IMPORTANT – Stock Market Update – 10/19/11 © ™

UPDATE FOLLOWS THE BREAK

WAVE COUNTS SIMPLIFIED

  • My wave counts are not Elliott Wave!  These are different, simple and function without a maze of exclusions.
  • 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.  (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.
  • Page 14 through 26 are sector ETFs.  They represent most of the active sector ETFs.
  • Page 27 through 39 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

  • THIS IS A WATCH CAREFULLY UPDATE
  • PREVIEW TO A POSSIBLE BUY RECOMMENDATION

As predicted the market has been consolidating since my last update . . . but we have to be alert to the possibility that we are forming a high level consolidation.  It looks like a correction but it also looks like a continued move to the upside.

The market was marking time today waiting for the FED Beige Book report.  I haven’t looked at the report but the market says it wasn’t particularly good reading and that’s all that counts.  The market is declining but I’m watching carefully to see if the decline ends around DJI 11,400 and doesn’t violate the recent low of 11,300.  That would create a reverse head and shoulders that measures to about DJI 12,000.  The Fibonacci retracement level of 61% is about 11,940 and that coincides nicely with 12,000.

A significant move above DJI 11,700 (to 12,000 or beyond) would constitute a breakout of the bottom formation and would be viewed as a positive development.

A breakout at this time would not surprise me just as another stab at the bottom area to form the right shoulder of the much larger head and shoulders formation would also not be a surprise.  The market will make the decisions here and I’m not going to tell it what to do.

As you can see from the chart below, we have completed 3 steps down and are entitled to a 3 step up.  Any up move could move back close to the old highs (May 2011) or beyond.  Whether this move becomes large step 3 dating from March 2009 will be left for another day.  But if it’s the beginning of large step 3, we would move to significantly higher highs than May 2011.

10-19-11 DJI 60 min bars

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