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Tech Analysis by Elliott

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Sunday 6/7/2009

Created by Ryan Henry

Wavespeak.com

Weekend Issue

After spending much of May moving sideways, the indices used this week to move above the range bound pattern to achieve new highs to the advance off March’s lows. Monday brought the thrust of the breakout move, followed by two marginally lower days. Thursday and Friday’s sessions carried price back to new highs, securing the 11 gain of 2.5 to 4%, with the SPX lagging and NDX leading the move. So continues the impressive

While this week’s breakout is brand new and isn’t all that big relative to previous moves within this advance, it may not last much longer. The indices have managed to quickly provide us with an impulsive pattern that could immediately give way to another large sideways to down move as quickly as early next week. In addition to the impulse pattern, the current up leg is similar in size to wave 1 of this 3 levels, which will tell us if price has an upward extension in mind, or if we’re going to fall right back

While this will be discussed in greater detail as the move progresses, do not be surprised if the next corrective recovery is not exactly trader friendly. Every single downside move during the course of this advance has been shallow and choppy. Further, the next corrective recovery will be a 4 is frequently the most difficult wave to trade. While my purpose in life is to identify great trading

Tonight, we’ll start with a quick review, and will then look closely at the possibility of a larger correction taking hold in the coming market hours. After we shake the indices down, we’ll present this week’s Wavespeak Picks. Alright, let’s take a gander:

advance off March’s lows. into a larger corrective pattern. opportunities for subscribers, it’s just as important to know when time is best spent waiting an keeping the powder dry. Again, we’ll see how the move progresses, but it would not be too shocking if there isn’t much to do with the upcoming correction.

The advance off March’s low completed its 13

After tracing out a long sideways pattern in May and then breaking out to the north this week, it appears that we are in the latter stages of the 3 low. Once the current up leg completes, we’re looking for another large sideways pattern to play out

th week this week. While 13 weeks of anything is impressive, the fact that this move has avoided any type of notable pullback during its entire duration makes it even more so. However, despite the move’s persistence, we still believe that it is not the start of a new up trend. Instead, it fits as the final C wave of a larger 4 November. As you may know, this is a debated topic in the Elliott world. Some analysts think that March’s low was a major low and that the trend has turned up. We do not agree with that assessmen for a few key reasons. In terms of price, the clear three-wave nature of the move into March’s low cannot objectively complete a trend – trends are completed with five-wave moves. Additionally, historical precedent questions the likelihood that this is a new uptrend. In every instance that I can find in the past where such a big moved occurred directly off a new multi-year low, it ultimately proved to be corrective and give way to the previous trend (which, in this case, is down). So this is the context we’re working in. We’re looking for a big five-wave pattern to complete off March’s lows, at which point the overall downtrend is expected to resume. The resumption of the downtrend is expected to lead to a test of March’s lows. The key right now is determining when the current impulse up will complete. (which will be wave 4), followed by the 5.

Of course, regardless of whether March’s low was a major one or not, a big decline will follow the completion of wave 5. Even if a new uptrend did begin, we’d at least get a big downward correction at that point. So again, the focus is on the progression of this big impulse pattern, because once it’s complete, a big decline will occur regardless of anything else. Let’s take a step closer and look at nearterm action:

 

This one-minute chart of the NDX focuses on this week’s breakout move. You’ll immediately notice that the move off May’s low is now taking on a five-wave form. We’ve indicated that, once a five-wave pattern takes shape, we’ll have to be on guard for the start of the larger 4 is now. After pulling back on Tuesday and Wednesday, the move to new advance highs on Thursday

and Friday could be the final up leg of this breakout move. If so, we’re at the verge of starting anothe big sideways to down move that should last at least a couple of weeks. The key in confirming that this up leg has completed lies with our key levels. A breach of  anytime would confirm that a larger down move has begun. If price is able to stay above these levels from here, this up leg could extend and become a larger impulse pattern before it’s complete. So be o your toes early in the coming week. If we see greater weakness emerge, it will likely indicate that price has become range bound once again as a large 4

Another interesting point to note is that, at today’s highs, the current 5

On the Dow, wave 5 is currently 70 points shorter than wave 1, while wave 5 on the NDX is 155 points compared to a 110-point 1

th wave advance is similar in size to wave 1 (shown in yellow above). On the SPX, wave 1 was 70 points. Wave 5 is currently 65 points.

gives us another reason to be on our toes here, since it adds to the possibility that the current up leg is near completion. Again, the key here is our, well, key downside levels. Keep a close eye on them from here because a near-term high is definitely possible.

There are other reasons to think that current levels may mark a near-term high. We’ve been discussing the 200-day moving averages recently, since they’re now in play on the Blue Chips. The Dow and SPX managed to close marginally above these levels for the week, but don’t think that’s the end of it.

Historically, the 200-day moving average has not given way very easily:

 

Chips was in December 2007. More importantly, note what has happened when this moving average has been tested over the past five years. More often than not, the 200-dma is the place where corrections end, and the previous trend resumes. As such, the current test is a good reason to think that price may struggle in this area.

