Daily Stock Market Update #2 – 09/06/11 © ™

DAILY UPDATE FOLLOWS THE BREAK

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WAVE COUNTS SIMPLIFIED

  • There are 3 peaks to a completed wave count. A reversal of trend takes place after a completed wave count.   Often times it’s as simple as counting 3 bumps on a chart . . . Other times, not so easy.
  • In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.
  • Each step must stay confined to a channel.  Laying a pen or pencil on the chart will help you visualize the channel.
  • As the trend progresses, all of the steps that make up the overall current trend will also be confined to a larger channel.
  • When the market breaks a channel (regardless of the perceived wave count), the current step has been terminated.
  • A single wave may sub-divide into another 3 waves.  I will also call this an extension.  When this happens (1) the trend is still intact, (2) the channel has widened and (3) instead of a total of 3 steps, there will be 5 steps.  (The charts will help you understand this concept.)
  • Sometimes I will use the terms step and wave interchangeably, but usually a wave is considered to be larger than a step.
  • Wave Counts In Charts – Numbers of the same color represent steps within the same wave.  For instance, red 1, red 2 and red 3 are steps within the same wave.  Different colored numbers represent steps in totally separate waves.  For instance, a red 1 occurs in one wave while a blue 1 occurs in a totally separate wave (refer to charts for examples).
  • Reading the glossary helps a great deal in the understanding of this blog.
  • Glossary Link

ABBREVIATIONS

  • DJI = Dow Jones Industrials; SPX = SP 500; ES = SP 500 Futures; COMPQ = Nasdaq Composite Index; TNX = Toronto Stock Exchange (blue chips)

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CLICK ON CHARTS TO ENLARGE

  • Short Term
  • Uptrend Still Intact
  • August 9, 2011 To Present
  • Multiple Bottoms Dating From August 9th
  • Last Action Status – Buy Signal On August 29th
  • Renewed Buy Signal On September 6th

Today the market opened down about 310 Dow points and improved from there to finish down 101 points.  As expected the opening volume was heavily slanted towards the sell side and was 95% down.  By the close the volume had improved to 80% down.  Over the preceding 24 hours we had a small triple bottom with the first and second low coming in the evening Monday.  The third bottom came at Tuesday’s open and since that level wasn’t violated later, it was an invitation to buy.  The reversal point came where it was expected, almost exactly at the August 22nd low.

The first chart below, which covers the period from July 5th through today in 30 minute increments has a double bottom at the lows of August 9th and August 22nd.  We also have another double bottom at a slightly higher level on August 26th and again at today’s low.  Overall it looks like a quadruple bottom but today’s low needs to hold otherwise there will be an assault on the August 9th lows.  Multiple bottoms can occur in the neighborhood of previous bottoms.  “In the neighborhood” means bottoms can be higher or lower than prior bottoms but not separated by a significant amount.

As I write this blog update the SP 500 futures are advancing in after hours trading, presently in a range of 5 to 6.5 points higher.  I would like to see today’s rally continue tomorrow but it would be disappointing if we only manage a 50 point rally instead of 200 points or more.  Our last bottom on August 22nd had strong one day rallies with the following day showing tepid market action.  Good market uptrends normally have substantial back to back rallies.

Since August 9th we have narrowly higher lows with higher highs and that is the definition of a slow uptrend.  One should consider the possibility that the market could trend higher with large intervening corrections, 3 steps forward and 2 steps back.  If we do trend higher, an erratically higher market could certainly be the case when you consider the continuing problems in Europe.  But if Europe manages to control their problems, we could easily morph into a solid uptrend.  I’m not holding my breath waiting for Europe to solve their problems.

09-06-11 DJI 30 MIN BARS

The second chart shows the small triple bottom that occurred today and the subsequent rally.

09-06-11 SP500 FUTURES 3 MIN BARS

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