Stock Market Update – 10/10/11 © ™

UPDATE FOLLOWS THE BREAK

WAVE COUNTS SIMPLIFIED

  • The wave counts aren’t Elliott Wave!  It’s different, simple and usually works.
  • 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
  • DJT = Dow Jones Transportations
  • SPX = SP 500
  • ES = SP 500 Futures
  • COMPQ = Nasdaq Composite Index
  • TSX = Toronto Stock Exchange (Canadian blue chips)
  • SOX = Semiconductors
  • XLY = Consumer

CHARTS

MY CHART LINK (updated constantly)

  • This link has my charts, which are always current and constantly updated during market trading.  They don’t lag market trading by 15 minutes which is true of many charts.
  • There are 9 pages of index charts.  Each page consists of (1) the same stock market indexes, and (2) the same time frame.  The time represented by each vertical bar is the same on each page but increases in length on each succeeding page.  The vertical bars on the 9 pages ranges from 1 minute to 1 month.
  • The final pages of these charts consists of growth stocks.  These are stocks that have constantly risen in price since 1990.  One qualification is that they must not be severely damaged in a bear market so they can’t rise to significant new highs in the following bull market.
  • The growth stocks show daily market action for the last 3 years and weekly prices since 1990.  This gives a good perspective to how they have behaved in the immediate past (daily charts) and how they behaved during good and bad times (weekly charts).

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DAILY UPDATE

Watch my chart link (above) for wave counts and trendlines.  I may not be writing in the blog but I try to update the charts when I have a chance.

I am watching carefully for indications that we have finished a large step 3 down (since May).  Finishing step 3 requires a channel break of the downtrend and that hasn’t taken place.

Presently it looks like we are step 3 up since the bottom of October 4th.  After completion of this third step, we’ll see what kind of correction takes place.  If a reasonable retracement takes place and rallies strongly into a higher high, it would indicate more rally ahead with the present 3 steps turning into step 1 up.  Otherwise a weak rally into new highs above step 3 (counting from Oct. 4th) would probably indicate token new rally highs.

One future possibility would be if we can rally back to Dow 11,700 and trend lower without a new low, it could raise the possibility of a REVERSE head and shoulders formation.  If true, it would measure to the old highs of May 2011.

I’ll write more as I can.

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