EW on the Market

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After establishing new advance highs early Thursday, the indices have pulled back a bit, first by reversing most of the early Thursday gain and then by reversing an early gain on Friday as well. Still, the indices continue to find a way to press higher while leaving behind only small pullbacks. From a long-term perspective, there are some interesting things taking place as discussed on Wednesday. If we look at the extent of the advance off the ultimate low that was recorded on the NDX in late 2008, price has now retraced 78.5% of the 2007/2008 decline. This is essentially the maximum retracement that can legally occur if a move is to still prove corrective. We’re already firm believers that this enormous year-long advance is not a corrective move, but many Elliotticians still call it one. Now, price is right at a point where it can prove it isn’t corrective with certainty. Any further strength on the NDX would leave us with a recovery that is too big to be called a correction by any rule-following Elliottician. And that’s important because the vast majority of Elliotticians out there are still looking for a bigger bear market decline off the 2007 highs. Either way, we remain confident that this yearlong advance is ushering in a bigger bull market advance. We’ll review this below.
On any shorter time frame, we still have no objective reason to doubt price’s ability to continue firmly higher from here. Yes, the move is incredibly overextended and yes, there doesn’t seem to be much behind it in regard to the real world. But as you know, price movement is all that matters. If price goes up, the bulls win, regardless of anything else. More specifically, we know that price movement takes on a certain form before any given pattern completes. And in that respect, this upside pattern does not appear complete at this point in time. Additionally, this advance has to have earned our respect with its persistence. Until the nature of the move changes, we have to expect more of the same ahead.

Price gave us more paced action to start this week, with all indices managing to record marginal gains right below current advance highs. While there’s nothing terribly strong or exciting about this price movement, it is consistent and persistent. By that, I mean price continues to find a way to edge higher on all time frames, as every pullback attempt has been quick to prove corrective and give way to further strength. That’s exactly what last week’s pullback is doing; it has assumed a three-wave form and has now been retraced by more than 61.8%. So as has been our recent mantra, there’s no reason to doubt the ability of price to head higher here, regardless of what time frame you look at. Upside patterns appear incomplete on multiple time frames and pullbacks continually prove corrective. It also doesn’t hurt that the trend has been so firmly up. If price is moving in only one direction and we have indications that it should continue, we’re left with one and only one objective expectation here.

The indices appear to be taking a step in the direction of a five-wave pattern off February’s lows this week. For the past five sessions, the indices have managed to avoid setting a new advance high, leaving us with a near-term pullback that likely fits as a small 4th wave correction within a larger 3rd wave up leg. While this has price moving sideways right now, we should see price resume its ascent shortly as this eight-week up leg eventually takes on a five-wave form.
Other than this near-term development, there is very little going on right now. All indices continue to trade in a very slow fashion. This is simple price movement and there’s no reason to complicate things. As we’ve discussed in all recent newsletters, we have numerous reasons to expect price to resolve higher, due to incomplete price patterns on numerous time frames and a market sentiment that continues to support higher prices. In addition to these concrete reasons, there’s the simple fact that it remains very difficult for price to pull back in any significant way. The current pullback is a perfect example. Instead of seeking out lower levels, this move is heading east just a few points below current advance highs. And when price isn’t moving sideways, it’s moving higher. As long as this persistent advance continues to behave this way, it’d be a bad idea to expect anything but more upside pressure ahead.

This sure is a boring moment for the market, with almost every session finding a way to end near the
flat line. And it’s not just the daily figures; this slow patch is reflected in the weekly numbers as well,
with all indices ending the week less than a percentage point better than where they started it. But it
could be worse. At least during these slow times, the pattern is clear. The indices currently sport a near
textbook corrective pullback off recent highs, indicative of pending market strength. This, of course, is
in line with everything else we’ve been seeing lately. Specifically, we’ve been discussing how the upside
pattern doesn’t appear complete; not from a mid-term point of view, nor from a near-term point of
view. We’ve also been focusing on the fact that price has had a tough time going down in any way for
over a year now - it seems as if price is only able to go up or sideways, and that sure makes it easier to
be bullish this deep into an advance. At the end of the week, it’s the same story. Despite slow market
action, the charts continue to point to higher levels ahead. All we can do is trust it – and practice some
patience in waiting for more interesting times ahead. In this weekend publication, we’ll take a look at
the Elliott Wave pattern from every time frame, starting in the long-term and zooming in from there.

The indices appear to be on the move again, moving to new advance highs today after spending recent
sessions trading sideways. As discussed, the sideways action was corrective movement that was
indicative of further strength, in line with everything else we’ve been seeing. It’s likely that this up leg
off February’s lows is getting late in its progression, increasing the likelihood of a larger pullback in the
near future. However, from where we stand right now, we must continue expecting further strength
ahead. Once we do see a completed five-wave pattern take shape off February’s lows, we should see
greater weakness emerge. But if this incredibly persistent advance has taught us anything, it’s to wait
for indications of a change before getting jumpy. So we’ll continue expecting indefinitely higher prices
until market behavior changes.

After setting new advance highs in recent sessions, the indices gave back a bit today. This indirect
price movement is not uncommon for wave patterns that are late in their progression, as this one off
February’s lows appears to be. Still, it looks like higher prices will occur in the near-term before this up
leg is completed. To be sure, the upward climb is slow and deliberate, but that’s what price is giving us
so that’s what we have to work with. We’re looking for at least one more up leg to complete before a
larger pullback is likely. Specifically, we should be ready for at least a correction of the advance off
February’s lows, if not a larger downward correction that takes several weeks to play out. But no
matter how you slice the near-term movements of this pattern, we must maintain the bullish stance
based on the things we’ve discussed in all recent newsletters. Specifically, we have identified two
advancing patterns, one in the near-term and one in the mid to long-term, that do not appear
complete. In addition to that, we know that the current up trend is remarkably strong, and it would be
a bad idea to doubt its ability to continue. And if we bring the technical landscape into the
conversation, we know that market participants continue to doubt this move’s ability to continue.
That makes for a good environment for the move to do just that.

It’s like clock work. Every week, the indices find a way to end at or near new advance highs while
managing to end the week in the green. A rally on Friday allowed the indices to repeat this pattern,
locking away a sixth positive week in a row and eight of the past nine. Of course, the weekly advances
have been pretty tame, with most gains coming in at less than a percentage point. Still, it’s clear that
the indices are back to their same old tricks. Since last week’s lows were recorded, the indices have
shaken off choppy, corrective movement, and are now giving us impulsive upside movement. This
strongly suggests that the near-term trend is up and higher prices are coming. We do believe that this
up leg that has been in play since early February is nearing an end, since the pattern is shaping up as a
completing five-wave move. And when it does end, we will get a larger pullback – at least a correction
of this nine-week advance, if not a larger correction. That’s what lies ahead – for now, stay in the
present as we must continue expecting higher prices until something indicates that this up leg has
completed.

The indices gave us another marginal up day today. As you might guess, this leaves us right where we
were heading into the session. The near-term advance is still in play and should continue in a
northbound direction. Meanwhile, it’s clear that the nine-week rally is moving towards a high, since it’s
shaping up as a completing impulse. Once it does complete, we can expect a pullback that at least
corrects the current nine-week advance, but the potential will be there for a larger degree pullback.
Under any scenario, we expect the next pullback – whether it’s a larger degree move or not – to again
lead to higher prices.

That’s a little more like it. After watching price push persistently but very slowly higher in recent
weeks, today’s more notable strength was a welcome sight. It of course resulted in another round of
new advance highs, keeping all things on the up and up. Additionally, we’re left with a near-term
pattern that still looks to be in need of further strength. At the same time, today’s move brought with
it some interesting readings. Most notable is a spike lower on the Put/Call Ratio, bringing this
indicator more in line with a place that previous highs have occurred. Additionally, the advancing
pattern off February’s lows is looking closer and closer to completion. As we’ve been discussing, a
larger pullback appears to be nearing. The trick, then, is sticking with this super-persistent advance as
long as we can without getting nervous. To that end, we have a new set of key levels that should
provide an early clue to a change in market direction. Once a pullback is confirmed, we know that the
potential for a larger degree pullback will be there. We need to be fully aware of this potential – but
again, until something happens to indicate that this up leg is complete, we must put the blinders on
and continue expecting further strength ahead.

After exhibiting more notable strength earlier this week, the bears finally responded by giving us one
of the more notable down days we’ve seen in a while on Friday. The place where this weakness
emerged leaves something to be desired, which results in a lack of clarity in the near-term pattern.
However, we’re fully aware of the fact that the advance off February’s lows was late in its progression,
and the fact that other readings were popping up to suggest a larger decline was coming. For these
reasons, we’re paying full attention to Friday’s down day, as it could indicate that the ten-week up leg
has completed and a larger pullback has begun. The possibility of something more important starting
here isn’t hurt by the fact that Friday’s down move has an impulsive look and feel to it. Of course,
whenever any type of weakness has emerged in the past, it has been quick to prove corrective. If
current weakness avoids following suit, it would look like a clear sign that the up leg has completed.
What price does from here will go a long way in that respect. As is, there are a number of ways to look
at the near-term pattern, many which say further strength lies ahead. So this really is a point to watch
closely as price issues a statement regarding its agenda from here.

