Tides Turn — Choppy Waves Conceal

Today’s update provides an opportunity to reinforce an important concept: sometimes  Elliott Wave analysis gives more ambiguous results than others.  Right now we believe that we have relatively convincing signals on many timeframes except for those that impact the very immediate future.  That leaves us with actionable insight for swing traders or those with even longer-term timeframes.  However, intra-day traders need to look for confirmation to take action on this insight.  That confirmation could come today, next week, or, as sometimes happens, it might not come at all.  Those cases where we don’t get confirmation (also known as being wrong) will always occur.  But they tend to happen more often when our signals are ambiguous and we lack conviction.  When taking advantage of any analysis it is important to factor in both the prediction and the level of confidence. 

In this case, Elliott Wave theory suggests a high likelihood that we will see much lower levels for U.S. equities.  The first step in that journey is to take out lows from earlier this week.  As mentioned in our Dow Update below, a move below these levels today would be consistent with Elliott Wave, but so would a higher correction.  Successful trading should recognize that this ambiguity cannot always be removed and act accordingly.

Dow Update

 The equities markets continue to show signs of weakness. The Dow managed to make a minor new high above Wednesday’s retracement high in choppy trading before it turned downward and closed near the low of the day.  Our overall expectation remains: we will take out the lows from Wednesday and other minor lows before attacking the lows of the year and subsequently falling below them.  However, in the short-term view, the market has done little to convince us one way or another whether it will make additional minor new highs above Thursday’s level before it turns down.  We would not be surprised either way.  The move up from Wednesdays lows is not convincing as a completed correction, nor is the decline from Thursday’s peak convincingly impulsive.  Markets have turned from patterns that are less convincing than these.  If so, we hope you remembered to turn and kis Dow 10,000 goodbye as this might be the last time you see it for some time.  However, until we see confirmation to the downside we’ll remain open to the possibility of choppy, corrective action either around this level or 100-200 points higher.

Recall that we are believed to be in several degrees of third wave action downward.  As such, we expect surprises to come to the downside.  While our short-term view would prevent us from blindly taking highly-leveraged intraday short positions, our personal trading plans have us continuing to build on existing long-term and swing short positions on any additional strength so long as we stay below the 10,500 area.

EURUSD Update

One thing that we can say about Euro action up from the August 24th swing low is that it has a corrective look to it.  All of our counts from prior updates remain possible. However this corrective appaerance has us discounting the green count that called for this turn upward to continue past our highs for the month.  The corrective action itself does not lend itself to any predictions about when it will complete.  Additionally, because we have several wave counts plausible wave counts we cannot give general areas where we might expect a turn.  Therefore, we are waiting for a confirmed move in order to clarify our wave count.  General outlook expressed in previous updates is unchanged.

Bond Futures Update

As we discussed during last evenings update, we are looking for a high in the Bond Market. We said  last night that the 10 year counts out as complete. Today it followed through with what looks like a completed 5 waves down.