Elliott Wave Update ~ 4 March 2013

As stated last week, this blog adheres to the concept that the rally from the 2009 low is a counter-trend corrective rally. Why? Because the wave count does not lend itself to an overall impulse (5 waves) from the 2009 low at all. Even if one tries to contort the count, its virtually impossible to follow any wave counting rules as laid out by Elliott himself and refined by Mr. Robert Prechter (and Frost) in the timeless book "Elliott Wave Principle" which I adhere to in guidelines and rules of counting.

I have been proposing an ending diagonal triangle count in the SPX and Wilshire 5000.  Without going too deep into why, wave guidelines says that ending diagonals should consist of a-b-c internal counts for each wave of the ending diagonal. 

We have that now on the S&P and Wilshire 5000 if no new high is achieved. Note subwave form [a]-[b]-[c] counts of each leg of the wave (C) of [Y]. This is correct ending diagonal counting per Prechter. The last subwave [c] of 5 of [Y] has been our squiggle count lately.

But being as it may that this rally since 2009 is very difficult, we have many options. One option is a triple zigzag from the 2009 low which would have a slightly different subwave count of the internal legs over the last many months:

If the triple zigzag (or some other variant) is the correct count, then another high is required to complete the internal subwave requirements:

CONCLUSION:
We can count the wave structure as being complete now as it stands with our first count of an ending diagonal.

We can also account for a new high using our backup count.  Its up to the market.  Since some measures of sentiment has dropped very low due to last week's volatility,  the backup count (triple zigzag from 2009 low) is very much on the radar.

Specifically some measures of short-term sentiment that have tanked (yet prices have clearly not) are the AAII survey and tonight via Sentiment Trader, the small options contracts or small spec traders. They haven't had a good track record over the last many years as you can see in the chart below the spike on or near intermediate lows.

We'll see if they can do any better this time.

That is not to say that long-term sentiment does not remain extreme - it certainly does.  If we do get another leg up, I'm sure they will get even more long-term extreme which can create a dangerous market for longs.