Another level that is having an impact here is January’s high. The SPX tested it on Monday, then spent the rest of the week battling it. The Dow is a bit below the same level.

In addition to these important levels, Fibonacci might be in play right here as well. Note that wave C, the current advance off March’s low, is now at or near the point where it is 1.618 times the size of wave A (which ended in January). Interestingly, this week’s high on the Nasdaq (at 1865) is an exact test of this level. The NDX came close to accomplishing the same; wave C is 1.618 times the size of wave A at 1482, and today’s high was at 1505. The Blue Chips aren’t quite there yet – this relationship occurs at 9188 Dow and 972 SPX. It is common for C waves to be 1.618 times the size of wave A, so again, it may prove difficult for price to move directly higher from here.

First, note that the last time we saw a weekly close above the 200-day moving averages on the Blue

Some of the technical indicator readings question prices ability to continue much higher as well. One example is the Advance/Decline Ratio, which remains at the upper band of its historic range. Also note how much time this indicator has spent negatively diverging against price. While a new advance high was set on all indices this week, this indicator hasn’t set a new high since late March.

In the same category is the Bullish Percent Index. We spent a good amount of time talking about this indicator on Wednesday. The short of it is that the BPI is right near all-time highs. And in the past 22 years, this indicator has been this high only seven times prior to the current instance. Previous readings such as this one have led to a decline that averages four months in time.

Finally, the Put/Call Ratio remains near multi-year lows, as a bullish market sentiment prevails.

In summary, there are a number of things that could lead to a near-term high here. This week’s up leg is now impulsive; there is some pretty important resistance in this area; and a number of the oscillating indicators that we watch suggest that even this super-persistent advance may have a tough time continuing notably higher. Still, we gotta expect higher prices until something indicates otherwise.

That’s where our key levels come into play. Keep a close eye on them, as well as price’s behavior, in the coming week. If we see greater weakness emerge, it will indicate that price is now in a larger

wave move that will carry price sideways to lower for at least the next couple of weeks.

WAVESPEAK PICKS

Notes:

remains corrective, indicating higher levels ahead. The target is at 10.90. Move the stop up to 9.20.

CHS pulled us in on the long side with further strength. You can see that downside action

Notes:

AMAT traded a bit above its point of negation at 12.00, but let’s keep this setup intact for the moment since it remains pretty clean and appears on track. We’d go short at 10.60 with a target at 9.60. If price moves back to 11.60 first, this setup would be negated.

Notes:

AMD finds itself in a grinding pattern here, continuing higher but in indirect fashion. We’ll stick with it. The target is at 5.30, stop at 3.80.

Notes:

BZH has become too slow for our liking. We’re taking this setup off the board for now, but will keep an eye on it.

Notes:

Not sure what to make of this action on CMCSA. Instead of giving us another impulse down, it traced out a three-wave move and has since recovered. Respect the stop at 14.75.

Notes:

COST is still having a tough time adding on to its recent breakout. Still, downside action is clearly corrective, indicating higher prices ahead. The target is at 53.00, stop at 45.50.

Notes:

GENZ had a strong first half of the week, but gave most of it back late in the week. The upside pattern still appears incomplete. The target is at 65.00. Move the stop to 58.00.

Notes:

GRMN has turned north after nearing out stop level at 19.00. Even better, the current up leg is impulsive. Move the stop up to 20.50. The target remains at 27.00.

Stock:

Expeditors International (NASDAQ:EXPD)

Industry:

Air Delivery and Freight Services

Position:

Short-side play

Time Frame:

2-4 weeks

Confidence Builder:

32.00

Target:

29.50

Stop:

36.00

Notes:

trades below 32.00, with a target at 29.50. Do not take this trade if price continues up through 36.00 first.

EXPD has maintained a short side setup despite market strength. We’d go short once price

Stock:

Ross Stores (NASDAQ:ROST)

Industry:

Discounted Retail

Position:

Long-side play

Time Frame:

2-4 weeks

Confidence Builder:

41.00

Target:

43.50

Stop:

37.00

Notes:

ROST has traced out an impulsive advance that carried this stock back to recent highs. That means price points higher on two different degrees of trend. We’d go long once price trades above 41.00, with a target at 43.50. This setup is valid only as long as price stays above 37.00.

Stock:

VeriSign (NASDAQ:VRSN)

Industry:

Internet and Software Services

Position:

Long-side play

Time Frame:

2-4 weeks

Confidence Builder:

24.50

Target:

26.50

Stop:

21.00

Notes:

VRSN is in a multi-month recovery that does not appear complete. The near-term pattern portends another up leg, confirmed with trade through 24.50. We’d go long there with a target at 26.50. Do not take this trade if price moves below 21.00 first.

Stock:

Callaway (NYSE:ELY)

Industry:

Sporting Goods

Position:

Short-side play

Time Frame:

2-4 weeks

Confidence Builder:

6.80

Target:

6.00

Stop:

8.20

Notes:

Finally, ELY has lined up to the downside, courtesy of an impulsive decline and recovery that started in corrective fashion. As long as price stays below 8.20 from here, we’d go short once price trades below 6.80. The target for the move is at 6.00.