The most important position on this chart is the 24 July low 2002 low. It is 50% of 1552.87 the record high. (50% = 776.43, 776.68 is actual low). This is strong psychological low and many markets make important lows or bounce at this level. An example of this is the All Ordinaries Index on the ASX Australian market. The high was 2312 in 1987 and the bear low at 1149. In this case, five points out.
The subsequent SPIKE lows in the S& P were retests of this important low. Obviously, a break below this 50% range is going to be a major negative blow. Note the SPIKE REVERSALS on the three lows. SPIKE REVERSALS are a result of a large number of BULLS or BEARS being caught on the wrong side. They are mostly NOT due to fresh buying or selling, which are generally a much more drawn out affair then covering positions on the wrong side.
The three tops in the above TRIANGLE are much more time consuming then the lows. If SPIKE REVERSALS are COVERING of wrong positions, then reversals that take time are more of the ACCUMULATION or DISTRIBUTION type. Some major lows in BEAR markets were made with SPIKE REVERSALS. And this seems contrary to the statements made. However, this depends on the time frame being viewed. The above TRIANGLE is a DISTRIBUTION and ACCUMULATION pattern. The lows within the TRIANGLE are SPIKE REVERSALS made on SHORT COVERING RALLIES. The tops within the TRIANGLE are the DISTRIBUTION and ACCUMULATION component. That is the reason the above tops in the triangle are taking time. The whole TRIANGLE is taking time, thus if it is the BEAR MARKET low it will be a long drawn out pattern that is now 10 months old. It thus satisfies a BEAR MARKET BOTTOM.
In the original Elliott work TRIANGLES were either fourth waves in IMPULSE WAVES or "B" waves within a consolidation. The outgoing BREAKS and THRUSTS were limited to the length of the longest segment within the TRIANGLE +/- 25%. This would bring a down side break to just under the 10 October low and complete the BEAR market. This is assuming that there is a downside break. If the price break is upwards, most Elliotticians will re- label the swings making blue [B] the fifth wave of the down move, blue [C] wave one of the new up move, and wave [D] wave two. Such relabelling is rule bound without clear understanding of the dynamics of what is occurring underneath. It is the mind working with a map of the territory and not with the territory itself. (This is common for it is a difficult task for us all (including myself) to have a modicum of reality when we need it.)
Examination of Edwards & Magee's work will show major tops, bottoms, mid points of large TRIANGLES that were NOT limited to the largest segment within the TRIANGLE. G. Neely has rediscovered this fact, and now, has LIMITING and NON- LIMITING TRIANGLES. He has TRIANGLES completing corrections that he calls ZIGZAG COMBINATIONS, amongst other patterns. The above TRIANGLE is of G. Neely's NON- LIMITING version though we cannot be sure of this until it is complete. Therefore, the TRIANGLE above can be a major low and the start of a major down move of much greater depth than being limited to the longest segment. I have more downside in my Elliott Wave count. Thus, I am expecting a downside break from this huge TRIANGLE (unexpected by most if my cable TV is a guide). I am not expecting it to be limited to the longest segment. Hence, the above labeling of green (2) which will bring out many traditional Elliotticians with comments - this is not Elliott Wave!
TRIANGLES usually complete with five swings. The above pattern is at the critical position between an upside break and the restart of the down move. So far, the [E] swing is stronger than expected for the down move, and is too near the upper containing magenta line of the TRIANGLE. Triangle breaks usually occur from 38.2 to 61.8% of the two containing magenta lines or alternatively from false breaks above the magenta line. I have circled the above critical action with a red circle called "Make or break it" circle. The resolution within the circle will determine the next major move.
This 60 min/ bar chart has the action chart for the last four weeks. It has a red projection RECTANGLE based on the same time/ price relationship as the blue [D] down move to 788.90. The red diagonal dotted line represents the reverse exact momentum of the [D] down move. While ever the price action stays above the red dotted line the up move has greater momentum than the down move. It can be seen that recent action has touched it twice.
There are two reasons for drawing this line,
The up move from 788.90 satisfies both points thus as it stands the move is so far BULLISH.
As can bee seen, last week price action touched this line twice last week and thus we can say that the BULLISHNESS is near borderline of turning BEARISH . The price pattern is that of a rising wedge. Usually in Elliott, this is a DIAGONAL or a TERMINAL. If it were so, it would be an ideal conclusion to a second segment of a ZIGZAG "Y" wave. However, it does not quite meet G. Neely's TERMINAL specification so I left it as plain Edwards & Magee Wedge and labeled it as a rising TRIANGLE.
Last Wednesday [Y] wave reached an exact 61. 8% relation ship between the two magenta lines (See the faint cyan lines). Following open, the S& P did the required rapid fall suggesting that the level had hit pay dirt at 61.8%. However, it was not sufficient to break the red dotted line below. On Thursday the S& P bounced. I do not know if this was a long weekend aberration.
The expectation is for a sell off on Monday . However, it is not as strong a projection as the sell off last Wednesday. I am always suspicious of second attempts, for if the S& P hit pay dirt it should not preferably come up for the second time to test it. Note the two failed Head and shoulders patterns at green (A) and (C). They are distribution patterns not accumulation.
The alternative is a ZIGZAG to 908. A UPWARD BREAK from a rising TRIANGLE would be very BULLISH .
Zoran Gayer
23 April 2003
DISCLAIMER
This information is intended for educational and discussion purposes only. Please direct any discussion to the site where you have obtained the update and not to me personally. I trade for a living. I do not have time to answer all queries. Directing your discussion to the posting site will allow others to participate in the discussions and resolve some of the issues independently. It will also give me the opportunity to learn from the comments. This update does not suggests nor recommend that any trading position to be taken. This is NOT financial trading advice. If you trade, and need assistance or advice, it is suggested that you seek a qualified financial advisor in accordance to the rules and regulations in your country.