Weekend Update

The combination of the Real Estate Sector’s confirmed sell/short Signal and the mounting presence of yellow and some red candles across other equity sectors is an indication that a top of some degree is approaching. However, as I make the case down lower, the odds favor the Nasdaq continuing its melt up process a bit longer. Should we see a green open for the QQQ tomorrow, then the Portfolio will enter TQQQ. If it doesn’t open green, then there is still a chance the trade is made, but I will post if the trade under this circumstance. I will also post should the Portfolio exit either or both of its short positions SOXS and TECS.

Let’s start on the close up, immediate-term view for the SPX. I have both red and purple labels to show a couple of different possible near-term resolutions. The red labeling presumes the first leg is complete and now a pullback, the depth of which will clarify the Elliott Wave Count, is underway. The purple count is that we are seeing either a leading or an ending diagonal tracing out. The diagonal needs one more push up to a new all time high to be completed. If it is an ending diagonal, then primary wave [1] of Cycle WAve 3 would be complete after a new high is made and a large pullback in primary wave [2] would follow. If it’s a leading diagonal, then minor wave 1 of intermediate wave (5) of primary wave [1] would be finishing and a sharp pullback in minor wave 2 would follow that would find support above the intermediate wave (4) low. There is also the possibility for the top to the ultra-bearish TOP that I showed back on Thanksgiving that Cycle Wave 1 is only just completing now and Cycle Wave 2 would then follow. I want show this count unless a pullback takes out the intermediate wave (4) low, then it would be shown as a possible alternative count. There is also an ultra-bullish count that I’ll show lower on the daily chart.

On the daily SPX chart below, the red count has been discussed above in both it’s possible outcomes, and the blue count shown is the ultra-bullish count. The blue used to be the favorite count and remains a valid and reasonable alternative. This count is that the SPX is in a sub-dividing minor wave 3 of intermediate wave (3) of primary wave [1] of Cycle Wave 3. In this scenario, minor wave 3 will subdivide into five minute waves. As shown below, minute wave [i] would be a leading diagonal that requires a final push up to complete.

The rationale behind going long the Nasdaq on a green open tomorrow is shown below. The NASI chart still hasn’t shown the type of negative divergence we typically see before Nasdaq tops (QQQ is the grey shaded area). Below the NASI chart, the COMPQ Elder chart shows my favorite wave count for the Nasdaq and there is little room left for minute wave [iv] before it violates the minute wave [i] high and becomes invalid. So, if the count is correct, then we would likely see a green open tomorrow. This count does call for choppiness to ensue as the minor wave 3 high would be followed by another pullback in minor 4 before the final push up once again in minor wave 5 of (5) of [1].

About alphahorn

I received an MBA from Columbia University’s Graduate School of Business in New York and am a Wall Street veteran. I’ve worked for a number of investment banks including Smith Barney and First Boston/C S First Boston in New York. Over the years, I have developed my own Proprietary Swing System and I combine that System with my own Elliott Wave Analysis to trade.
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