S&P500: Keeping it simple

Tremendous buzz going on in elliott wave circles around the world, since the friday rebound from a week ago. Is this a new impulse up, a zig-zag, double zig-zag, triple three? Corrections are complex creatures, and thus generate the most amount of discussion

A Word about Elliott Wave Theory

Elliott Wave Theory, first chanced upon by the legendary R.N.Elliot, is an elegant tool which provides a framework from which to look at the market. It's beauty lies in its ability to relate wave forms to mass human emotions of fear and greed. Let's face it: NO ONE knows the future for sure. Obviously, elliot wave structures in real life do not look like the idealized forms and have many variations, making predictions difficult, especially in real-time! Hence, it has limited predictive ability, and is to be used as a framework and a guide to make "higher probability" trades. If anybody, anywhere, has found a 100% tool, we'd know the future and there'd be no trades, no traders and no markets - impossible! Personally, i find it very useful in conjunction with price action, and a few other indicators. Different strokes for different blokes :)

Keeping it simple

So this week, let's keep it simple without getting too caught up in counting waves. I suggest you ignore my proposed count below, and focus on the trendlines and price action.

Trend:

Medium-term: down
 - the relative form, veloctiy and magnitude of the down vs up movement, since January.
 - very corrective nature of uptrends.

Short-term: up
 - initial sharp upmove from Fri 5 feb, followed by a very choppy uptrend, bouncing on the bottom trendline.
 - break of the downtrendline from Jan.

Very Short-term: sideways

A Word on Sentiment

For those folks calling for a wave 3, a quick question: How does a wave 3 generate its deadly power? For one, it does so by sucking in hoards of buy-on-dippers on wave 2, by generating a pink cloud of super feel good optimism and hope, before executing a shocking about turn into a seeming abyss. Neither the recent price action, nor the pigs-in-europe news, supports a wave 3 sentiment setup in my humble opinion. Not yet!

How do i trade this

Depending on our time-fame - in a corrective phase, it might be best to sit on the sidelines and wait for a resolution, or keep with the larger trend. It is dangerous to go against the main trend, as you never know when the correction's gonna break.

In the short-term, a break of the lower trendline might lead to a test of 1045, while a break of the upper trendline might chance the 1105 level. However, as we've broken thru the Jan downtrendline, i'll be keeping a short-term bullish bias, unless 1045 is taken out decisively. Possible initial down this week, followed by recovery.

As always, keeping an open mind either ways. Good luck!