After pulling back with more purpose on Friday, the indices recovered today. If the indices are able to
turn back down pretty quickly, the potential will still be there for a larger pullback to begin as
discussed in detail this weekend. However, we’ve seen this type of thing happen over and over again
over the past 13 months. Every single display of weakness has quickly proven corrective, normally
within the first couple of sessions following the weakness. So far, this time doesn’t appear any
different, and that’s why it needs to take a lot more than one or two days of weakness to change our
bullish stance. As we’ve been saying for several weeks, price must prove that a change is at hand
before we do anything other than expect higher prices ahead.
Tonight, we’ll take a look at this near-term tennis match and how it’s impacted the charts. Otherwise,
there’s no reason to get too tricky here. We know that the potential for a more important high exists,
since the up leg off February’s lows appears to be late in its progression. But until the bears are able to
put together something with more staying power, we have to expect higher prices ahead.

And back to business as usual. Like every other pullback we’ve seen for the past 13 months, the
pullback that emerged late last week has proven to be very temporary. All indices have since retraced
the pullback, confirming that all downside action remains corrective and that the ten-week up leg off
February’s lows remains in play. As we’ve discussed, it does appear that this up leg is nearing
completion, and once it does complete, a larger degree pullback will be possible. At the same time,
price frequently makes it clear why we must stubbornly stick with our bullish stance until price’s
behavior changes. That’s because on every time frame, price has found a way to continue higher and
higher while avoiding any real weakness. So while a high to this leg may be just around the corner, we
have to wait for price to prove it, expecting higher prices in the meantime. Tonight, we’ll cut straight
to the chase. We’ll look at the latest corrective pullback and why higher prices remain on tap. We’ll
then briefly review the larger setup and what we see taking place moving forward. Nothing fancy, just
the most objective take of the charts that we can find.

Despite a very weak start to Thursday’s session, the indices managed to turn right back up and end the
week at new advance highs. It sure seems like the market is trying to give us more head fakes here, but
at the end of the day (or week), it keeps coming back to the same old thing – slow but incredibly
persistent upside pressure. From where we stand, very little has changed. We have stuck with a bullish
stance ever since it became clear that January’s decline was not the start of something more important.
Over that time, we’ve watched price move steadily higher. This has resulted in a gain of 14 to 20%
over the past 11 weeks. The advance may be slow on a daily basis, but if you do anything for long
enough, it adds up.
Heading into next week, the approach has to remain the same. While it’s possible that a larger pullback
is looming, we must demand some type of price action that indicates a high before stepping away
from bullish positions. This stubborn approach has allowed us to ride this move much longer than
conventional wisdom would, and there’s no good reason to abandon this approach now. So we’ll
continue looking for higher prices indefinitely, while remaining aware of the possibility that a high is
coming in the near future. Tonight, we’ll look at the persistent nature of this up leg. We’ll follow that
with why a larger pullback may be pending, and why this area is one that may put an end to the up leg.
From there, we’ll take a gander at this week’s Wavespeak picks, where we again traded one gain for
one loss while watching many other trades bar towards their respective targets.

The indices never moved too far away from the flat line today, keeping things largely where they were
at the end of last week. This lack of action today does not mean that there’s nothing to talk about,
however. As discussed in the weekend publication, there are some pretty darn interesting things taking
place on a number of charts. We can look at the price pattern, some big Fibonacci retracements, or
some of the readings that are popping up on the indicators, and all of them make it clear that this is an
intriguing point for the pattern. In this publication, we’ll go down the list of interesting charts to
discuss why this appears to be an important point for the market. We’ll also discuss how to approach
it from a trading perspective. This, of course, will be nothing new. Despite so many interesting
readings, we must remain stubborn with our bullish stance. We will continue expecting higher prices
until we see something that tells us a change is at hand. That something will be market weakness that
confirms a high to the current 11-week up leg, and sticks around for longer than a session or two.

Tuesday brought the biggest one-day decline we’ve seen since January, before the 11-week up leg
began. As you might guess, this weakness caught our attention, especially since we’ve spent the last
handful of newsletters talking about the potential for a high to the 2010 up leg, and the possibility of a
larger degree pullback. Not only did Tuesday’s decline fully register on the price charts, it also made an
impact on a number of technical indicators. We’re seeing a number of these guys issue or at least
threaten to issue new sell signals. To be sure, Tuesday’s decline set up the possibility that a high has
been found. But even with a big, potentially impulsive down leg on the charts, and even with a
number of bearish looking indicator charts, we’re not fully convinced that a high is in - at least not yet.
We’ve seen big one-day or two-day declines come, and we’ve seen them go just as quickly. So as far as
we’re concerned, we’ve not yet seen anything out of the norm to this point. Not only that, but there’s
a very easy way to look at this weakness as part of a small, corrective pullback that will resolve higher
right away. Basically, it comes back to the same thing we’ve been pounding on for weeks. The onus is
on the Bears to prove that this market is even capable of going down for longer than a handful of
market hours. We have to see this weakness stick around for longer than a day or two for that to
happen. So tonight, we are still maintaining the bullish stance, despite the number of bearish
indications we will discuss in the pages below. If we get followthrough weakness that isn’t immediately
retraced, we will take it seriously. We’d then exit the bullish stance since the possibility of a significant
pullback from that point would be real.

Apparently, volatility is on the rise. On Wednesday, we discussed how price gave us the biggest onesession
decline we’d seen since the 12-week advance began back in February. This weakness created
the possibility that the 12-week advance had completed, and a larger pullback was underway. Things
quickly changed on Thursday, when the indices managed to rally with purpose to retrace most of
Tuesday’s decline in the process. This came off as business as usual; Thursday’s immediate recovery
felt a lot like the immediate recoveries we’d seen following every other attempt at a decline over the
past year. But that wasn’t the end of it. Friday’s session brought a second helping of weakness, one
that almost completely retraced Thursday’s strength. Whenever we see back and forth action like this,
my first thought is that a corrective pattern is underway. That may very well be true, as it’s the best
explanation of what has taken place in the near-term pattern this week. But at the same time, for some
reason or other, I’m having a tough time shaking the feeling that maybe something is different this
time, and that we need to be on heightened alert heading into next week. Maybe it’s the terminal look
of the 12-week pattern, the fact that the Blue Chips are bumping into resistance, the readings we’re
seeing on some technical indicators – or maybe it’s the fact that the Bears actually showed up this
week, matching Thursday’s recovery effort with an immediate reversal back down. At the close of this
week, I’m not super confident on which way this will break. What I can say is that a high is possible,
and we can continue to find things that strongly support a larger pullback. In light of this, we’re
heading into next week on our toes. If weakness continues, we’ll take it seriously, to the effect of
exiting our bullish stance to fully respect the possibility of a large degree down move.

This market action kind of reminds me of when one of my dogs discovered some fondue chocolate
under the Christmas tree. This sucker is all over the place. Over the past five sessions, we’ve now seen
four big swings, two up and two down. Today’s session brought one of the up swings, allowing the
indices to almost fully retrace Friday’s down swing. As discussed in the weekend newsletter, such back
and forth price action normally proves to be a corrective pattern that will allow the established trend
to continue. Certainly, today’s push higher didn’t hurt the likelihood that recent action is just a small
downward correction within the ever-growing advance. But that’s not a foregone conclusion, so we’re
remaining cautious here. In other words, we’re still ready to exit our bullish stance if price begins to
string red sessions together, because there are a lot of things that can support a larger market
breakdown here. In the meantime, we’re doing our best to sit on our hands. To this point, we’ve
managed to stick with bullish positions under the mantra that higher prices must be expected until
something changes, or until the bears prove that this market is even capable of heading lower. That
has served us well because price has continued higher and higher, regardless of what any indicator or
anything else has told us. Now, it’s getting a little more difficult, since so many things appear to be
lining up in favor of a high. To be sure, we’re on our toes here.

Down go the indices. After spending recent sessions trading off big down days with big up days, the
indices have become more focused this week. It didn’t start that way; as Monday’s session brought a
very nice up day. But that faded, giving way to a very big down day across the board on Tuesday. It
was the biggest down day we’ve seen since January, and it even found some followthrough in today’s
session. This sure feels like a change in market behavior, so much so that we have to think that the
2010 up leg is over. Our plan has been to stick with a bullish stance as long as the 2010 up leg was in
play. Once it completed, we knew that a much larger pullback would be possible, which would be a
good enough excuse to step aside. While I’m not 100% convinced that price will give us a notable
decline from here, we’re sticking to this agenda. Any type of weakness from here will be used to take
gains off the table and step aside at this key point for the pattern.

Needless to say, our expectations for a bigger decline were not misplaced. Over the past two sessions,
the indices have fallen apart at the seams, first with the biggest intraday decline in the history on
Thursday, then with followthrough weakness on Friday. There’s some debate whether the extent of
Thursday’s decline was real. In the course of ten minutes, the indices saw their daily declines nearly
triple in size – and then return right back to where the spike began. But regardless, a big statement has
definitely been made. Obviously, this action confirms the statement we made earlier this week that the
2010 up leg had completed. Additionally, we can immediately determine that this pullback is doing
more than just correcting the 2010 up leg. In recent weeks we indicated that the next decline would
likely be one of the largest declines we’ve seen over the past 14 months, and that is already true. But
let’s not get too carried away with bearish mania just yet. While we may see this fallout continue from
here, it’s far from a foregone conclusion. Just as easily, we could see price stabilize and stage an
impressive recovery. Essentially, despite the potential for windfall profits, this is not yet the place to be
aggressive. Our agenda is to let the dust settle before doing anything too fancy, because it would be a
mistake to assume that recent volatility has gone away and it’s now a one-way street heading south.

