Rule 1: I hardly ever, and I mean hardly ever, lead with EW or use EW analysis exclusively. While I firmly believe price is the most important technical data, by itself you'd be lucky to bat 500 with your trades. I personally use a Candlestick chart with Bollinger Bands and 2 indicators. I prefer the MACD and RSI only because it works for me. I've tried others, but the two I use work the best for me. My personal experience is a combination of these tools help clarify the Elliott Wave count and more importantly, increase my ability to get my trades correct. And that's all it should be about.
As much as I try to gauge the Ewave count, and even reading other's Ewave count, the past several weeks has been extremely difficult to find the working Ewave count for anyone. It's been the perfect example of why Rule 1 is so important.
I've been relying on individual stock charts that are bearish, coupled with a big sell off in the market followed by a sideways over lapping pattern the past several weeks. That suggests we have not put in a bottom in the market, which is supported by the lack of a market low on divergences.
We continue to have lots of money making trades because our trading has been for the most part driven by individual chart patterns breaking down on bearish set ups.
$SPX 60 Minute: I have 3 possible wave structures. The first is the most bullish I can get. It's a big WXY (3-3-3) pattern. We have wave c of Y left. If this is to play out the market has virtually no room left to move lower and needs to gap up Monday and keep running. The slow slide in the MACD tends to support this view.
The second thought is some kind of ending diagonal to finish this leg lower. If this is the case we should bottom between 1,085 to 1,100. This structure would continue to whip saw the market back and forth into an bottoming structure. I can see either one of the first 2 charts as viable because there might be too many shorts and put buyers and sentiment is wildly bearish. Currently, this is my least favorite of the 3 charts.
My final thought is the most bearish view, which is wave IV has finished and we are into wave V down with waves i and ii finished. If we are into wave iii, then the past 3 days might have been a series of smaller 1s and 2s. If this is the structure, I would expect a gap down Monday as wave 3 of iii. In that view the market sells off all day Monday.
$SPX Daily: If I had to pick one of the above 3 based just on those charts, I would say it's a coin toss because Mr. Market has done a great job of keeping everyone guessing. However, if I'm thinking about the market from my Time Frame Indifference and my primary view on the daily chart, I would pick chart 1 and 3 (not the ending diagonal).
Below is my daily chart and what my current primary view and expectations are. First, you'll notice a small H&S top in the black lines. It's quite common for a H&S pattern to be the head or right should of a much larger H&S pattern, which I've drawn in blue. We broke down sharply from the first H&S top and then we have grinded back and forth. That over lapping pattern is usually a continuation pattern, so I expect another push lower to build divegence on both the MACD and RSI. The RSI has plenty of room to support much lower pricing before hitting over sold. Conceptually, how many big investment houses do you think have their stop losses placed below 1,120 and 1,100? I'm guessing a lot. We could see these stops domino upon each other in the most bearish view, which helps the market trade down to the anticipated neckline before we bottom on those divergences. I'm still looking for a bottom in mid to late October. If we get this, then I expect the market to bounce into a right shoulder into January 2012, which is a Fib 34 months from the March 2009 low.
AAPL: A small sell signal might have happened on Friday with a break below the blue uptrend line! Since it's on divegences in both the RSI and MACD I would consider this a big development. If price slides to cluster support in the red box, Mr. Market is going to have serious issues.
JNK and IYR: Both have bearish patterns followed by a break down. Both have major support below that we probably test.
$VIX: It's made a large wedge or continuation type pattern. It's indicating a push higher and above resistance and probably above 50. This would support the push lower expected in the stock market.
The Monthly Risk Chart: If the $VIX is going up and the market is going down to anything close to my primary view then shouldn't we expect the The Risk Chart to bottom somewhere in the area of 20, the prior lows and the lower BB? That seems logical!
My Watch list: Let's get back to my trading brain. I'm still bearish trading because individual stock charts look quite bearish.
RL: That was a large break down Friday in price. We have a failed over through with divergences in place. The 200 day MA is the next stop but we could easily slide to the black and blue lines for support.
CMG: Another momentum favorite sell off on Friday. Divergences in place. The lower BB is the next target, and below that and we should test the 50 day MA.
WFM: Friday we got the break below the up trend line and support as the MACD slides lower.
COST: This is probably one day behind WFM in structure, so maybe Monday we get a break of support.
AMZN: Another momentum favorite sliding. I can see this stair stepping down to the 50 day MA, then the lower BB, then the gap, and then the 200 day MA.
COH and TIF: I showed the weekly chart on Thursday for both of these. The daily chart shows a pattern break down, which supports the bearish view on Thursday's weekly charts.
KO: What you are starting to see is market favorites like AAPL and KO finally give into market selling. This chart has an ending diagonal against the over head trend line. Price back tested the bottom diagonal line and has now reversed lower.
From My Trading Desk: Friday we closed a short on WFM and scalped a short on CMG early in the day for gains. I took a tiny loss on a scalp short of RL as my buy price was not good and I wanted to close the trade before going to lunch. Upon returning from lunch I shorted a half position on AMZN and WFM.
My trading thought is to continue to keep the trading nimble and short in duration. I'll be very interested to see how Monday and Tuesday play out because that could eliminate one of my three patterns on the 60 minute time frame.
Happy Trading
J.D. Rosendahl, Rosey