diametric

US 30yr Bond update: 2012-01-24

SPX update: 2012-01-24

Here is an update on the bullish Elliott Wave counts posted here a couple of days ago. 

Although SPX could have put a top in yesterday, and has opened slightly lower today, I don't see enough divergence on technical indicators to confirm a top. I think the market has the potential for one more rally, but technicals are overbought and the market is ripe for a correction. Tom Demark (a good market timer) predicted a top today on Bloomberg TV. 

The blue trend-line in the chart below connects the Jan 2008 and April 2011 tops and it should offer important resistance to contain 2 out of 3 counts that are in focus (on a closing basis). In the chart below these two higher probability counts are marked in RED and GREEN. 

The RED count completes wave (3) of III. Wave (4) should not overlap with wave (1) so this count would be invalid below 1266.73

The GREEN count completes wave 1 of (3). This count allow a correction all the way to 1202, though in practice in should find support around 1260

If the market vaults over the1330-1340 area contained by the blue trendline, we will shift focus on the count in YELLOW which  would put us in an incredibly bullish wave (iii) of 3 of (3) of III. Such waves do occur from overbought conditions and markets stay overbought for a while as third waves accelerate. 

There is a potential for a VIX reversal here. It is at support line since April 2011. RSI shows a positive divergence. A complete Elliott Wave pattern (Ending Diagonal) is seen. Closing above 24 will be positive for VIX and bearish for the SPX.

SENSEX overbought at resistance

Overbought conditions exist in most markets after a great start in January. In the previous Sensex update I pointed out the positive divergence in RSI and the possibility of a long term bottom. Now the market is overbought and at channel resistance. A different wave structure allows the possibility of a 'c' wave lower to complete a Double zig-zag correction. This move could fill the election gap from 2009.

Note that I have used an India ETF (INP), not the Sensex itself in the chart below.

SPX update: 2012-01-20

John Hussman points out that PMI and employment figures are NOT leading economic indicators. They are usually part of a stream of bullish anecdotes before the market turns down. They usually look positive before recessions start. The leading indicators he uses do look bearish.The piece is here: http://www.hussman.net/wmc/wmc120109.htm

Meanwhile, my Base Scenario for a bull market since the October 2011 low will continue to play out until negated by price action. The trend remains up and there is no point fighting the trend, whatever your fundamental views may be. 

We are now in the time and price zone that favours the bears to make their move. All bear counts form the previous update remain on the table. Price action has put some very bullish counts on the table. My main bullish counts are shown below along with levels at which they will be invalidated.

In Yellow is I-II-(1)-(2)-1-2-(i)-(ii)-i, an unlikely, rabidly bullish count that puts us in a third wave. Invalid below 1277.57

In Light Blue is I-II-(1)-(2)-(3). Currently wave (1) = wave (3) in price, but it can extend further. As wave (4) cannot overlap with wave (1) this count is invalid below 1266.73. 

In Green is I-II-(1)-(2)-1 which would allow for a fair sized reversal and is invalid below 1202.37, but probably unlikely if SPX gets under 1250

I will let the market pick the count it likes. Below 1250, the focus will equally be given to bear counts from the previous email. Below 1202 we should see price challenge 1150 and then 1050.

Microsoft forecast

Main Count (RED)

• The very long term count shows MSFT in an impulsive wave I that ended at the 2000 high. 
• A long drawn out wave II ended in March 2009. 
• This was followed by a lower degree impulsive wave 1 that terminated in Jan 2010. 
• The price action has been corrective since then.
• The stock has rallied nicely in a 'b' wave to the top of the channel as shown by the corrective count in RED. 
• If this is correct, we should now see a 'c' wave correction to the low 20s before a resumption of the impulsive rally.

Alternate Count (BLUE)

• A close above $31.6 would signal a breakout targeting $40 or $50 and change focus for the larger degree count to the one shown in light blue. 
• That would result in a rally to 40 or $50, but that would be followed by a severe correction creating a new low below 14.62 a few years in the future.

(click for higher resolution)

EUR/USD looks like a BUY

The Euro may have made a significant turn here. According to the NEoWave count below EUR/USD just completed an Expanding Triangle.

• Time taken by wave (e) in the expanding triangle is equal to the time taken by { wave (a) + wave (c) }*
• Time taken by wave (d) = time taken by { wave (a) + wave (b) }
• Positive divergence in the RSI before this latest rally over the past 3 days
• Daily MACD has just given a buy signal, although there have been false positives before
• Weekly MACD has had no false positives so it should confirm the change in trend when it gives a buy signal. It has been a late confirmation though, not a buy signal.
• Price action will significantly increase the probability of the reversal above 1.30

If going long, use a stop-loss at 1.2622. Also note that large speculators have a record net short position. This could lead to a very sharp rally due to short covering.

This forecast may be slightly early. It is possible that EUR/USD makes another "panic" low, touching 1.25 before rallying.

* All similar coloured boxes are of exactly the same time duration

EUR/USD Daily RSI positive divergence before uptrend, MACD buy signal

EUR/USD Weekly MACD on the verge of a buy signal, RSI turned up from low levels

COT numbers show Large Speculators have an enormous Short position