This time last week, I was marveling how volatile the marketplace had become. We showed a chart
that highlighted a number of 2 to 3% swings that had taken place in recent sessions. Since that time,
the term volatility has been redefined. From the opening bell on Tuesday to the daily low on
Thursday, the Dow gave up almost 12% of its value. That’s a bad year, let alone a bad three days. But
with the ebb comes the flow, at least lately. Since Thursday’s spike low was recorded, the Dow has
gone the other way quickly, adding back 10% in just over two sessions. About half of that amount
came during today’s session, as the indices staged a very impressive rally. The swings have been a bit
more intense this time, but this sure has a familiar feel to it. We’ve continually pointed out the
market’s ability to immediately recover from any sign of weakness over the past 14 months. Thus far,
price is exhibiting the same qualities this time.
Early last week, price made it clear that the 2010 up leg had completed. This was our cue to exit long
positions, and we’re very glad we did. Price then proceeded to fall apart, leading to the big three-day
descent. Despite this market action that suggested the world was ending, we indicated that it was not
the place to go short. The potential for continued volatility had to be fully respected, since volatile
action had already been prevalent, and since the market had found a way to quickly recover from
weakness in the past year. Again, we’re very glad we avoided the temptation to join the masses on the
short side as price is now showing impressive strength. It may be less eventful, but our neutral stance
is the only available stance in a market like this. Tomorrow, the market could absolutely fall apart – or
we could find ourselves back at April’s highs. Basically, this market is a bit excited right now, and there
is exactly no objective way to place a probability on any outcome yet. There is a way to best explain
what’s taking place, but again, there’s absolutely no way to trade it right now. Things will simmer
down shortly, and when they do, a great opportunity will be at hand. For now, all we can do is sit back
and enjoy the show, while keeping in mind that, regardless of what takes place from here, price will
head higher overall.

You have to be impressed by the resiliency of this marketplace. After watching the indices get
thumped in historical fashion last week, the buyers have immediately responded with a very impressive
start to this week. Over the past three sessions, the Blue Chips have recovered 5% while the Techs
have regained 7%. The indices now find themselves back at pre-fallout levels, despite a thousandpoint
drop and thousand-point gain on the Dow in between. Needless to say, volatility remains a
factor in this marketplace.
There certainly is no shortage of opinions about what the market is up to here. Last week’s descent
prompted the latest round of forecasts by some market analysts for a resumption of the decline that
began at the 2007 highs. We have disagreed with the notion that a larger bear market is playing out for
months, as there is far too much evidence to support anything but a larger bull market in the long
term. We will review this evidence below, but the real reason I’m bringing this up is because price is
now at a point where it can again prove that downside action is corrective. That’s because all indices
are now at 61.8% retracements of the decline off April’s highs. If price continues higher from here, it
would confirm that the uptrend is still the dominant trend. As such, current levels are important and
price’s reaction should be watched closely.

The indices continue to trend lower off last week’s highs, following through on the near-term setup
for further weakness as discussed in Monday’s newsletter. The pace of action isn’t quite as breakneck
as it was a week ago, but things do continue to move pretty quickly. For example, after discussing the
setup for another down leg on Monday, the Dow subtracted almost 400 points into today’s low. These
swings may not make a huge dent on the charts since everything has been so big lately, but a 400-point
move is a 400-point move.
Overall, we continue to receive data that supports calling the decline off April’s highs a large
downward correction. We have good reason to believe that a major high is NOT in. We also have
good reason to believe that the decline is not over. In fact, it appears as if we’re dead in the middle of
this declining pattern, and we’ll show you why tonight.
In terms of trading, it’s likely that this will be a scalpers market for the time being. We do expect the
overall decline to become larger before it’s complete. And at the same time, we expect the overall
decline to ultimately prove corrective and give way to a continuation of the well-established uptrend.
But on any smaller time frame, there’s no reason to think any trend will stick around for very long at
this point, meaning you have to be nimble if you’re going to participate in the current pattern.
Tonight, we’ll again examine the data that supports calling this a larger downward correction.

The down leg off last week’s high into Monday’s low really set the pace for the rest of this week. In
Monday’s publication, we indicated that this down leg represented the first clear internal pattern that
had popped up since a very big and volatile decline began at April’s highs. That down leg told us that
another impulsive down leg should be expected, and that it would be at least as big as the first down
leg. Price followed through beautifully on this setup, giving us a very sizable impulse down for most of
the rest of the week. As a result, this week dealt the indices losses of about 4%, made smaller by a
strong close to Friday’s session. Within such a volatile pattern where price is apt to stage frequent,
huge reversals, we have to be happy that such a clean setup lined up, and that price then followed
through on it. We’ll continue to look for such near-term opportunities as we move ahead.
This week’s decline carried all indices back to or towards the decline lows established in early May. In
fact, the Nasdaq and SPX managed to set new decline lows this week before bouncing back on Friday.
The price pattern had told us that the decline would become larger before it was complete, and that’s
exactly what we’re seeing currently. All of this brings us to an important point for the pattern. What
price does from here will set the standard, and could really make a statement on the larger time
frames.

A last-minute nose dive turned a pretty lifeless session into a 1% loss on the Blue Chips, with the
Techs closing closer to flat. While a 1% move is never small, this was still one of the calmer sessions
we’ve seen since volatility really ramped up three weeks ago. This could be price’s way of paying
respect to the importance of action from here. This weekend, we discussed why this is an important
area. Essentially, we would expect to see price bounce from somewhere in this area if the entire
decline off April’s highs is a 4th wave correction as we consider it to be. At the same time, we know
that if price is going to fall apart, it will very likely begin in this area. Today’s session did not make any
big statement either way, so we remain at a key point. In this publication, we’ll take another look at the
importance of this area, but from a different angle.

The indices have settled into a more direct down leg over the past two weeks, with eight of the past
ten sessions ending in the red. As a result, all indices set new lows for this decline yesterday. More
important to us is the fact that the near-term pattern continues to develop, and that gives us more
clarity in terms of possible outcomes. Specifically, the current internal down leg has now become an
impulse, while the overall decline now sports a very apparent three-wave form. A big statement simply
has to be made in this area.
We’ve been discussing the importance of these levels in recent newsletters. Essentially, we know that
price will stabilize and rally before too long if this decline is a corrective 4th wave pullback. At the same
time, we know that this is a likely area for price to really accelerate to the downside if it is ever going to
really fall apart during this move. That makes this a critical point for the pattern on all time frames,
which, of course, has our full attention. We remain neutral at the current point, but don’t expect that
to be the case for long. While the pattern has remained quick, the chaotic nature of price movement
has dissipated, and we’re left with a pretty clear pattern. Once a statement is made right here, we’ll
have a very solid opportunity one way or the other.

Things seem to be setting up constructively here, at least in the near term. After completing a big
impulse down at last week’s lows, the indices reversed and traced out a notable recovery into the lateweek
high. This week, the indices pulled back a bit before taking another run at the upside today. All
of this supports at least some type of near-term strength, courtesy of a setup for another near-term up
leg. And if that strength proves notable, it will be bullish on larger degrees of trend, because it would
leave the overall decline off April’s highs as a corrective three-wave move.
In recent publications, we’ve detailed the importance of the market’s current levels by discussing why
price could either recover with strength or fall apart with prejudice in this area. We’ll review this
tonight. As of right now, the bulls are winning the battle. There is a constructive near-term price
pattern and some technical indicator readings that appear supportive of a bullish resolution. While
we’re very hesitant to get too involved in a super-volatile large degree correction, this does look like a
scalping opportunity for those that are so inclined.

So much for the potentially bullish development discussed on Wednesday. A near-term setup for
another internal up leg emerged mid-week, but price was only able to give us a bit more strength
before falling apart for the rest of the week. This was punctuated by a big down day on Friday, leaving
the indices looking pretty darn vulnerable heading into next week.
In all recent publications, we’ve detailed the importance of our current location in respect to the
Elliott Wave pattern. Specifically, we’ve stated that this is the area where price will determine if the
advance off the 2009 lows is going to continue, or if we’re in store for a larger pullback off 2010 highs
as the advance off the 2009 lows is corrected. Thus far, price has been unable to make any definitive
statement. This is not a coincidence. We frequently see an increase in indecisiveness at important
crossroads for the market. To be sure, we’re not alone in our feeling that these are important levels, as
both sides have picked up their efforts here. And after what took place at the end of this week, it’s
clear that the Bulls now have work to do if they’re to take back control of market direction. If they
don’t, we’ll be left with a potent setup for further weakness ahead.

On Monday, we discussed why things were lining up bearishly. After tracing out a big trending decline
off the mid-May highs, the Bulls were only able to respond with a countertrend recovery. The indices
have since moved back to decline lows, giving us every reason to think that the trending down move
will continue. Over the past five sessions, the indices have added to this setup by giving us more
trending weakness, followed by more countertrend strength. As objective Elliott Wave analysts, there’s
really only one way to look at this action. It has to be seen as a setup for further weakness, and all we
can do is trust it.
In the last newsletter, we also discussed the three ways we can find to label this decline. While it’s not
yet clear which is playing out, it is clear that solid downside potential exists, and it’s worth respecting.
Our third topic of conversation looked at the larger degrees of trend, and how this growing decline is
looking more and more like a correction of the entire 2009 advance.

