Squawk Morning Briefing: Evaluating Impulsive Behavior

Overnight weakness in the equity futures and the Euro both allow us to maintain the possibility that we are now entering a third wave down in an impulsive decline. There are still alternates to that view and the most substantial argument that new highs might be seen come from the Dow Futures which have found support this morning near where we have two equal legs down from yesterday’s high. That means it’s possible that we’ve only had a zig-zag correction that will turn up from at or near this mornings low.

However, if these low prices are maintained through the cash open it will likely drag the DJIA down through some of the first confirmation levels we have been looking for. While the decline from Tuesday’s high in the DJIA appears impulsive, a gap down open in the cash index could also be merely the wave C of a zig-zag correction. If the DJIA were to find support near where the YM made its morning lows that would look like wave C equal to 61.8% of wave A. In fact, support anywhere above the DJIA treeline at 13,876 could be interpreted as corrective.

From these levels the way to tell the difference between a corrective move down and an impulsive one will likely fall to the behavior. Third waves generally move further and faster than first waves. That doesn’t mean that there won’t be bounces but they should be brief and lead to additional selling, usually continuing until the third wave is at least 161.8% the length of the first wave. Of course once those levels are reached the move will look more impulsive than corrective.

In the bullish count,the overnight in the futures would be a B wave correction and coming back above that level would invalidate the impulsive downside count. Likewise, a move above the swing high at Wednesday’s close in the DJIA would have a similar interpretation. Between that level and and the area where an impulsive wave 3 is 161.8% the length of an impulsive wave 1 it will be the price action which will be the guide as to what is likely happening.

We will look to similar guides in the Euro, which would be in a third wave of a third wave in the bearish interpretation. Therefore we would expect even more dramatic declines in the Euro if the downside view is playing out.

Read the Rest Now

The rest of this article is available to subscribers to the Elliott Squawk newsletter. Subscribers can login here to view the update. If you would like to receive this content, signup now for immediate access.

The Elliott Squawk Newsletter

Elliott Squawk delivers thorough market preparation every morning in time to take action during the trading day. By combining up-to-the-minute futures activity with traditional end-of-day analysis from cash indices, you receive analysis based on the latest conditions as the trading day sets to open. Each issue of Elliott Squawk goes beyond traditional Elliott Wave analysis because we recognize that trading Elliott Waves is much more than just looking at the most likely current count. Squawk will prepare traders to assess the market action as it unfolds by answering questions that any Elliott Wave trader should consider:

• What price levels and wave motions would confirm an expected move?
• What price levels would make an alternate scenario more likely?
• What technical indicators should be watched throughout the day to interpret wave action?
• What intermarket movements merit special attention to understand likely price trends?

Markets Covered:

Each day Elliott Squawk will update the outlook for the following markets:

• The Dow Jones Industrial Average
• YM e-Mini Dow Futures
• The S&P 500
• The EUR/USD cross
• The U.S. Dollar Index
• U.S. Treasury bond futures

From time-to-time when circumstances warrant, Squawk will present analyses of other markets that help interpret wave action in a covered market. For example:

• If S&P 500 and Dow counts are ambiguous and NASDAQ behavior helps identify the likely next move then NASDAQ analysis will be presented.
• If the EUR/USD count is ambiguous and the USD/CHF cross helps us to understand what might happen then we’ll present the intermarket analysis the Squawk subscribers.

At the end of the day Squawk subscribers will receive a brief market recap that summarizes how the day’s events compared with expectations and what issues are likely to be analyzed in the following morning’s Elliot Squawk.

About the Analysts

Kevin McEwen and David Starr are best known to First Wave chat room participants as Kevy99 and Managematics and by their reputation for their Elliott Wave counts that have predicted market turning points. Kevin has been counting Elliott Waves for 28 years, successfully forecasting market moves in virtually every financial environment. David brings together talents in financial market analysis and software development to his wave counting. He has authored many of the studies used by First Wave Traders as well as a number of proprietary studies to aid in counting waves.

To receive daily Elliot Squawk updates and get immediate access to this article and the entire archiive signup now.
Video Update:

To download this video right-click the download link and save to your computer. You must have a suitable player for flash video such as Adobe Flash video Player.

Euro Update

Video Update:

To download this video right-click the download link and save to your computer. You must have a suitable player for flash video such as Adobe Flash video Player.

U. S. Treasuries Update

Video Update:

To download this video right-click the download link and save to your computer. You must have a suitable player for flash video such as Adobe Flash video Player.

[/amember_protect]