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G4 Weekly Market Wrap 26th November 2010

  • Written by Syndicated Publisher 44 Comments44 Comments Comments
    November 27, 2010

    In previous market wraps we suggested that based on our cycle analysis and Astro charts that the low in the current correction should arrive sometime between the 22nd and the end of November.  We suggested last week that even though we anticipated some more negativity it was possible that the low had already been put in place.  As it turned out during the last week we had the XJO drop 0.67% after having been down as much as 1.86% and the S&P500 dropped 0.86% after having been down as much as 1.9%.

    So it remains to be seen whether we get the low for this correction in the markets by the end of the month.  Whilst the market mood is currently quite negative, we do expect a change in mood starting from around the 30th November.


    Many Elliott Wavers are starting to get quite negative at this point in time and from a fundamentals perspective it is easy to see why.  With the sovereign debt issues in Europe and a potentially explosive situation in North/South Korea there is plenty to be negative about.

    We can see from the above daily chart that the bullish count for  the S&P500 is still valid and will remain so until that 1129.24 level is taken out by any retracement.  At this stage I have suggested a couple of scenarios.  The first scenario is that we are forming an abc corrective pattern that will take the index down to a new interim low in the week ahead. Based on a range for wave a of 54.08 and a peak for wave b of 1200.29 then the following targets would apply for wave c.

    Wave c has a range of 50% of wave b = 1173.25

    Wave c has a range of 61.8% of wave b = 1166.87

    Wave c has a range of 76.4% of wave b = 1158.97

    Wave c has a range of 100% of wave b = 1146.21

    The second scenario is that we will start a rally from somewhere near the current levels. Note that the lower Bollinger Band is currently located at 1170. Not shown on the chart is a rising 50 day SMA that is located at the 1176 level.  We can also see that the W%R14 indicator has been making higher highs and higher lows however on the negative side the -40 level on that indicator was a previous support and may turn into an overhead resistance.

    So we are at a cross roads. Our cycle analysis indicates that we should be seeing a rally beginning within the next few days but the pattern for wave 4 has an appearance of incompleteness about it.  The EW count however at this stage remains bullish and there are a number of indicators that appear to be indicating a reduction in downward momentum. Hence for the time being I have to remain bullish for the medium term in spite of the current negative mood in the market.


    Wall Street’s decline has given the ASX200 futures a negative signal for Monday’s open.  At present the ASX200 futures contract indicates a drop of 21 points.  On the NYSE the ADRs have BHP and RIO down around 1.41% and WBC down 4.11% so things are not looking all that bright for Monday morning.

    In my market wrap of the 12th November I suggested a couple of scenarios for the XJO EW count.

    I have updated the scenario 1 version in the following chart.  The scenario 2 version is slightly more bearish and would take the XJO down to much lower levels.  For the time being I will run with the less bearish version.

    Unlike the S&P500 which appeared to be more bullish, the XJO in its rallies has demonstrated a much more sluggish advance with its rallies exhibiting a lot of overlapping waves.  These overlapping waves led me to the conclusion that we were seeing a couple of nested 1~2 wave formations.  The second rally move from wave circle ii did not look like a 3rd wave of any kind at all.

    Based on the ASX200 futures contract we would expect to see the XJO drop down to around the 4577 level.  The bottom of the ascending channel is currently sitting quite a bit below that level so there is definitely room for a larger drop as we approach the end of November.

    We can see from the following weekly Astro Chart for the XJO that during the last week, the index fell through the support provided by the Saturn line and may now possibly be heading down towards the dashed and solid Uranus lines.

    The 4533 is around the level of the lower boundary of the ascending channel so this is probably a good target for the XJO during the next couple of trading days as the index attempts to find a bottom to the current correction.  The bottom of the current correction would then mark the termination level for wave (ii) and it would be from this point on that I would anticipate a reasonable sort of a rally if the above EW count is correct.

    Materials Sector (XMJ)

    The XMJ remains the sector in the Australian market that has done most of the heavy lifting work during the rallies that have taken place.

    Since last week we can see that the sector dropped down below the support shown by the red horizontal line on the chart but then managed to get back above it.  The warning sign however is that for the first time since late August, the sector has slipped below the MBB and therefore runs the risk of dropping down to the LBB located at 13076 which is around 2.5% below the current level.  There does appear to be some good support around that level so that may be the extent of the drop.

    Financials excl. Property Sector (XXJ)

    The following chart of the XXJ shows just what a drag this sector has been on the overall index.  The current location of the LBB is 4797 which is only around 1.14% from the current level and the W%R14 indicator is well and truly into oversold territory.  This gives me the feeling that perhaps the sector is finally approaching a bottom of some kind.


    I am aware that quite a few of my readers have an interest in following the stock ETF GOLD.  It has been trading in a sideways moving channel since early August and there may be some investors who may believe that it is ready to take off.

    Whilst this is a possibility, my personal view is that in fact the stock will commence a down move in the next few days. If my reading of the stock is correct, I believe we are in the late stages of forming an e wave and once terminated it will initiate a move in the downward direction to form a higher level wave C.

    I would expect this downward move to continue until late December or early January 2011.


    One should always remember that there are no certainties in either life or the market. As technical analysts we attempt to use numerous technical analysis methodologies in order to come up with what we believe is the highest probability likely direction of the market. As the results of race meetings throughout the year attest there are still a lot of 100 to 1 pops that win races throughout the year so obviously anything is on the cards.

    In spite of the very negative mood of the market we still suggest that the current correction is nearing an end and that we are likely to see a change in mood in the coming week and that we should start seeing the beginnings of a rally.

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