2011 & the DOW

Happy New Year to all readers! May this year put you on the right side of the trade more often than not. My last post on the SPX ended on a note of caution. And here's more evidence why it might pay to be cautious. A chart of the DJIA going back 15 years.

All the best!

(EWI) Slicing the Neckline: A Classic Technical Pattern Agrees with the Elliott Wave Count

August 17, 2010 By Elliott Wave International

In the August issue of his Elliott Wave Theorist, market forecaster Robert Prechter alerted readers that the U.S. stock market was slicing the neckline of a classic head-and-shoulders pattern in technical analysis, and that this may send the market into critical condition. Prechter said that when the Elliott wave count and a head-and-shoulders pattern are saying the same thing about the stock market, it's best to pay attention.

Read some of the latest nuggets directly from Robert Prechter's desk -- FREE. Click here to download a free report packed with recent quotes directly from Prechter's Elliott Wave Theorist.

Here's how the August issue of the Elliott Wave Financial Forecast, the sister publication to Prechter's Theorist, described the head and shoulders pattern unfolding in the stock market:

"The weekly Dow chart [below] shows the development of an intermediate-term, head-and-shoulders pattern from the January high at 10,729.90 to the present. The January high marks the left shoulder, the April 26 high at 11,258 is the head, and the right shoulder is now ending. The April [Theorist]discussed the pertinent characteristics that Edwards and Magee used to define this technical pattern ... all apply to the current formation. Observe how weekly stock trading volume has contracted during the development of the right shoulder, a necessary trait of this pattern. The downward-sloping neckline -- exactly as on the big ten year pattern -- displays market weakness, which is consistent with our interpretation of the wave structure."

This chart shows the head-and-shoulders pattern.

Here's what Robert Prechter himself said in a recent Elliott Wave Theorist:
"Generally, when the neckline slopes downward, the right shoulder does not rise to the level of the left shoulder ..."
Please look at the chart again -- then re-read Prechter's quote.

Read some of the latest nuggets directly from Robert Prechter's desk -- FREE. Click here to download a free report packed with recent quotes from Prechter's Elliott Wave Theorist.

This article was syndicated by Elliott Wave International and was originally published under the headline Slicing the Neckline: When the Market May Go into "Critical Condition". EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

S&P500, Dow Jones, Nasdaq & Russell: Who's the weakest of them all?

Leading the pack....roaring Russell 2000!

Coming in a close second... the nifty Nasdaq Composite!

Not to be outdone, sassy S&P500 in third place!

No prizes for guessing who's last... the once-mighty-meaty-now-dull Dow Jones Industrials!

Correction due

We have completed/almost completing 5 waves up from 1086spx, and very overbought. 1180spx is the rough target of the Inverse H&S. While a correction of some sort is due in the near-term, all the above indices are well within their uptrend channels. Hence, no reason to go overly short, unless there is a break. The DJIA might offer the earliest clues to downside action, as it is closest to breaking its uptrend, as of now.

Short-Term Wave Count for SPX

Although tempted to label the recent rise in the SPX as 1-2-3, the proposed wave 1(now W) only looks like a 3-waver on all the above indices. Let's see how it plays out. If indeed they turn out to be 1-2-3, a typical target of an extended wave 3 is 1.618 of wave 1, which works out to roughly 1196spx. Unlikely, but something to keep in mind.

Meanwhile... on board The Titanic

Smith: Clear.
Second Officer Charles Herbert Lightoller: Yes. I don't think I've ever seen such a flat calm.
Smith: Like a mill pond, not a breath of wind.
Second Officer Charles Herbert Lightoller: It will make the bergs harder to see... with no breaking water at the base.
Smith: Hmm. Well, I'm off. Mantain speed and heading, Mr. Lightoller.
Second Officer Charles Herbert Lightoller: Yes, sir.

Wonder what happened next... ;)

S&P500 short-term: Upward Momentum weakens

SPX still in the uptrend channel, and still very overbought on the daily charts. Just judging by the frequency of its visits to the blue channel line, we can observe upward momentum weakening. Any correction here has support in the 1130 area, and wherever price meets lower orange channel line. Short-term, higher prices towards 1200 are not impossible, provided we consolidate some.

Very Short-Term

On Friday, price hit 1153 - one of my target areas for a possible turn (refer to earlier posts). A sharp, but small drop followed, and the rest of the session went sideways. There could be a re-test of 1153 on Monday, but i am expecting more consolidation in time or price before any moves higher. If we do continue higher, the eventual trendline break could be dramatic, due to super overbought conditions.

Finish line?

The tortoise has reached the finish line. Will it rest here? Oh wait, we forgot about its older cousin - the Dow Jones Industrials:

On Friday, encouraged by the SPX, it was pulling itself together for the final dash - outperforming by a bit. If the markets do head higher, watch out when Dow kisses 10730, especially if you are long - might wanna trade for some shorts.

Asian Connection

Several asian markets are executing their Inverse Head & Shoulders patterns, and are a few hops away from ideal targets. As correlations in the very short-term have been high, watch these asian levels for a potential turn in US markets. HangSeng - 22000 & Shanghai - 3200

Astrological Connection

Next week is going to be extra special for 'believers' - the Spring Equinox falls around March 21st and has often coincided roughly with some turning points in the market. So bears around the world, be sure to tip the Heavens, if your wish comes true! ;)

All the best for the week ahead!