Market Update - 12/31/2009

Dow Jones Industrial Average: -120.46 or 1.14% at 10428.05
S&P 500 Index: -11.32 or 1.00% at 1115.10
NASDAQ Composite Index: -22.13 or 0.97% at 2269.15
CBOE Volatility Index: +1.72 or 8.62% at 21.68
NYSE Internals: 996 Advance. 2026 Decline.

Markets slip on the last trading day of 2009.

According to Elliott Wave Theory, wave 4 must NOT cross into the territory of wave 1, regardless of the degree, unless the wave structure is an Ending Diagonal.

We got a 4-1 overlap today. Yesterday, I had warned about 1116. It broke today. 1116.21 was the magic number on the SPX. If we were to break through that, Minute wave [i] and [iv] would overlap, and according to Elliott Wave Theory, this cannot happen.

Now, I cannot see any other way to count this. I don't see us in an Ending Diagonal for Minor Wave C. It just doesn't make sense. But I can tell you that many people who follow Elliott Wave will change their counts if we continue higher, and I know exactly what they will change it to...

They will say that Minute wave [ii] was a "flat correction." A Flat correction occurs when wave B crosses over the starting point of wave A. The count isn't wrong, since on the Dow, we did not make a new high where Minute wave [i] ended on the SPX. So yes, technically, the count can be right... but I don't support it at this point.

However, I don't support calling a top yet either. I think Monday will give us a more clearer answer. We are sitting at a key point in the broad base indices. If Monday is down, and we break support at 1110, then I will feel more comfortable in calling a top. But at this point, we are getting clues that the top may be close, if not already here. The wave 4-1 overlap is only the first clue.

The Dow had been forming a small little H&S over the past few trading days, the target has now been met.

We are also sitting right on the support line for the main Primary Wave 2 Wedge. If we break this wedge, the rally is most likely over. But so far, it has held everyime we have tested it, but it will eventually break down.

So there are a lot of mixed signals out there. Financials were strong today, while the markets sold off. But at the same time, we had some major overlap in terms of Elliott Wave. But then again... the Dow met its H&S target, so it may be due for a bounce.

There are both bullish and bearish signals. The markets job is to confuse everyone, and right now, it's doing it perfectly. It is very hard to tell what is going on. It reminds of what happened when the market bottomed in March. After the market bottomed on March 6th, and bounced up a little, everyone was labeling that as wave 4, with wave 5 down still to come. We are in a similar situation now. The waves are hard to count, and everyone thinks that we have one more wave 5 up left to come, after we complete this wave 4... So it is hard to tell what will happen, but I do know that we will have our answer on Monday.

I will be posting some weekend updates, so keep checking back for that.

I want to wish everyone a Happy & Safe New Year! Best of luck in 2010! I hope it's a great trading year for everyone!!! :)