Sometimes, that’s just how the market rolls. In early-week action, the indices moved back to recent
decline lows to confirm that the downtrend is still dominant. At the same time, a very clean setup for
further weakness traced out, courtesy of a sizable impulse down that was followed by a corrective
recovery. So with the indices finally starting to show their hand and their bearish intent, what else
could happen but a showing of market strength. Thursday’s session saw all indices rally off the test of
decline lows, quickly reminding us that, despite more controlled market action in recent weeks,
volatility is still very much a factor.
The best explanation of this strength in the face of a bearish pattern is that a larger upward correction
off the late May lows is tracing out here, setting up the next down leg shortly. Basically, we would see
price retest last week’s highs before things head back down. But there’s also another possibility that we
must consider. As funky as the labeling is, we have to be aware of the outside possibility that this
week’s low was a truncated low to the entire down leg off April’s highs. You might have to pull out
the Elliott Wave dictionary to follow along with this possible labeling, but I can’t shake the feeling that
the indices want to head higher in the near-term here. The thinking behind this labeling is this; if you
close one eye and blur your vision in the other, the decline off April’s highs into this week’s lows has a
general five-wave form to it. As such, we have to be aware of the possibility that a low to the initial
down leg has been established, ushering in a larger near-term recovery.

The indices traded higher for most of today’s session, but a test of June’s highs turned them back,
resulting in a weak close that carried all indices into negative territory. If we’ve been in a larger
corrective recovery since late May, which was one of the two possibilities discussed this past weekend,
then we are right in the area where price should turn back down. If a high doesn’t occur in this area,
we’d have to conclude that the initial down leg off April’s highs has completed and a larger corrective
recovery is underway. This possibility was also discussed in the weekend publication. Making a case
for the latter possibility wasn’t the most succinct argument I’ve ever made. Basically, I expressed my
feeling that price wanted to head higher in the near-term here, based on a loose, overlapping five-wave
pattern into last week’s lows. Tonight, I look to add a bit more strength to this argument. Other than
that, we won’t do anything too fancy. We’ll first take a brief look at the overall state of things. We’ll
then revisit the two possibilities discussed this weekend.

Market strength has continued this week, allowing the indices to stay above decline lows for seven
days now. This is an impressive showing of strength that is having an impact on a number of different
charts. For example, the NYSE Bullish Percent Index has used this strength as an excuse to issue a
new buy signal. Other technical indicators are taking note as well, as most daily indicators have turned
higher. This isn’t what we’d expect to see if this up leg was just a small C wave. Instead, it is looking
more and more likely that the down leg off April’s highs completed and has given way to a larger nearterm
recovery. We’ve been looking at this possibility in recent publications. I was unable to shake the
feeling that price was going to head higher in the near-term, and now it is. The labeling that supports
this is a bit creative, but it seems to make the most sense of the current situation. Based on this
labeling, it’s likely we’ll see further near-term buoyancy. However, since the initial down leg is
impulsive, we have every reason to think that the overall decline will continue once the current nearterm
recovery runs its course.

Market strength has continued this week, allowing the indices to stay above decline lows for seven
days now. This is an impressive showing of strength that is having an impact on a number of different
charts. For example, the NYSE Bullish Percent Index has used this strength as an excuse to issue a
new buy signal. Other technical indicators are taking note as well, as most daily indicators have turned
higher. This isn’t what we’d expect to see if this up leg was just a small C wave. Instead, it is looking
more and more likely that the down leg off April’s highs completed and has given way to a larger nearterm
recovery. We’ve been looking at this possibility in recent publications. I was unable to shake the
feeling that price was going to head higher in the near-term, and now it is. The labeling that supports
this is a bit creative, but it seems to make the most sense of the current situation. Based on this
labeling, it’s likely we’ll see further near-term buoyancy. However, since the initial down leg is
impulsive, we have every reason to think that the overall decline will continue once the current nearterm
recovery runs its course.

While the pace of the recovery effort slowed a bit at the end of this week, the indices did manage to
stay on the up and up until the closing bell rang. This continued strength furthers our thinking that
last week’s low marked the end of the initial down leg off April’s high, and that we’re now in a larger
recovery. This can equate to additional buoyancy in the near-term, but ultimately, we have to think
that price will roll over and the decline off April’s highs will continue. In fact, if we believe that April’s
highs marked an end to the 2009 advance, an idea made easier to believe by the number of things
we’ve seen change since April, then we have to believe that a larger decline will occur. We do – and we
do. In the pages below, we’ll show you why the best fitting labeling is what it is. This forecast will be
backed by price action as well as technical indicator data. Meanwhile, we will continue to lean on key
levels to ensure we stay in sync with the market’s agenda.

While the pace of the recovery effort slowed a bit at the end of this week, the indices did manage to
stay on the up and up until the closing bell rang. This continued strength furthers our thinking that
last week’s low marked the end of the initial down leg off April’s high, and that we’re now in a larger
recovery. This can equate to additional buoyancy in the near-term, but ultimately, we have to think
that price will roll over and the decline off April’s highs will continue. In fact, if we believe that April’s
highs marked an end to the 2009 advance, an idea made easier to believe by the number of things
we’ve seen change since April, then we have to believe that a larger decline will occur. We do – and we
do. In the pages below, we’ll show you why the best fitting labeling is what it is. This forecast will be
backed by price action as well as technical indicator data. Meanwhile, we will continue to lean on key
levels to ensure we stay in sync with the market’s agenda.

After kicking off the week with a strong open, the rest of the session was spent giving back. By
session’s end, the indices found themselves in negative territory after registering an outside down day.
An outside down day is when an index records a higher high than the previous day, and then manages
to close below the previous day’s low. This is often a bearish indication meaning a change in trend at
some degree is taking place, and for that, it’s worth noting. We definitely see the potential for price to
continue lower from here, not only because of this bearish candlestick action, but also because of the
wave pattern. Specifically, it appears that price may have completed an impulse up over the past ten
sessions, allowing for at least a near-term pullback. We’ll see how that progresses. Of greater
importance to us is the overall state of the indices. We believe that April’s high marked an end to the
advance that began in early 2009. And if that is the case, then we have to think that a larger decline is
coming off April’s highs since it will take more than the current pullback to correct 14 months of
advancing price action. This is important because it tells us that, despite recent strength, we should
continue to expect further weakness overall.

After kicking off the week with a strong open, the rest of the session was spent giving back. By
session’s end, the indices found themselves in negative territory after registering an outside down day.
An outside down day is when an index records a higher high than the previous day, and then manages
to close below the previous day’s low. This is often a bearish indication meaning a change in trend at
some degree is taking place, and for that, it’s worth noting. We definitely see the potential for price to
continue lower from here, not only because of this bearish candlestick action, but also because of the
wave pattern. Specifically, it appears that price may have completed an impulse up over the past ten
sessions, allowing for at least a near-term pullback. We’ll see how that progresses. Of greater
importance to us is the overall state of the indices. We believe that April’s high marked an end to the
advance that began in early 2009. And if that is the case, then we have to think that a larger decline is
coming off April’s highs since it will take more than the current pullback to correct 14 months of
advancing price action. This is important because it tells us that, despite recent strength, we should
continue to expect further weakness overall.

After kicking off the week with a strong open, the rest of the session was spent giving back. By
session’s end, the indices found themselves in negative territory after registering an outside down day.
An outside down day is when an index records a higher high than the previous day, and then manages
to close below the previous day’s low. This is often a bearish indication meaning a change in trend at
some degree is taking place, and for that, it’s worth noting. We definitely see the potential for price to
continue lower from here, not only because of this bearish candlestick action, but also because of the
wave pattern. Specifically, it appears that price may have completed an impulse up over the past ten
sessions, allowing for at least a near-term pullback. We’ll see how that progresses. Of greater
importance to us is the overall state of the indices. We believe that April’s high marked an end to the
advance that began in early 2009. And if that is the case, then we have to think that a larger decline is
coming off April’s highs since it will take more than the current pullback to correct 14 months of
advancing price action. This is important because it tells us that, despite recent strength, we should
continue to expect further weakness overall.

The indices have followed through on Monday’s outside down day. In the process, they’ve confirmed
that the up leg off recent decline lows has completed as expected on Monday. Now, price has an
opportunity to make a near-term statement, based on the completed up leg. If it wants to head higher
in the near term, it will let us know by giving us a corrective pullback here. If instead it’s ready to
continue the decline off April’s highs, it will let us know by continuing this descent with the type of
speed it’s already exhibited. In the end, this is just a near-term decision – regardless of what price
decides, we expect the overall decline off April’s highs to continue, either now or soon. That should
be the focus, but that doesn’t mean we can’t look to profit from this near-term action.

The indices have followed through on Monday’s outside down day. In the process, they’ve confirmed
that the up leg off recent decline lows has completed as expected on Monday. Now, price has an
opportunity to make a near-term statement, based on the completed up leg. If it wants to head higher
in the near term, it will let us know by giving us a corrective pullback here. If instead it’s ready to
continue the decline off April’s highs, it will let us know by continuing this descent with the type of
speed it’s already exhibited. In the end, this is just a near-term decision – regardless of what price
decides, we expect the overall decline off April’s highs to continue, either now or soon. That should
be the focus, but that doesn’t mean we can’t look to profit from this near-term action.

After testing a 61.8% retracement of June’s up leg this week, the indices managed to stabilize and
bounce a bit on Friday. So here we are. If price continues down through these levels, it would be a
very clear indication that price is headed lower as the decline off April’s highs gets to size. If instead
price uses these golden ratios as support and turns back up, we’ll be left with a near-term setup for
another sizable up leg, which would delay the resumption of the overall decline. Either way, we
anticipate a larger decline off April’s highs, since the current decline is not yet big enough to
accomplish what it needs to accomplish. But that shouldn’t stop us from doing what we can with
near-term setups. As far as we’re concerned, we can keep the matter very simple. If price takes out our
key downside levels, we can look lower. If price takes out our key upside levels, we can look higher in
the near-term. We aren’t favoring either near-term outcome right now, but it is hard to ignore the big
shift back to the downside on the technical indicators. For example, the daily indicators have turned
back over to issue new sell signals, while the indices have pressed below their respective 200-day
moving averages. Additionally, the Bullish Percent Indexes are threatening to issue new sell signals.
These things may be providing an early warning of a bearish victory, but there’s no reason to get
jumpy. We’ll let price do the talking.

