From the Elliot boys:
"The Bottom Line<
"The stock market continues to work-off the bearish sentiment and momentum extremes registered at the recent lows. This is in line with our forecast for a continued rally through the end of this week. The market may have legs to carry the countertrend bounce into early next week, but the rise appears to us to be a "trap" for those who think the old bull market is ready to vault to new all-time highs. To the contrary, breadth and volume measures so far indicate that any further rally should soon peter-out and lead to another leg down in the broad indices into the end of the month.
This morning the [Dow Industrials] opened strong, up 127 points in the first 10-15 minutes of trading. Breadth was equally impressive at the opening, as the NYSE advance/decline ratio pushed to 2.91:1 in this same time period. Yet as the day wore on, the Dow tacked on another 63 points at its high, but breadth decreased for nearly the entire rest of the day, closing at 1.82:1. Incredibly, with the Dow now having retraced 62% of the decline from the peak, 5-day TRIN (showing the amount of volume needed to fuel the breadth figures) is now MORE overbought than at the July 19 top. The number of new 52-week lows on the NYSE was 3 1/2 times greater than the number of new highs, against a 184 point Dow gain. And, NYSE volume has declined each day of this wave 2 or wave B rally. These technical readings support the case that the current rise is a correction, not the start of a new bull market leg.
The Dow appears to be tracing out a zigzag correction from the recent 10549 low (Aug.10), which we label Minor wave 2 or B. My confidence in this pattern is only tempered by the fact that the New York Composite looks like it may have traced out an impulse wave to today's high (possibly wave C of an expanded flat correction?). Nonetheless, the Dow has now carried to a typical Fibonacci retracement (62%), satisfying the necessary subdivisions and requirements for a completed correction. There is also an area of resistance right above the market in the 11004-11031 region, where wave 'c' is 62% of wave 'a' within the zigzag pattern, and a previous second wave high. It has certainly been a quick retracement, as the initial impulse wave down lasted 116 hours, and the correction so far has lasted 23 hours, shy of a Fibonacci relationship of .236. That relationship would be satisfied near 11:30 AM Monday morning, if it has any meaning. Also, short-term momentum oscillators have yet to turn down, allowing for more of rally if the market so chooses." |
