Squawk Morning Briefing: Rules and Impressions

In today’s videos we attempt to sort out some potentially contradictory impressions about the wave structure of U. S. equity markets. We continue to favor the idea that the move down from the May 22nd peak is a correction, likely a fourth wave. The most compelling reason to adopt this move is that there is no obvious way to count the decline from the high as any sort of five-wave move; neither an impulse nor a leading diagonal will fit the decline into the June 6th low. Therefore, the rules do not support the idea that the high is in.

However, when take a look at the decline from June 18th we start go see an apparently impulsive move which looks longer than any of the other impulsive legs within this down move. Meanwhile the bounces since June 18th have been shallower than the other bounces. With Dow futures off well over 100 points as we write this, we observe that even small bounces have been sold in the pre-market it looks as if sellers are taking charge.

This is what third waves down feel like. Those wanting to sell are waiting for bounces which never come and those wanting to buy keep getting steamrolled. With the move down from June 18th still too short to be a reasonable third wave this is just an impression at this point. In order to view the third wave as likely it would need to continue much lower. The downside is that once it looks long enough, the move might be nearly complete.

Meanwhile, we know that the impression of fourth waves is a feeling an ongoing trend has finally ended. In this case, the move needs to be big enough to convince bulls their time is over and get bears excited about a turn, only to make one last run at the high. In this way, the current move down is consistent with only corrective action.

With contradictory impressions we are left to hang our hat on the rules. If we continue to head straight down from here we would be left with a first wave which counts out awkwardly at best and just plain violates the rules at worst and, for now, that has us viewing the move down as corrective until proven otherwise.

In the mean time, we will presume that all rules still apply. That means completed upward corrections should give way to at least one more new low. From there, the questions will remain: 1) how low; 2) when will the next bounce come; 3) will the bounce head back to a new high and 3) have the moves down or the bounces been sufficient to alter our overall outlook.

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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?

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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.

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