ELLIOTT WAVE COUNTS FOR THE S&P 500... . The Elliott Wave count for the S&P 500 remains bullish overall. $SPX is currently in Wave 5 of a possible 5 wave advance that began in March 2009. The red numbers show this advance on Chart 1. SPX is shown as a 5-day EMA with 75-day StochRSI shown in the indicator window. Normally, the fifth wave is expected to exceed the high of Wave 3. Wave 5 can, however, truncate and fail to exceed this high, which happens to be the April high. Currently, there are no signs of weakness yet as upside momentum remains strong. StochRSI has been trading between .80 and 1 since early September. Continued strong momentum suggests that the index will exceed its April high and could do so rather soon.
This big Wave 5 subdivides into five smaller waves. Remember, Waves 1,3 and 5 are impulse waves that can subdivide into the five wave impulse pattern. Waves 2 and 4 are corrective waves that subdivide into corrective patterns, such as zigzags, flats and triangles. The black dotted lines project the end of Wave 3 in early November, a pullback (Wave 4) into yearend and then a 5th wave higher in the new year. This wouldl be the infamous 5th of the 5th. The pink Elliott channel is based on the high of Wave 3, which has yet to actually form. When it does form, we can draw a trendline connecting the Wave 1 and Wave 3 highs. A parallel trendline can then be drawn from the low of Wave 2 to project a potential bottom for Wave 4. Should the current Wave 3 peak just above 1200 in the next 1-2 weeks, a bottom in Wave 4 would be expected around 1165 in late December.
SPY UPTREND SLOWS NEAR RESISTANCE... Chart 2 shows weekly candlesticks for the S&P 500 ETF (SPY). The ETF stalled a bit over the last three weeks, but shows no signs of actual weakness. It is important to distinguish between less upside momentum and actual downside momentum. The ETF surged from 104 to 117 in six weeks (+12.5%). Since this surge, the ETF has stalled somewhat with three indecisive candlesticks. Notice the small bodies, which indicate little change from Monday’s open until Friday’s close. Even with some indecision, the ETF managed to edge higher the last three weeks. Each high, low and close is above the respective high, low and close of the prior week. A little slowing after a sharp surge is normal. This also occurred in November 2009 (blue circle). Even though potential resistance from the April high is near, some actual weakness is needed before considering this level serious resistance and counting on a correction. Incidentally, notice that the 2009 advance did not correct until January 2010.
OIL FORMS BULL FLAG ABOVE RESISTANCE... Before considering the charts for the USO Oil Fund and US Gasoline Fund, it is often helpful to review the chart for West Texas Intermediate ($WTIC). Even though this is a continuous futures chart, it is more closely aligned with the price of oil than the USO Oil Fund. WTIC represents the underlying commodity. USO is a basket of futures contracts trying the replicate the underlying commodity. Chart 3 shows $WTIC forming a large diamond consolidation from October 2009 until September 2010. With a surge in late September, oil broke above diamond resistance and exceeded its summer high. A small falling consolidation formed over the last four weeks. This pattern looks like a falling flag, which is a bullish continuation pattern. A break above flag resistance would signal a continuation higher and oil could hit $90.
A lot may depend on the stock market and the Dollar. While the inverse correlation with the Dollar has diminished somewhat, there is clearly a positive correlation between oil and stocks. The indicator window shows the S&P 500 (red) and oil (black) moving higher from May 2009 until April 2010, correcting into the summer and then moving higher in the Autumn. Recent strength in oil was also enhanced by the greenback, which peaked in early June and move sharply lower the last four months. Continued weakness in the Dollar and strength in stocks would be positive for oil. Charts 4 and 5 show the USO Oil Fund (USO) and US Gasoline Fund (UGA) for reference.
DOLLAR INDEX FORMS A PENNANT CONSOLIDATION... Chart 6 shows the US Dollar Index ($USD) in a clear downtrend since June. A falling channel has taken shape as the index bounced off the lower trendline in mid October. This bounce, however, is still just an oversold bounce within a bigger downtrend. In fact, a pennant formed over the last few weeks. These are continuation patterns. With the prior move down, a break below last week’s low would signal a continuation of this downtrend. Even though the odds favor a downside break, we should always be ready for the unexpected. A break above the mid October highs would be quite positive and call for a bigger oversold bounce that could reach the upper trendline of the falling channel. RSI is shown meeting resistance in the 50-60 zone in August, September and now October to confirm the downtrend. Momentum is bearish as long as RSI trades in the 20-60 zone. A break above 60 would turn momentum bullish and could lead to a bigger rally in the greenback. This is a big week for the currency markets. The Fed makes its policy statement on Wednesday afternoon with more details on QE2 expected. The European Central Bank (ECB) makes its policy statement on Thursday morning. Chart 7 shows the Euro Index ($XEU) for reference.
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发表于 2010-11-2 01:07
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