Market Update, 2009.07.05

5. July 2009
Comments (0)

SPY Weekly: Taking a step back and looking at the movement of the market since the beginning in October 2007, it looks so clear!  That's very easy to say after the fact, of course.  From an Elliot Wave standpoint, the movement was very textbook.

Around the middle of May 2008,  we made a 50%-61.8% retracement of "wave 1" to make "wave 2", then quickly started the next wave down. See below.

 
 
The next wave down, "wave 3" is typically 161.8% to 261.8% of "wave 1".  You can see we fell right in that range (between the two red lines), very close to the 261.8% level. There was also signs of divergence in the oscillator as we reached this low in March 2009.  This is a sign of the end of "wave 3".  See below. 
 
 
 
The "wave 4" pullback is typically 38.2% to 50% of "wave 3".  You can see below that we made a perfect 38.2% pullback in June 2009.  Also, at this point, we have a false bar setup with the bias down and the stochastic in the overbought area.  See below.
 
 
 
Using the fibonacci time tool, the end of "wave 4" typically ends at 138.2% of "wave 2".  If we have indeed seen the near-term top, this was very accurate.  See below. 
 
 
 
Looking forward, "wave 5" is typically 61.8% to 100% of the bottom of wave 1 to the bottom of wave 3.  This would put targets at 60 and 37!  The 60 level also cooresponds to the MOB  (green bar).  By definition, "wave 3" is the longest wave, so if wave 5 goes longer than wave 3, then this entire move will be relabeled "wave 3".
 
Putting the SPY at 37 seems a bit unrealistic.  However, ~60 seems reasonable. Keep in mind, if "wave 4" pulls back further, this would also pull these targets higher with it.  In other words, if the SPY pulls back to the 50% level (around 105), then the 61.8% level would go from 60 up to around 68-70. 
 
 
 
QQQQ Weekly: The SPY pulling back only to the 38.2% level seems small, however, looking to the NASDAQ (QQQQ), we see a better picture.  The NASDAQ has proven to be the leader of the S&P and the price action below seems to confirm it.  The Q's pulled back almost 50% of its "wave 3".  The "wave 5" projection puts a target near 21.  See below. 
 
 
 

Lesson

Disclaimer

By downloading and using any of our studies, you agree to the following disclaimer:  
 
Past performance is not necessarily indicative of future results. The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.  
 
In considering whether to trade or to authorize someone else to trade for you, you should be aware of the following:
  • If you purchase a commodity option, you may sustain a total loss of the premium and of all transaction costs.
  • If you purchase or sell a commodity future or sell a commodity option, you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position.
  • If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position.
  • If you do not provide the requested funds within the prescribed time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.
  • Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a "limit move".
  • The placement of contingent orders by you or your trading advisor, such as a "stop-loss" or "stop-limit" order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.
  • The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains. This brief statement cannot disclose all the risks and other significant aspects of the commodity markets. Before you trade you should inquire about any rules relevant to your particular contemplated transactions and ask the firm with which you intend to trade for details about the types of redress available in both your local and other relevant jurisdictions.
 
 
neoTOOLBOX.com does not guarantee results, information, or EFS studies and scripts in any shape or form.