After testing a 61.8% retracement of June’s up leg this week, the indices managed to stabilize and
bounce a bit on Friday. So here we are. If price continues down through these levels, it would be a
very clear indication that price is headed lower as the decline off April’s highs gets to size. If instead
price uses these golden ratios as support and turns back up, we’ll be left with a near-term setup for
another sizable up leg, which would delay the resumption of the overall decline. Either way, we
anticipate a larger decline off April’s highs, since the current decline is not yet big enough to
accomplish what it needs to accomplish. But that shouldn’t stop us from doing what we can with
near-term setups. As far as we’re concerned, we can keep the matter very simple. If price takes out our
key downside levels, we can look lower. If price takes out our key upside levels, we can look higher in
the near-term. We aren’t favoring either near-term outcome right now, but it is hard to ignore the big
shift back to the downside on the technical indicators. For example, the daily indicators have turned
back over to issue new sell signals, while the indices have pressed below their respective 200-day
moving averages. Additionally, the Bullish Percent Indexes are threatening to issue new sell signals.
These things may be providing an early warning of a bearish victory, but there’s no reason to get
jumpy. We’ll let price do the talking.

After testing a 61.8% retracement of June’s up leg this week, the indices managed to stabilize and
bounce a bit on Friday. So here we are. If price continues down through these levels, it would be a
very clear indication that price is headed lower as the decline off April’s highs gets to size. If instead
price uses these golden ratios as support and turns back up, we’ll be left with a near-term setup for
another sizable up leg, which would delay the resumption of the overall decline. Either way, we
anticipate a larger decline off April’s highs, since the current decline is not yet big enough to
accomplish what it needs to accomplish. But that shouldn’t stop us from doing what we can with
near-term setups. As far as we’re concerned, we can keep the matter very simple. If price takes out our
key downside levels, we can look lower. If price takes out our key upside levels, we can look higher in
the near-term. We aren’t favoring either near-term outcome right now, but it is hard to ignore the big
shift back to the downside on the technical indicators. For example, the daily indicators have turned
back over to issue new sell signals, while the indices have pressed below their respective 200-day
moving averages. Additionally, the Bullish Percent Indexes are threatening to issue new sell signals.
These things may be providing an early warning of a bearish victory, but there’s no reason to get
jumpy. We’ll let price do the talking.

Despite some early session volatility, the indices started the week in a pretty boring way, as all indices
closed the session within a handful of points from the flat line. This slow showing leaves us at the
same place we were heading into the weekend. We are confident that the indices are in a larger decline
off April’s highs, and we have a pretty good idea where the decline is headed. In the near-term, we
find ourselves at a small crossroads where price has an opportunity to either trace out a larger nearterm
recovery, or head directly lower in a continuation of the decline. We have key levels situated on
both sides of the market’s current location. If price turns higher and takes out our upside levels, it will
tell us that a larger near-term recovery is going to occur, thereby delaying the continuation of the
decline. On the other hand, if price continues down from here and stays below our downside levels, it
will first provide additional confidence that a larger decline is in fact playing out, and secondly, will
strongly suggest that the decline is continuing right away. All of this information has been discussed in
detail in the most recent publications, so I’ll do my best to avoid repeating the exact same thing here.
Instead, we’ll just briefly review the current situation before discussing why our key levels are where
they are. Hopefully this will provide some insight into our methods.

Note: Recall that next week’s newsletter schedule will be Tuesday and Wednesday, due to the
holiday and a conference I am attending at the end of the week. Thanks.
This week has provided a prime example of how we can listen to the implications of the longer-term
pattern to make forecasts on shorter time frames. The larger pattern indicated that a bigger decline off
April’s highs was needed, and price has since followed through with purpose. After recording a high
to a near-term recovery in mid-June, the indices have declined for nine of the past ten days. This week,
that translated to weekly declines ranging from 4.5 to 6%. All indices now find themselves at new
decline lows while fast approaching the top end of our large target zones. Despite the approaching
target zones, we do not believe that the decline is nearing an end. There is every reason to believe that
this decline is a correction of the entire advance off March 2009 lows. That advance spanned 14
months. The current decline has lasted a paltry two and a half months. It sure seems like a larger, more
time consuming down move will play out for it to accomplish the task of correcting such a big
advance. However, that doesn’t mean we’ll see price continue to decline at such a blistering pace.
Keep in mind that this is a Corrective decline, and therefore, it likely won’t take place in a straight line.
Additionally, the down leg that has played out over the past two weeks may be wrapping up, which
would allow for a larger near-term recovery. As far as we’re concerned, we don’t need to do anything
fancy with this one. All we have to do is continue expecting further weakness overall, since that’s what
price is calling for.

The indices continue to give us every reason to think that the 2009 advance ended in April and that a
large degree pullback is at hand. Not only is this pullback the biggest we’ve since early 2009 in terms
of size and time, it is the only down move we’ve seen that has found followthrough. In all previous
pullbacks since the March 2009 lows were recorded, it was a single down shot and then the advance
resumed. That is not the case this time. After the indices stabilized and put together a respectable
recovery in June, the indices have found a second wind to the south. At the end of the day, the only
sensible conclusion is that the 2009 advance did in fact complete in April. This may seem like we’re
stating the obvious, but it’s an important point. For one, it tells us that the decline should continue to
grow in size, since it is tasked with correcting a very large and unabated 14-month advance. But it tells
us something else too. A long time ago, the wave pattern told us that the low recorded in March 2009
was a very important one. Others disagreed: Some Elliotticians consider it a temporary low within a
larger decline, while we consider it a low that will be held for much longer. Specifically, we expect the
current decline to eventually prove corrective and give way to a much larger bull market. It is the
current downside pattern that will confirm or negate our forecast.

The indices continue to give us every reason to think that the 2009 advance ended in April and that a
large degree pullback is at hand. Not only is this pullback the biggest we’ve since early 2009 in terms
of size and time, it is the only down move we’ve seen that has found followthrough. In all previous
pullbacks since the March 2009 lows were recorded, it was a single down shot and then the advance
resumed. That is not the case this time. After the indices stabilized and put together a respectable
recovery in June, the indices have found a second wind to the south. At the end of the day, the only
sensible conclusion is that the 2009 advance did in fact complete in April. This may seem like we’re
stating the obvious, but it’s an important point. For one, it tells us that the decline should continue to
grow in size, since it is tasked with correcting a very large and unabated 14-month advance. But it tells
us something else too. A long time ago, the wave pattern told us that the low recorded in March 2009
was a very important one. Others disagreed: Some Elliotticians consider it a temporary low within a
larger decline, while we consider it a low that will be held for much longer. Specifically, we expect the
current decline to eventually prove corrective and give way to a much larger bull market. It is the
current downside pattern that will confirm or negate our forecast.

Note: Recall that this is the last newsletter of the week. I’ll be out of town the rest of the way,
but we will be back to a normal schedule on Monday. Thanks!
The Bulls took a stand yesterday, resulting in a sizable advance that tells us the impulse down over the
past two weeks has completed. We provided a heads up to this possibility, based on the five-wave look
of recent action, and apparently price noticed as well. This creates an interesting point for the
direction of this larger degree decline. Off April’s highs, the pattern is currently comprised of three
waves down. That means it’s possible for the decline to pause here while a larger B wave recovery
plays out. This is where our key levels come into play. If they are taken out from here, we’ll know that
that’s exactly what’s playing out. And if we integrate Tuesday’s analysis, we know that such an event
would make a pretty notable statement. Specifically, it would immediately make this decline off April’s
highs a corrective affair, which in turn would paint a bullish picture in the long term. If price does
decide to take a northbound road here, we would still expect a larger decline off April’s highs to
emerge. But as we’ve stated in recent newsletters, the decline would then be expected to take a much
flatter and less-direct route to lower levels. We’ll see how that progresses from here by allowing our
key levels to guide the way.
But it wasn’t just price that made a statement today. We also saw a pretty interesting event take place
on the Dow and SPX in terms of technical indicators. These indices saw their 50-day moving averages
cross below their 200-day moving averages. The last time this happened was at the start of 2008, and it
led to one of the weakest years I can remember. That doesn’t mean the same will happen this time,
but such a cross is seen as a bearish event in the basic technical analysis world, so we need to be aware
of it.
Tonight, we’ll take a look at the impact of today’s recovery, starting with the near-term and moving
out from there. Since this is our final publication of the week, we’ll also provide our stock analysis
tonight. We can find a ton of great bearish setups out there right now. But it’s what the indices do
right here that will determine how potent these setups really are.

Today’s session was super slow, leaving all indices near flat from start to finish. However, this paced
action is not representative of what has been taking place in most sessions during the formation of this
downside pattern. In fact, the indices have normally been moving pretty darn quickly each and every
day, whether it’s stringing together nine red days out of ten like it did off June’s highs into last week’s
lows, or if it’s putting together five straight days of positive movement as it’s doing now. I guess with
such swift near-term patterns, a pause day like today’s is not a bad thing – gives us time to catch our
breath.
In terms of the larger pattern, it looks like price is about to make a statement regarding the nature of
the decline off April’s highs. We already know the decline is a larger degree move; now, price has an
opportunity to confirm our long-standing forecast that the decline will prove corrective and will
eventually give way to a larger bull market. In reality, we’re not terribly concerned with the direction
price heads right here. Regardless of which direction it takes, we are confident that a larger downward
correction off April’s highs will form. That said, there is some value in knowing how lower levels will
be achieved, and that’s exactly what action in this area will determine. Right now, it’s looking more
and more like a winding path will be taken to lower levels.

