A Short Term Update by P.N.

Our friend PN has graciously provided us with his latest short term Elliott Wave updates for the SPX and the yen. A few words on these chart updates: similar to other technical analysis methods, e-waves are merely probabilistic. The underlying assumptions are that all financial markets with a large number of participants exhibit fractal structures that are visible at all degrees of trend and have a tendency to repeat over and over again in the course of historical bull and bear markets (these assumptions and the rules developed from them are solely based on empirical evidence; contrary to economic theory, they are not logically deduced from irreducible axioms).

Similar to Tom de Mark's sequential counts, one of the major objectives of e-wave analysis is to find technical evidence for trend continuations and especially trend changes. Obviously, since it is probabilistic, it cannot deliver certainty, but it can make propositions, and along with these propositions it can provide price points at which the propositions are either validated or invalidated. Corrective structures pose greater difficulties to this type of analysis than trends, as there is a far greater number of corrective patterns than impulse, or 'trend' patterns.


The assumptions, or propositions, underlying the short term updates of SPX and yen are currently that both markets are in large scale corrective waves, which are part of a primary pattern of one larger degree that is directionally the exact opposite of these corrective trends.

In other words, the idea is currently to attempt to pinpoint the high of the SPX corrective wave and the low of the yen's corrective wave. So far this has obviously not been a worthwhile endeavor; per definition a fairly large degree turning point can only occur once, and trying to predict it is a hazardous affair. However, as long as there is no reason to doubt the larger degree analysis (which is incidentally supported by analysis of the fundamental data), it will make sense to try and remain alert for potential turning points.

Since both the advance of the SPX and the decline of the yen have continued since the previous wave count update, the short term wave counts and projections had to be adapted to reflect the new situation. There has been more adaptation in the SPX, as the originally proposed idea of a diagonal had to be abandoned. The yen has so far merely extended its pattern, but there is no reason yet to alter one's view of the pattern as such. The yen chart shows the larger degree position and projection proposed by the wave count on a weekly chart.

The comments in blue on the charts themselves are PN's and discuss the technical picture, the comments below the charts are ours. The time frame is daily in the SPX and weekly in the yen.




E-wave count update of the daily chart pattern of the SPX -although the short term wave count had to be adapted to properly reflect recent moves, the larger degree wave count from the 2009 low so far remains unaffected by this – click for better resolution.




The yen-dollar rate, weekly. Just as the SPX chart is based on the assumption that the secular bear market is not yet over, so the yen chart is based on the opposite assumption: its secular bull market is held to have one more leg left after the current decline concludes. This is admittedly the more adventurous proposition right now, given Shinzo Abe's plans and the trio of doves that has been installed at the BoJ. However, it is possible that they will fail, or be forced to give their plans up due to the economic realities Japan's government faces. In that case, the fundamental support for the proposed long term wave count would emerge in due time – click for better resolution.



Note also: the BoJ has not “successfully” inflated yet. The entire move in the yen was solely based on expectations and also reflects the current 'risk on' environment in the  financial markets (the yen is traditionally in greater demand when traders are fearful). It is not certain yet that the BoJ actually will succeed in inflating the money supply. It is even less certain that the 'risk on' backdrop will persist. In fact, we would be willing to bet that it won't.  



Charts by: StockCharts / PN



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