Stock Market Update – 10/16/11 © ™

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 vallyes 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.  (Make sure your channel was correct before calling a termination).
  • A single wave may sub-divide into another 3 waves.  I will 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.  (Seeing an example in 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.
  • Reading the glossary helps 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

  • The above link has my charts, which are constantly updated during market trading.  The indexes don’t lag current market trading.
  • I usually update the charts daily (or more often) with wave counts and trend lines.  These charts are the roadmap to your tactics.
  • Page 1 – Indexes With 1 Minute Bars
  • Page 2 – Indexes With 5 Minute Bars
  • Page 3 – Indexes With 15  Minute Bars
  • Page 4 – Indexes With 30 Minute Bars
  • Page 5 – Indexes With 60 Minute Bars
  • Page 6 – Indexes With Daily Bars (candlesticks – last 13 months)
  • Page 7 – Indexes With Daily Bars (since November 2008)
  • Page 8 – Indexes With Weekly Bars
  • Page 9 – Indexes With Monthly Bars
  • Pages 10 through 13 are indicators.  The indicators are used to simply look for some type of leading action before a turn or confirming action of the wave count.
  • Beginning on page 14 are growth stocks.  These are stocks that have 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 of 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

We have retraced 50% (Fibonacci ratio number) of the decline since the May peak.

The market is overbought and a correction could begin at any time, but . . . .

When you are in a continuing bull phase the market becomes overbought and stays that way for weeks or months before a correction takes place.

I’m not saying that we are in a bull phase but one should always be alert to a significant change in trend.  It’s certainly true that we finished 3 steps down since the May peak (see charts, page 5 or 6).

Another stab at the bottom is likely and that could be the right shoulder of a possible reverse head and shoulders.  The measurement on this H&S is at least to the May 2011 highs.

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