There are definitely some interesting things going on here. The indices have been in rally mode for
about two weeks, creating new buy signals and closing higher for eight straight sessions. However,
things came to a screeching halt on Friday when the indices hit their heads on some key levels and
reversed lower with fervor. By session’s and week’s end, there is little doubt that the two week up leg
has completed. So what does price have planned for us next? Was this two-week run the B wave we
were looking for in its entirety, giving way to the next installment of the decline off April’s highs? Or
was Friday’s fire sale just a pause in a larger recovery effort? I’m not much for suspense, so let’s get
straight to our expectations. The best fit calls for a larger B wave recovery off recent lows. This is
because the recent two-week recovery comes off as a trending move. Therefore, it seems likely that
this notable weakness will fade and price will turn higher before too long to complete its near-term
back fill.
Like all of our forecasts, there’s nothing magical or creative about this one. If we take every last piece
of price data into account and form a wave labeling around it, we find a very concise path that has
been laid out here in respect to near, mid, and long-term direction. All we can do is trust it, while
utilizing key levels to ensure we stay on the right side of things. My goal in this newsletter is to lay out
the forecast that price is currently offering, while providing safety through key levels. After that’s been
done, we’ll shift our focus to the stock universe.

Volatility has increased in the past two sessions. Yesterday, a weak opening was seen as a buying
opportunity, which allowed the indices to recover with force and end the session higher. By session’s
end, price had recovered about 200 Dow points from the day’s low. However, the upside momentum
was not maintained today. After starting strong, price fell into a funk up into the final two hours of the
session. At that point, all indices took a nose dive to close in the red. Not only have things begun to
move quickly here, just about every move we’re seeing on the one-minute charts has an impulsive look
to it. Clearly, each side is trying to make a statement here, but at the end of it all, we’re left with an
indecisive, back-and-forth pattern.
With a bunch of impulsive but indecisive patterns in the very near-term action, it is not clear what
price has planned in the immediate future. But we shouldn’t let the cloud an otherwise clear path on
all other pertinent time frames. First, there is good reason to believe that the recovery effort off July’s
lows will continue. This is based on the trending nature of the recovery off that low, and it’s supported
by the generally corrective nature of the current pullback, most notably on the NDX. Second, it is
clear that price has a larger mid-term pullback off April’s highs on its agenda. This is supported by the
need for a larger pullback, and a number of indicators support it. Third, the long-term pattern remains
very constructive, giving us every reason to be bullish on this most important time frame. This is
based on a very impulsive 14-month advance off the 2009 lows, as well as the depth of the
retracement that the advance achieved.

The indices ended this week on a very strong note, reclaiming over 300 Dow points in the last two
sessions. This is great action, as it lines up well with the path we’ve been discussing in recent
publications. Of immediate importance to us is the pattern that has played out since the beginning of
July. Since then, price has given us a strong up leg into last week’s highs. Price then pulled off last
week’s highs to retrace about 50% of the strong up leg. Now, price has moved back to last week’s
highs, and in so doing, leaves us with a very apparent setup for further near-term strength. We’ll take a
close look at this setup for higher prices in the near-term below.
Our second goal tonight is to add a little more depth to the long-term discussion. The reason I’m
going to spend more time on this time frame is because I’ve received many emails regarding our longterm
outlook. Interestingly, about half of those emails ask about the possibility of price heading
immediately higher. The other half ask about the possibility of a bearish long-term scenario as is more
popular with other Elliott Wave analysts. Tonight, I seek to address both camps by applying some key
levels to our long-term forecast and further discussing why we’re bullish on the most important time
frame.
After we have discussed both the near-term developments and our long-term outlook, we’ll shift the
discussion to our weekly stocks picks. We seem to have a number of trades that are waiting for action.
That makes things a bit unexciting for our board now, but that should change soon as we continue to
uncover very clear patterns across the stock universe.

The indices extended their near-term advances today, moving to the highest levels they’ve seen since
mid-June. This is good action since it’s exactly what the wave pattern is calling for. This weekend, we
went into great detail regarding why higher prices should occur in the near-term. We can talk about
this pattern or that indicator, but at the end of the day, all we really need to look at is a one-minute
chart. Since the start of July, all indices sport an impulsive up leg that was followed by a corrective
down leg. We are able to derive quite a bit of information from this pattern, but at the end of the day,
all we really need to care about is the blatantly apparent setup for another up leg.
At the same time, we are pretty confident that near-term strength is temporary, and that price will
eventually turn back down to form a larger decline off April’s highs. We’ve already discussed why the
mid and long-term wave patterns call for such a resolution. Now, the technical indicators are giving us
good reasons to think price will revisit July’s lows once near-term strength runs its course. We’ll show
you why in tonights newsletter.

Not too much has happened since our last publication went out on Monday. The indices gave us a
couple of marginal moves that largely leave price at the same place. At this point, it still seems likely
that higher prices will occur in the near-term, not only because the current up leg is relatively small,
but because this slow action over the past two days appears corrective. So we will continue looking for
higher prices in the near term as long as our key downside levels are left alone. Tonight, we also have a
bit more information to offer on the potential levels for this B wave to complete.
On any larger degree, the case remains very solid for a larger decline off April’s highs. It is very easy to
see the three-wave nature of July’s recovery effort. If we then consider the technical indicator readings,
we can see how it would be very easy for price to break down in the not-too-distant future, thereby
leaving this recovery as a three and confirming a larger decline.

The weekly move recorded on the SPX this week says it all. Over the past five sessions, this index
managed to lose one point – not one percentage point, a single point. Needless to say, this week
wasn’t much of a mover. Despite the slow action over the past five sessions, July as a whole proved to
be a very strong month. It was the first month since April that the indices closed higher, and it was the
strongest month the indices experienced since July of last year. Not too shabby, especially since the
wave pattern told us it was coming. As far as August is concerned, we expect a different song to be
sung at month’s end. While the current B wave advance off July’s lows may very well seek out higher
levels in the coming sessions, it seems likely that a high to this near-term advance is not terribly far off.
We can continue expecting higher levels as long as our key downside levels remain intact. However,
we need to be on our guard at all times for a high to this near-term recovery. Fortunately, that’s
exactly why we have key levels, as they make sure we stay in tune with market direction....Request a free copy at wavespeak.com

The indices kicked off the week in bullish fashion, bolting higher for gains of about 2%. This is great
action as it’s exactly what the wave pattern indicated was coming. In that respect, it’s hard to ask for
much more from this price movement.
Now, it appears that this B wave recovery off July’s lows is getting closer to a high. The final wave of
this move appears to be wrapping up, and the indicators continue to suggest that this move is running
long in the tooth. In the pages below, we’ll reveal modified key levels that, when breached, will clue us
in to the next phase of this larger decline off April’s highs.
Meanwhile, this action should be making it more and more difficult for the bearish analysts out there
to continue considering action off April’s highs as the start of a new bearish order. In fact, the Dow
peaked above a 61.8% retracement of the down leg off April’s highs today. In recent publications,
we’ve discussed how many concessions have to be made to make a bearish long-term case. This action
is yet another example. We really shouldn’t have to find excuses to justify a wave labeling. Instead, we
need to be focused on identifying the best fitting labeling, whether it’s the one we started with or not.
Without a doubt, the forecast for a larger corrective decline off April’s highs remains the best fit.

The indices remain buoyant through today, hanging around recovery highs without providing any
indication that a high is in yet. While we remain confident that a larger decline is coming off April’s
highs, we have to be aware of what could hurt is. In our analysis, we consider the biggest threat to be
price heading immediately higher from here, since to this point, the current advance has yet to prove
its correctiveness. This is something to keep in mind as the move progresses. Additionally, it gives us a
good excuse to continue expecting higher prices in the near-term until we see some type of weakness
emerge. That’s why we need to keep a close eye on price action in this area, while closely monitoring
our key downside levels. If price behaves in a way from here that suggests further weakness is not
coming, we’ll discuss it immediately here. As is, we don’t expect any deviation from the clear path laid
out by the price pattern, but again, it’s good to be aware of what could hurt us

The indices are looking pretty resilient here. After closing marginally in the red on Thursday and then
trading lower for most of Friday, the buyers emerged to push the indices back towards flat at the
close. On the larger degrees of trend, the pattern has told us to be on guard for a high to the near-term
advance in this area. However, the near-term price action remains constructive, and even appears to
be revving up for another near-term up leg. This is why we’ve wanted to see some type of weakness
emerge before exiting our bullish near-term stance, since higher prices can occur if the indices stay
firm here.
On Wednesday, we discussed an alternate possibility we need to be cognizant of. While we expect a
larger decline to form off April’s highs, the biggest risk to this forecast is price heading directly higher
off July’s lows while avoiding the larger decline. This constructive action in the near-term obviously
maintains this as a real risk.

The week started with a bit of strength, allowing each index to record marginal new recovery highs.
This seems to keep the near-term pattern pointed north, despite the fact that this area is a candidate
for a high. At some point in the not-too-distant future, we anticipate a reversal in trend to down as the
advance off July’s lows completes and gives way to a larger decline off April’s highs. However, it
doesn’t look like we’re there yet. This recovery effort has proven strong, and it has thus far found a
way to remain constructive. Specifically, the advance off recent lows appears to be a small impulse up,
and downside action off last week’s highs is corrective. Therefore, we have to keep expecting higher
near-term prices until we see some type of price action that indicates a high is in.

