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Thursday, February 4, 2010


That is what I think of the count options at this point. Nothing is clean. To reiterate from this mornings post (Scrambled Eggs) here are the pros and cons for the counts: (refer to this chart)

The big question is: Is this the start of Minor 3? Based on the strength of the move, that is certainly a compelling argument, but it is not as clear cut as it may seem.

Case for "Yes, start of Minor 3"
1. Very impulsive structure
2. High Volume
3. We had not seen this level of bearish breadth (downside participation) since the Dubai Debacle back in November

Case for "No, this is still part of Minor 2"
1. This *could* be the C leg of Minute B of 2 .... I am finding this hard to believe, but it is still *possible*
2. There was *NO DIVERGENCE* with the indicators! It is not a requirement for a wave top to show divergence (yes, yes, there was some divergence on the *very* fast indicators, but that is just noise). However, the fact that a Minor Degree wave showed no divergence on a 60 minute chart leaves me very skeptical about this move.
3. Whether you call my preferred Minor 1 or the alternate Minor 1, the Wave 2 retrace is only about 38% .... No sir, I don't buy it. A wave 2 retrace of only 38% in the middle of an extended 3rd wave? Yeah, I can buy that. But a Wave 2 retrace of only 38% for the very first Minor Wave Down in P3? Nope, that makes very little sense. Wave 2 is supposed to make you question if the trend really did change. In this case the Wave 2 is supposed to make the bulls feel reassured and the bears doubtful. This wave has not filled that role at all.

So here is my updated count

..... Fair warning .... I *HATE* THIS CHART!.

It makes me want to vomit all over my computer screen. I am not a fan of putting multiple alternate counts on one chart. It looks messy and confuses more than it elucidates multiple options (just my opinion).

But in this case, based on the strength of the conflicting signals that I outline above, I honestly don't have a preferred count. And I think all options are viable at this point. .... and I don't like any of them.

So how am I positioned? Like I said yesterday morning: Spinach Frittata

So what I did yesterday was to exit out of my long positions (for a small profit) and established some pilot shorts. I will wait to see how the next Minute Wave develops to see if add to shorts or if I will hedge longs to play the C wave.

I have not yet added to my shorts. But if we get a pullback tomorrow (something on the order of 38-50%) followed by another impulsive move down that makes clear new lows, that will help clarify the wave count as bearish, making far more likely that we are in Minor 3. There is too much ambiguity here, I want a clearer signal before I change any positions.

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