Mother Market is a non-linear chaotic system that runs most efficiently at the edge of chaos, which it is doing right now. In more prosaic terms, the recent spikes denote distribution – movements from one opinion to another – with short squeezes and rapid pops along the way. That is how the edge of chaos looks. At some point it will find order and pick a direction, and I think it did that this morning – up! Duh …
Later today I will get some insight from Prechter et al. but I want to share a perspective of Tony Cherniawski in an email he sent to his followers. The chart shows us in a triangle. Triangles are useful indicators of order out of chaos, since they always come as the penultimate (the next to last) wave pattern. This one will be followed by a final break up, which again happened today, so Tony’s pre-marekt call was spot on. (Overnight the emini had also signaled a strong open today.)
His target for the break before the open was Dow9785, which we crushed through, with a secondary limit of 9834, which we slightly broke thru and faded off. One possible count had been nested waves 1-2, but breaking that level broke that count. (Yesterday the STU had dismissed that count as unlikely since the inside wave 2 – the last four days – was too large compared with the outside wave 2 candidate.) Nevertheless the triangle would say this move is the final one.
The major alt count is the drop off the recent highs was an X wave, and we are or soon will be in the early stages of a third zigzag up. The wave count is ambiguous as to whether X has ended. It may be Tony’s triangle (which he notes is not that visible in other indexes, making it a questionable count) denotes a B wave of an ABC inside that larger X wave, and we could fade below the recent highs after the C ends. I find this count curiously interesting because it means Mother Market will fool the maximum number of traders: the bulls will pile on thinking Dow10K is again in sights, and the bears will have backed off their short positions.