This sure looks like important action for the market. After spending the past five weeks pressing
higher, the indices were thumped today. At session’s end, all indices find themselves 2.5%-3% lighter.
As you might expect, this action greatly peeks our interest. Not only is this weakness emerging at or
near our target zones for the recovery off July’s lows, it also managed to create overlap within the
advancing pattern. This is a big step towards confirming a high and the start of a large down leg back
below July’s lows.
To be sure, today’s notable action made an impression on a number of charts. Overbought indicators
are quickly turning down and threatening to issue new sell signals. The Nasdaq and NDX moved back
below their 50 and 200-day moving averages. And the buy signals that have been in place on the
Bullish Percent Indexes have been quickly reversed, giving way to new sell signals. If weakness persists
from here, it would have to mean that the advance off July’s lows was in fact corrective and that the
decline off April’s highs has resumed.

After spending a number of weeks on the rise, the indices changed their collective tone in a major way
this week. By its end, the indices are anywhere from 3.3% to 5% lighter and looking a bit dazed. They
should, because a notable amount of damage can be found across the charts tonight. If we look at the
price charts, we find an upside pattern off July’s lows that is looking more and more corrective. To
strengthen the possibility that the advance was in fact corrective, we can consult with other, less
followed indices to see what they say about it. We find that other indices sport upside patterns that
look even more corrective. But it’s not just about the price charts. The indicators are rolling over in
unison, with new sell signals popping up all over the place. Meanwhile, the indices are dive-bombing
back below important moving averages. To be sure, it has become pretty easy to expect this weakness
to continue from here – especially since this week’s decline has a trending way about it. Add in the fact
that this is exactly what the larger degree pattern told us to expect, and it’s easy to break out the bear
claws. But let’s not get too crazy here. The burden is on price to confirm a high is in place by staying
below a new set of key levels that we’ll discuss below. After that, we’ll go pat ourselves on the back for
a very successful stock trading week, where three solid gains were locked away with others lining up to
follow.

After probing marginally lower in early trade, the indices recovered and spent the rest of the day
vacillating around the flat line before closing dead on it. This indecisive action provides us with exactly
no new information. In the weekend newsletter, we went into great detail regarding the numerous
reasons why the trend may be turning down directly from here. These reasons included the following:
The indices were at or near upside target zones for the recovery before reversing lower; the larger
degree pattern calls for a bigger decline off April’s highs; the upside pattern off July’s lows appears to
be a corrective move, supported by the more apparent look of the move on other indices; last week’s
decline appears impulsive; and a number of indicators have turned over to issue new sell signals.
There’s really no two ways about it – a very strong case can be made for continued weakness here.
Now, it’s just a matter of price doing something about it, specifically continuing lower while staying
below our key upside levels at all times.

After probing marginally lower in early trade, the indices recovered and spent the rest of the day
vacillating around the flat line before closing dead on it. This indecisive action provides us with exactly
no new information. In the weekend newsletter, we went into great detail regarding the numerous
reasons why the trend may be turning down directly from here. These reasons included the following:
The indices were at or near upside target zones for the recovery before reversing lower; the larger
degree pattern calls for a bigger decline off April’s highs; the upside pattern off July’s lows appears to
be a corrective move, supported by the more apparent look of the move on other indices; last week’s
decline appears impulsive; and a number of indicators have turned over to issue new sell signals.
There’s really no two ways about it – a very strong case can be made for continued weakness here.
Now, it’s just a matter of price doing something about it, specifically continuing lower while staying
below our key upside levels at all times.

After spending last week on the decline, the indices have stabilized and recovered a bit this week. To
this point, price is doing exactly what one would expect if the recovery off July’s lows had completed
and a larger down leg had begun. The decline off last week’s highs sports an impulsive appearance,
and while not yet confirmed, this week’s recovery is slower and appears corrective. Additionally, the
Blue Chips have come back up to test their 50-day moving averages while staying below our key
upside levels. So once again, this is the type of action we’d expect if price was beginning a break down
here. But make no mistake, this remains a very important point for the pattern, one where a statement
needs to be made before becoming super confident that the larger decline off April’s highs has in fact
resumed. As is, the indices have found support at or near our key downside levels, meaning that a
resumption of the decline is not yet set in stone. Action from here is uber-critical in determining
price’s immediate agenda, even if we can continue to make a very compelling case for immediate
weakness.

The line-up of things that can support lower levels continues to grow. It started with a larger but
incomplete declining pattern off April’s highs that told us further downside work was needed. From
there, every chart has seemed to fall in line with the setup for a larger mid-term decline. Most notably,
price action has moved lock-step with the path laid out by the larger pattern. That is definitely true
tonight, as the action over the past two weeks leaves us with a very clear setup for declining action
from here. In addition to the tidy price action, many technical indicators have rolled over to create
new sell signals. Moving averages have been taken out; less-followed indices have provided clues
regarding the need for a larger decline; and the list grows. Sometimes, it’s easy to become skeptical
when so many things start to agree with one another. As Elliott followers, it is almost natural to be a
contrarian. But we don’t need to be here. All we have to do is trust the clear setup for lower levels, as
just about every chart in our database supports it. Meanwhile, we can keep things in check with our
key upside levels. As long as these levels are left alone, we can confidently expect immediately lower
levels from here. In this publication, we’ll review the setup for lower levels, with a focus on the latest
developments in the near-term pattern. After the indices are tackled, we’ll provide this week’s edition
of Wavespeak Picks, where we continue to find a number of tasty-looking short-side setups.

After spending the month of July and the first week of August on the rise, the past two weeks have
brought a change in direction to down. As discussed in detail, July’s advance appears to be a corrective
move. And if it is corrective, it means that the dominant trend is still down off April’s highs:
In other words, if the advance in July is a corrective move as it fully appears to be, it can only mean
that the downside move off April’s highs is still in play. The biggest variable that we have to deal with
is determining when and how the decline will continue. If you’ve been following along over the past
week, you know that the potential for price to head immediately lower from here is high.

A couple of interesting things have taken place since Monday’s issue hit the press. First and most
apparent, price has continued to trade lower, setting new lows for the down move off August’s highs.
As a result, this declining action now sports a pretty clear three-wave form. This is important because,
if we are going to get a larger B wave recovery off July’s lows, we’re not too far from the point where
the near-term trend will turn back up. Fortunately for us, the clear three-wave pattern allows us to
move our key upside levels notably lower tonight, to make sure we stay in tune with the market’s
plans. The second thing that took place this week has to do with the extent of the decline off August’s
highs. All indices have now traded a bit below a 61.8% retracement of July’s advance during this
decline. This is just the latest reason to believe that July’s advance was a corrective affair, and that
price will give us a larger decline off April’s highs one way or the other. Some of the other indices we
keep an eye on made an even more powerful statement regarding the corrective nature of July’s
advance by testing or moving below July’s lows. Again, it all points to a larger decline.

Oh the suspense. After trading a bit lower on Thursday, the indices staged a hearty rally on Friday.
The session started out on a weak note, but after just a few market minutes, price had moved into
positive territory and kept on trucking. At the end of the day, the Dow had recovered over 200 points
off the session low. Obviously, in a near-term pattern that has been characterized by a string of
declining sessions, this upside action is interesting and worth our attention. However, it’s the location
of where this strength is emerging that interests us the most. As discussed on Wednesday, the decline
off August’s highs had taken on a three-wave form, so if price decided to rally from this area, it would
make a very clear statement regarding the near-term agenda. Friday’s session does not make a rally all
by itself, but if strength continues, it would certainly add up to one.
So price managed to leave us at a suspenseful point heading into this weekend. If strength continues
and our key upside levels are taken out, we’d know that the near-term trend has been revived and
further near-term strength is on the way. However, if the Bears can beat back this Bull rush (that’s a
lot of B’s), it will keep price’s path pointed south as the next large down leg off April’s highs goes
about its business. At the end of the day, we know that price will head lower in the mid-term one way
or the other – but it’s still valuable to know how price will achieve lower levels.

On Friday, the indices staged a sizable advance, right in an area where a larger recovery was possible.
Today, the majority of Friday’s move was taken back as all indices broke down and lost at least a
percentage point. At the end of business tonight, the indices remain at a near-term crossroads, where
price could either break down with purpose or reverse higher with strength. However, today’s move
was definitely a vote for a bearish resolution, as the decline off August’s highs is starting to look more
and more impulsive. Further weakness in the hours ahead would be another step towards sealing a
bearish fate.
In most recent publications, we’ve used a ton of ink discussing the numerous charts that support a
larger decline off April’s highs. These charts show why we are bearish in the mid-term and expect
price to move back below July’s lows in the not-too-distant future. We’ve also spent a good portion of
time looking out our long-term expectations. We are confident that long-term market direction is up,
based on a number of clear price patterns and supporting indicators.

On Monday, we indicated that if price wanted to extend the rally from Friday, it would happen right
away. Apparently the buyers took note, as the indices skyrocketed higher in today’s session. While this
action appears to be in line with a simple near-term pattern, it’s not as straightforward as we would
have hoped. Specifically, it’s fairly difficult to determine if the decline off August’s highs was an
impulse wave or a correction, due to some murky action around recent lows. In moments of
uncertainty, the best we can do is prepare ourselves and then see what price has to say about it. A big
portion of that will be to see what kind of legs this recovery effort has. If strength persists, it would
confirm that we’re in a larger B wave recovery that is pointed to some level above August’s highs. If
instead this rally effort fizzles, it would strongly suggest that the indices are en route to levels below
July’s lows directly from here. Keep in mind that, regardless of price’s direction in the near-term, July’s
lows will be broken before too long – it’s simply a matter of how this is achieved.

