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Summary for Week Ending 1st August 2003
Whilst shaping up as a rather 'nothing' week, we had data
which saw the market perform a remarkable feat on Thursday, where prices
took off like a rocket, only to collapse towards the end of the session
to where they started. I would muse that the lift off would have sucked
quite a few in and the sudden decline at the end of the day would have
sparked a rush of self reinforcing stop loss orders. Friday saw a reinforcement
of the late Thursday decline.
Last week I said that I expected this complex corrective phase to continue
and the movement on Thursday may provide a pointer as to when this may
cease. Looking at the S&P chart we can see a clear cut 'flat' style
correction forming which is typical of Elliott wave 4 corrections, so
it follows that this is the most logical path to follow at present. The
S&P shape is a double top so the expected extent of the final decline
is always around the extend of the first wave of the decline (wave A -
July 1). As corrections are less reliable that impulse waves, the true
extent will not be known until it is in, however we can also look at wave
equality to give us a hint as to livelihoods. If we assume that the Thursday
spike was the last wave of the expected wave B counter trend rally, the
we can see that we have an initial movement: 14th July to 21st July. We
can then take the magnitude of this movement (40 points) and subtract
this from the Thursday spike high which would terminate at 965 points
(1005 - 40). This is of course the ideal target if we take Elliott at
his word, which is always a dangerous thing to do, but as a target it
looks good as the terminus of wave A is 962, so we would expect some support
to come in here. On last weeks chart I highlighted the timings with the
27/28 day movements, which also break down to 7 day runs. The time targets
are still valid and a final move on or around the 13th is still on the
cards. With more information we can also see this week a 30 day cycle
is also terminating on this date so we have something else to look at.
In the shorter term Aug 8th is also a possibility but we will have to
see how it all plays out. The Dec 2002 high is also in play as a level
of support so we can see there is considerable clustering at this point.
Looking now at the DJIA, we can also look at what has been happening for
the past few weeks. From the initial decline down 18th June to 1st July
the market has crawled its way back to score a new high on the Thursday
spike and then fell away. This is also a valid wave 4 style flat correction,
however the false break is also an indicator of a likely false break to
the downside, that is, the final push downwards should terminate below
the low on July 1.
I'm sure I have mentioned this earlier, but it is always worth repeating
that Elliott is always a highly subjective art, whereby you are applying
a framework over a random sequence of events. When applying the rules
laid down by Elliott the analyst usually has a considerable amount of
latitude in its application and so the results always look best after
the event. The scenario I have been painting for the past couple of weeks,
is only one of a number of possible Elliott style scenarios, however in
my opinion, it it the one that at present is still supported by the facts,
that is price action to date.
Looking at the longer term, I am working the cycles into a final movement
terminating around the 21st of Sept. There is a 2 year cycle terminating
here and there are some wave cycles that are also pointing to a termination
around this date. This far out however it is all purely speculative as
to whether this date will produce a high or a low. Time will tell.
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