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Thursday, April 26, 2012

Apr 26

edit 2:10 - So much for the ending diagonal theory


Okay, here are some thoughts that are going to sound like waffling. And to be honest, it really is waffling. Because things are not making sense and it is bugging me. I am getting several conflicting signals and I am trying to find the best story that leads to the least conflicts.

1 - no true divergence at the low). Now, there is no *requirement* for a divergence low after a 60-min Downcycle signal. But there is a *very* strong tendency for there to be one (90%). What we got instead was a double-bottom move. And like I observed yesterday, the Nov 2010 pullback was essentially a double-bottom move. So there is a recent precedent for this. But as ZimZeb pointed out there are some distinct differences that are making me doubt the comparison. (i.e. that we actually have a finished correction)

2 - a potential trend system setup). The reason why I thought the correction was over was the sub-cycle cover/buy signal that got issued with the gap up. As I have explained before, there can be many sub-cycles within a cycle (on average there are two). But the strength of the move up makes it seem like this sub-cycle bottom would lead to an Up Cycle confirmation. I said yesterday that if the price stayed above 138.50 until Friday that we would get one. But I am thinking how sneaky this market is being

We had a failed down cycle in March. And that manifested as a down cycle signal right at the peak of the pullback in March (which was a downsloping ending diagonal). We have nearly the opposite at work here right now. We have a Up cycle signal that will be issued in about a day and the price action looks like an ending diagonal after a large gap up.

So could we have an upside breakout fakeout at play? I certainly think it is possible.

But is it likely?

To answer that I revisited my micro-count, and here is what I see:

We have a move that counts like a large regular flat, and a move up since Monday that counts like an impulse with an ending diagonal right into resistance.

Two options come out of this:

1: This is the end of the up move and we have a lower low ahead.

2: The correction is over, and this is a wave 1 or A up and we have a Wave 2 or B down next

Either way the count seems to be saying that the next move is down. And it is happening at a time where it would be poised to negate a potential Up Cycle confirmation on my trend system.

This being the case, I am not inclined to give the benefit of the doubt to the bulls right here and am going to be looking for a pullback to really develop into something. So right now I will be looking for evidence that this ending diagonal terminates, and likely looking to go short again.

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