|
Summary for Week Ending 12th July 2003
A nothing week with the markets in little mood to take a
position in either direction and the response to movements in either direction
was generally weak. A slight volume spike on Wednesday signaled an outside
reversal in the S&P but that was about all. The rise on Friday destroyed
the expected patterns and things are looking compressed at present.
This week we saw a lower swing high come in on Wednesdays decline, marking
the High on Monday as the swing high. Thursday showed the confirmation
with another day down but it was not convincing. The large swing day on
the 1st July indicated that there is still underlying strength to this
market and that even when its going down, it really doesn't want to. With
the lower swing high in, we have this sentiment in the opposite direction
with the market wanting to go up but not really wanting to. Last week
I mentioned the possibility of an Elliott wave 4. If this is indeed the
case, then we also have to look at the Elliot rule of alternation. If
we take the decline from 21st March as the wave 2, then we can see that
is was simple in construction and was relatively deep (which is not uncommon
for a wave 2). Applying the rule of alternation, we could then expect
that wave 4 will be complex in construction and relatively shallow in
depth. When looking at what we have seen pass so far, then the concept
of a complex correction is unfolding, with against the trend movements
lasting 1 to 3 days interspersed with 1 day corrections. This makes trading
difficult as there is no valid bar count to fall back on and the complexity
makes prediction, from either a Gann or Elliot perspective extremely difficult.
As an example of this, the DJIA has traded the same price for the last
seven days.
When the markets are in this frame of mind, what we are seeing is mostly
noise, and very little if any trending behavior. The best filter I have
found for this is a 2 bar Gann swing chart, as this eliminates the annoying
1 day counter trend rallies out of the system, and thus aids in removing
most of the noise from the picture.
If we are to have a shallow correction then we are looking at purely technical
terms for the decline. Looking at the S&P, a 50% retracement of the
last wave forward comes out at 964 and this price was traded on July 1st;
61.8% comes out at 952 points. A 38.2% retracement from the base of wave
2 marks at 950 points so we have a small cluster at this point and marks
a good place for support to come in. Using range equality from the first
wave down we have 53 points, subtracted from the lower high at 1010 gives
up 957 points as a level of support. A Range Square from the 1st decline
at 23.6% marks off at 950 points, further iterating the 950 area as a
place to expect some support to come in. Of course the above is predicated
on the decline continuing.
The daily Swing pattern is currently mixed and the 2 bar swing requires
2 days down to create the lower high so we simply wait to see what the
week brings.
|
