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End Of Year G4 Weekly Market Wrap, 31st December 2010

  • Written by Syndicated Publisher 41 Comments41 Comments Comments
    December 31, 2010

    UPDATE: January 1st 2010.

    I would like to thank those readers who alerted me to the fact that the 66 point drop in the ASX200 futures contract shown on the Bloomberg site is not a true reflection of the likely market action for the XJO scheduled for the market open on Tuesday.

    Apparently the futures market closed 20 minutes after the close of the physical market on Friday the 24th December.  During that time the futures market had gone down to the 66 point level mentioned on the Bloomberg site.  Hence that 66 point drop mentioned in my Market Wrap obviously includes the 45.2 point drop that took place on Friday.

    In fact, our futures market was closed during the period that covered the market action in Europe and the US.  Unfortunately the 66 point drop indicated on the Bloomberg site was not reset to reflect the difference between the level of the physical market close on Friday afternoon and what may occur on Tuesday morning.

    The above correction does not change the general market comments that I made in the Market Wrap but obviously will affect the drop (if there is a drop) that may occur on Tuesday.  It is interesting to note that the 66 point drop that is mentioned on the Bloomberg site does coincide perfectly with some key support levels.  There is no doubt in my mind that these support levels will be tested in the days/weeks to come.

    If we look at the 99 minute intraday chart for the XJO we can see that the drop on Friday took the index down to below the LBB and to -100 on the W%R14 indicator. If anything, that could suggest that we may be getting close to a short term bounce of some kind.  Regardless of whether there is a bounce or not, we have none the less had a lower low and lower high in the last 10 days which is obviously a negative for the index.

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    Based on the Delta chart provided in my last Market Wrap it does appear that the XJO may have put in a significant top on the 23rd December and that the significant decline that should follow that top would normally complete sometime around the end of January.

    As Monday is a holiday in Australia there may be some changes between now and market open on Tuesday but as it stands the ASX200 futures contract suggests a fall of 66 points for the XJO.  This would mean a target level of around 4679.  As indicated in the 90 minute chart below the 50% Fibonacci retrace level is at 4681.6 so there is some confluence of target levels.

    We can see from the following daily chart for the XJO that the 4679 is very close to the lower Bollinger Band level of 4680 so once again we get some good confluence of target levels.

    Please note that currently we are talking about decline target levels that may be achieved in one day and I am expecting the decline to last until sometime towards the end of January if my Delta charts are correct.  So what does this imply for the period between now and the end of January?

    One of the limitations of Delta charts is that whilst they define the general time periods where tops and bottoms may occur, they do not say anything about price.  It purely a ‘time oriented’ methodology.

    Hence whilst we may be getting an indication that a medium term low will take place towards the end of January, we have no idea from Delta just how far down that decline will take us. To determine the size of declines we must use other methodologies such as traditional TA or pattern recognition methodologies such as Elliott Wave analysis.

    If we look at the following weekly chart of the XJO we can see that the MBB has at various  times acted as both resistance and support for the index.  Note that MBB is currently located at around the 4642 level.

    It is entirely plausible that the XJO could trade in a sideways moving channel for the next month between the recent 4811.9 level and the 4642 level and that the low may take place sometime towards the end of January.

    We can see from the Astro Chart for the XJO that there are Saturn lines (shown in blue) around the 4635 and 4665 levels that may provide some support.

    It is clear that the index could potentially fall to any of the levels shown on the above charts but it would be more appropriate at this point in time to take one wave down at a time and see how things develop.

    US MARKET

    In past market wraps I have suggested that the S&P500 was in the final leg of the rally that commenced in March 2009 and that it would peak sometime between February and June 2011.  This final leg commenced on the 1st July 2010 and the anticipated shape of the pattern would be a 5 wave move.

    Most Elliott Wave analysts believe that we are currently forming the 5th and final wave of this current rally.  It is possible that it may in fact have just peaked at 1262.6 on the 29th December.  Whether it still has another spike upwards left in it remains to be seen but if the above mentioned EW analysts are correct then a large multi month (and possibly multiyear) decline will follow.

    G4 do not share the above view.  We continue to believe that the 4 year cycle has still not peaked at this stage and will not do so until sometime in the first half of 2011.  For this reason it means that any EW count needs to take into account a medium term  decline in the near future and then a final leg up into the peak.

    One such EW count is the one below.  I call it my Alternate favoured EW count for the S&P500.  This count assumes an Expanding Flat pattern (ie, one where the b wave is longer than the a wave)

    The following EW count is slightly different in that it labels Intermediate wave (C) as a 3 wave corrective move rather than an impulse wave.

    Note that the patterns for both of my EW counts are identical. From my perspective which count is correct is irrelevant as long as my anticipated overall pattern shape turns out to be correct.  The important thing to gain out of my counts is that I expect a decline but that decline will be followed by another rally before we eventually do complete the rally that started in March 2009.

    The following Astro Chart for the S&P500 shows the very strong overhead resistance provided by the North T Node planetary line (orange line) at around the 1260 level.  This coincides with the 1257~1261 levels highlighted on the previous two charts in green.

    Whilst a break above these levels is possible it is also likely that we may have seen an interim top to the S&P500 at this point in time and that like the XJO it too is due for a decline that will take until around the end of January to complete.

    All the comments made for the XJO regarding the possible size of decline in the index  also applies to the S&P500. From our Delta studies we expect a low to form sometime towards the end of January however the nature and size of decline at this stage is unknown.

    Any of the levels indicated on the Astro chart are likely support levels for this index. Note the confluence between the North T Node level of 1170 and the MBB shown on the weekly chart for the S&P500 of 1176.

    Summary

    Whilst further upside to both the S&P500 and XJO is possible, there are early signs that the momentum in both indices has fallen and that a decline is on the cards.  If we really have finally started the long anticipated decline then it should last until towards the end of January.

    Regardless of the nature and size of any decline in both indices we still anticipate that another rally is on the cards that should complete the overall rally that commenced in March 2009 sometime in the first half of 2011.

    Join us daily at our Elliott Wave Watching thread and see what the EW enthusiasts are saying about the US and Australian markets. Simply click on the link below:

    http://forum.incrediblecharts.com/messages/427230/2591748.html
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