Keene Little : 12/3/2006 10:52:09 PM
I was asked for an EW update on CME and GOOG so I thought it would be a good idea to review them in light of what might be happening in the broader market. Not that the direction of either of these companies will tell us what the broader market will do but I wouldn't be surprised if they move together.
Starting with a weekly view of CME I've got an EW count that looks pretty solid and my first reaction when I look at it is that we've got a little higher to go in CME before it tops out. Link
The parallel up-channel from late 2004 tells me there's a good chance wave-(4) ended in August and we've been in wave-(5) since that time. I show a little higher to go for this 5th wave and this daily chart shows a closer view of the move up from August. Link
While the weekly chart shows an upside target at 608.89--based on wave-(5) = wave-(1)--I'm showing a lower upside target on the daily chart which is based on an ascending wedge playing out. The ascending wedge idea is based on each wave inside the 5th wave being a 3-wave move (which is found in triangles). This daily chart suggests a minor pullback here will be followed by another rally to a new high. But here's an alternate daily EW count for the 5th wave up. Link
This daily chart calls the end of wave-(4) in May instead of August and that it's been in an ascending wedge for wave-(5) since that time. This count suggests the last high in November, which did a throw-over above the wedge, finished the rally. We won't know which is playing out until we either get a new high after a pullback or if it drops below the August low (425). The first bearish heads up would be a drop below the uptrend line from August, so below 500.
Moving to GOOG, the weekly chart is not quite as clean looking only because the count that I'm using has wave-4 much larger than wave-2. It doesn't pass the "smell" test but it doesn't violate any EW rules. Link
The one thing I do like about the count is that a triangle 4th wave always points to the final move for the trend. So the leg up from August should be the last leg of the rally from 2004 and for that reason fits as wave-5. The other reason I like it is because wave-5 is bearishly divergent against wave-3, the high in January. This is what you look for to help confirm the EW count. I show on the weekly chart that wave-5 finished and the daily chart here shows a closer view of this 5th wave. Link
While I'm not crazy about the interal wave structure (lacking in some impulsiveness, especially in the 1st wave of 5) but the larger wave structure fits. Once again the 5th wave of 5 is bearishly divergent to the 3rd wave of 5 (the high in October). This EW count says the rally in GOOG is finished. I forget who just upgraded GOOG with a price target of $615 but this count says they will miss the mark by a long shot.
If we get a pullback followed by another move higher then that will answer the question in my mind why the beginning of the rally from the August low looks choppy--it means we have some "unwinding" to do and have at least another small 5th wave up to finish the count. The bearish divergences should continue. It takes a drop below 420 to confirm the top is in.