Stock Market Analysis Using Elliott Wave Principle
Wednesday, February 23, 2011
Stocks Continue Lower but Losing Momentum; Euro Should Go Higher
Using my Elliott Wave analysis fundamentals can give us an edge on predicting future movement of the financial markets.
Internals today were fairly weak suggesting the bears still have good control of the market. However, they are not nearly as intense as yesterday’s. Yesterday had 2364 more decliners than advancers while today had only 897, and down volume yesterday was 1 billion shares (89.7% of total volume) while today had only 862 million shares (64.8% of total volume). So the intensity of the decline sure waned from yesterday, suggesting today was a 5th wave, and ending wave. We may get a little follow through to the downside tomorrow, but I wouldn’t be surprised if we get a pop higher soon. I definitely wouldn’t get long here, but a pop higher would be a good opportunity for the bears to get short at better levels with a stop just above last week’s high, in my opinion.
I am not in love with the wave count, believe me, but it’s the best shot at what I think is unfolding that makes sense with both the internals and momentum which has started diverging after my posted Submicro wave (3). Looking for diverging momentum is a good clue of where to look for labeling the end of 3rd waves. As the above count shows, any rally from here would be a great shorting opportunity with a stop just above last week’s high. The risk/reward is very desirable, especially considering the potential move lower that should get to at least 1275 short term, 1190 medium term, and possibly much much lower over the long term.
I left you all a Valentine’s Day present on my February 14th post in the form of a wedgie. And I don’t mean for anyone to get any high school flashbacks here, I’m actually talking about the ending diagonal-like structure that comes in the form of a wedge. It’s not textbook, but the slow choppy grind higher at the latter end of a long uptrend suggests a quick and sharp selloff to occur once the formation is complete. Well, this wedge has appeared to have completed. At the time I originally posted this last week I stated, “Once the uptrend breaks down, the move should be sharp and deep, at least initially.” Well a 40 point S&P drop in two days classifies as “sharp” and “deep” I’d say. Although not technically an ending diagonal structure according to EWP, if it’s to follow the basic tenants of the structure then we should see a quick move toward the 1275 level.
There’s a trendline I’ve been following lately in order to get clues that a top may be in. It connects Minor waves 2 and 4 (not labeled). Today you can see that price respected the trendline as it hit it and then retreated higher. With the evidence suggesting a move to 1275 soon, after this current little correction higher is over, I expect a strong close beneath the trendline once the bears can regain their strength, which shouldn’t take long at this point. Doing so would put another checkmark on the board for the long term bearish count to play out, i.e. Primary wave ((3)).
Lastly, keep an eye on my longer term chart I posted last week (click here). If last week’s highs are taken out then a push to the 78.6% Fibonacci level at 1377.
The euro surged above 1.3743 without a problem. Doing so has made the recent decline a clear 3 wave affair, and therefore a correction. I now expect a move above 1.3860 soon. After that we can then look again for a top and resumption of the downtrend.
LEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.
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