Before higher prices materialize in the long-term, price is expected to head lower as the mid-term
decline off April’s highs continues. The mid-term pattern tells us quite a bit right now. Most
importantly, the initial down leg off April’s highs tells us that this pullback is corrective, which syncs
up with our long-term forecast for higher prices. However, the up leg off July’s lows (in addition to
other things) tells us that the mid-term pullback is still in play, since upside action off that low is
corrective. If upside action is corrective, it can only mean that the trend is still down off April’s highs.
But there’s more to it still. While a larger pullback will play out before this decline is over, this week’s
action has indicated that higher prices will occur before further weakness transpires.

The indices extended their recovery efforts today, pressing to new near-term highs as more and more
of August’s decline is retraced. Prior to the long weekend, we discussed the impact of near-term
strength and what it means for price direction heading forward. As far as we’re concerned, the price
pattern could not be more clear. And when the price pattern is clear, it becomes a ton easier to
determine price’s agenda. The only wrong move we can make here is to overcomplicate matters.
Instead, what we need to do is trust the implications of a clear price pattern and trade it accordingly.
In that regard, we expect further near-term strength to carry price above August’s highs from here.
This stance will be maintained as long as price stays above our key downside levels. Once the nearterm
recovery completes, we anticipate a resumption of the mid-term decline that began in April. This
weakness will drive price below July’s lows and into the Fib retracement zones that represent standard
retracement levels of the 2009 advance. After that is accomplished, we can look forward to a
resumption of a long-term uptrend that began in the early months of 2009. This will result in months
of advancing action as at least one more enormous five-wave advance plays out. It’s hard to ask for
much more clarity than that.

So ends a week of slower market action. After pulling back a bit on Tuesday, the rest of the week was
spent in a slow upward press that left the indices marginally higher on the week. More importantly, the
indices continue to inch closer to August’s highs, adding confidence to our forecast that the big B
wave recovery that began in July is still in play. Other than increasing the likelihood that price is in fact
headed to levels above August’s highs from here, this week’s action provided us with very little new
information. The wave pattern remains clear at every one of the three trends we monitor. The nearterm
trend remains up as indicated by numerous near-term price indications. The mid-term trend
remains down as relayed by the fact that all recent upside action is corrective overall. Finally, exactly
nothing has transpired to alter the super-constructive nature of the long-term advance that began in
the spring of 2009. That leaves us with the same analysis we’ve been offering in all recent publications.
All we can do is trust it while doing our best to keep risk tight while also keeping things as simple as
possible.

The near-term advance continued today, and a number of things were accomplished as a result. All
indices are now above both their 50 and 200-day moving averages. The new buy signals that were
issued on a number of technical indicators continued to strengthen. And most importantly, the NDX
made a statement by trading above August’s highs. This is exactly what the pattern told us to expect –
a continuation of the near-term advance that carries price above August’s highs. No other index has
followed yet, but that will change shortly.
The labeling of the current up leg is not yet clear, but it is clear that higher prices must still be
expected. The advance remains constructive, and price has not yet reached our target levels. Really, the
best play is to continue expecting higher prices until there’s some indication that this up leg has ended.
No such indication exists at this point.

Like last week, the indices closed higher in all but one of this week’s sessions. But also like last week,
impressive persistence did not add up to big movement. Instead, things have slowed to a crawl here,
as this week’s four advancing sessions added up to a meager 1.5% gain on the Blue Chips. The Techs
faired a bit better, but even still, it’s easy to get the feeling that this up leg is running out of steam.
One thing that was accomplished despite the slow pace was new recovery highs on the SPX and
Nasdaq. These indices marginally bested August’s highs in Friday’s session, matching the NDX which
did the same thing last week. This is good progress because it is absolute confirmation that the
advance off July’s lows is still in play as anticipated. The potential for further near-term strength
remains intact and we will continue looking higher until we have a reason to think a high has been
found. In the meantime, we remain on guard for a change in trend due to the slower action which
could be indicative of an ending pattern to the near-term advance.
On all larger degrees of trend, most things remain the same. However, there has been one
development that is worth noting. As you know, most Elliott Wave analysts are bearish in the long-
term; they expect the trend to turn down in a major way now or shortly. We fall on the polar opposite
side of the spectrum, based on very clear price patterns that make us very confident in a bullish long-
term forecast. This week’s action gives the bullish case even more ammo. The relatively strong NDX
has continued above August’s highs, and as a result, it has retraced more than 61.8% of April’s down
leg. This may sound like a random fact, but it’s anything but. This deeper retracement of April’s down
leg should make it even tougher to be bearish on the larger time frames, since such a retracement is
much more indicative of a corrective down move as opposed to a new trending down move.

Now that’s a little more like it. After spending the past two weeks moving persistently but only slowly
higher, the indices found much greater purpose in today’s session. At session’s end, the daily gain was
about 1.5%, similar to the gain achieved through four advancing sessions last week. We of course like
this action because we’ve been expecting higher prices in the near-term. Heading forward, our stance
doesn’t change – continue expecting higher prices ahead until the charts give us some indication that a
high has occurred.
In addition to tracking expectations, today’s action made a mark on a number of charts. It allowed the
Dow to match the other indices by moving above August’s highs. It allowed the other indices to gain
some upside separation from August’s highs. It resulted in the NDX tagging our target for this up leg,
while the other indices remain a bit behind. And maybe most importantly, it provided even greater
strength to our long-term forecast.

I’ll tell ya, when this market chooses a direction, it doesn’t mess around. That’s been the case since at
least March 2009. Every trend, regardless of size, has been purposeful and very one-directional. That
was certainly the case during the 2009 advance, when the indices set records in terms of persistence.
That has also been the case with the current up leg off the late August lows. Before today’s session,
the Dow had advanced in 13 of the past 15 sessions. Today’s session broke the mold by closing just a
bit lower. In all likelihood, this small showing of weakness means nothing and price will continue
higher to complete this near-term advance. However, I couldn’t help but notice that the very small
pullback off yesterday’s highs is already the largest pullback we’ve seen in the month of September.
That’s amazing to me. The SPX has pulled off yesterday’s high by a menial 17 points or 1.4%. That’s
three points larger than any pullback we’ve seen in over 16 sessions. Should this make us think a high
is in? Again, there’s really nothing that indicates a high at this point, and it’s more likely that the trend
will continue higher. But we remain on our toes – especially since this market has a tendency to move
really quickly in one direction, stop, and then move really quickly in the other direction.

The current up leg (off the late August lows) is expected to take on a five-wave form before it
completes. After price gave us a mid-week pullback this week, such a form may now be on the charts.
As you can see, it is now pretty easy to place a five-wave labeling on this up leg. All indices
sport the same action. This could be an important clue that is telling us the current up leg – and the
larger three-wave up leg off July’s lows – are very close to completing. Currently, the NDX is the only
index that has tagged our target level for this up leg (at 1970 NDX). However, the Dow and SPX are
pretty darn close to their own target levels, at 11050 Dow and 1160 SPX. With all indices moving
above August’s highs, tracing out up legs that appear to be completing five-wave patterns, all while
moving close to our target levels, it is clear that we need to be on guard for a high in this area.

The indices didn’t do much today, spending most of the session trading along the flat line. The only
piece of interesting action came in the final hour of the day, when all indices pressed lower to finish at
decline lows and about half a percentage point lower.
This of course doesn’t change anything within our forecast or game plan. The near-term trend has
been firmly higher for the month of September, and until we see some type of notable weakness
emerge, we will continue expecting higher prices. That said, there are some reasons to be on guard for
a high. Technical indicators are overbought. The indices have reached or neared our target levels for
this up leg. And more recently, we now have an upside pattern that appears to be nearing completion.
We can add one more thing to this list, as we’ll look at below. Basically, there are plenty of things that
can support a high, and we’re paying attention – but until price actually reacts by turning down, we
have to be stubborn and remain bullish in the near-term.

While the only objective conclusion on the long-term trend is for higher prices, we believe that the
mid-term trend off April’s highs has work to do before the trend turns back up. There are a number
of objective reasons to come to this conclusion. First, the decline off April’s highs into July’s lows is
pretty darn small relative to the size of the 2009 advance. This decline should correct the entire 2009
advance, so we’d expect the decline to become bigger before it’s done. Point in case, the indices have
not yet made it to a standard retracement level of the advance. Such a retracement occurs in the
following zones: 8300-9400 Dow, 875-1000 SPX, and 1430-1670 NDX. We’d expect these levels to
be tested before the long-term uptrend resumes. In addition to the currently small size of the decline,
action that has occurred off current decline lows points to a larger down move as well

It sure didn’t take long for price to squash the possibility of a high. On Monday, we discussed how it
was possible for a high to be in place for September’s up leg and for the entire recovery pattern off
July’s lows, pending further downside pressure. We got the exact opposite as Tuesday brought a
notable up leg that retraced the small pullback off recent highs while moving up to new advance highs.
This is exactly why we are demanding more notable weakness before exiting our bullish near-term
position. This type of bull-headed persistence is nothing new. We’ve seen plenty of moves continue
further and further despite a long list of indications to the contrary. In this instance, we had fresh new
sell signals, upside pattern that could be complete, proximate target levels, and so on. But once again,
price is quick to prove that none of it matters until something actually changes and the indices turn
down. Of course, this failed setup at a high should not make us complacent. We remain at a critical
point for the pattern that is still expected to leave behind a mid-term high before too long. But it is a
reminder that, like price itself, we too have to be bull-headed in our trading.
 
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