ElliottWaveFan.com

Market Summary: the stock market drop has been more relentless than I thought so far. Commodities like gold and silver have also followed suit, while US dollar is going the other way (up) in similar breadth. There is no casualty or even any indication that the economy is turning around yet, except for Toyota’s trouble, which I think is exaggerated.

The structure so far is looking like S&P 500 has finished wave 1 (i) of 1 and 2 (ii) of 1, and wave 3 (iii) of 1 is currently unfolding. I was quite surprised that wave 2 only lasted 3 days (Feb 1 – 3) and it retraced less than 38.2% of wave 1. But, since wave 1 low was convincingly broken, RSI is still not oversold and retracement level is just a guideline, I’m going to call that wave 2 is over now. This premise will be proven next week: if wave 2 high (1,104) is broken, then this drop is just part of wave 2 otherwise, S&P 500 will probably drop below 1,000 next week.

VIX has also made new high with the recent drop, which usually coincides with an impulse wave not a correction. VIX should be making new high as wave 3 unfolds.

Nasdaq composite pretty much mirrors S&P 500 price movement.

Similar comment to Canadian TSX index.

Economic news have been mired with bad news lately with Toyota’s problem (which appears to affect Nikkei index badly), the newly infamous acronym PIGS (Portugal, Italy, Greece and Spain) that showcases Europe’s economic problem, and lets not forget Dubai is still hanging on a debt lifeline. However, there are also still some good news like the unemployment rate drop in the US and Canada. At this stage of the game, the stock market and main street economy are expected to go their own way since fundamental economy always lag the stock market. Really bad news would not probably come up until the big wave 3 is unfolding. I still expect to see more recovery news in the coming weeks.

Safe investing,

RH