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Update for Wednesday, February 3, 2021, 5:00pm, Eastern.

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2/5/2021 FreePass: U.S. :: Elliott Wave International

We did not correctly anticipate the extent of yesterday’s rally (Feb. 2). The only bearish option for the wave
structure is that the rally is wave (c) of an expanded at pattern (see text, p.45), as shown on the above chart of
the S&P 500. This afternoon’s 3847.51 high was not con rmed by the DJIA, where the countertrend high is at
30,840.50 from yesterday morning (Feb. 2). If a at ended today, the S&P should decline below 3773.86 in
relatively short order. This is the gap from the close on February 1, which created a bullish island reversal pattern,
as shown on the chart. Closing the gap would diminish the island pattern’s signi cance. While the DJIA and S&P
500 closed higher today, the NASDAQ Composite closed slightly lower. Breadth was at at 1.28:1 and today was
the fth consecutive session of contracting market volume, a relatively rare event. So, today’s follow-through rally
was relatively meek. This is compatible with the fth wave of an upward at.

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The other viable potential is that the S&P’s decline from the January 26 to January 29 is an (a)-(b)-(c) zigzag
pattern (see text, p.42). This next chart shows the subwaves. In this case, the rally from January 29 is a still-
progressing impulse that will carry to new highs before it terminates.

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(https://my.elliottwave.com/chartfolder/stu/vvixvix020321.gif)

If the short-term bullish scenario plays out, the new high should be the nal upward push of the advance from the
March 2020 low. In Monday’s Update we showed a version of the chart above, which plots the VVIX/VIX ratio.
Yesterday’s stock market rally coincided with the ratio rising back above the trendline from March 2020. Observe
the two yellow rectangles on the chart: they appear to be a fractal. At the end of each of the sideways market
moves, the S&P embarks on a nal rally. Last year, the rally ended at the February 19, 2020 high and led to the
plunge to March 23. The VVIX/VIX ratio made its third lower high at the S&P’s February 19 high. The patterns
appear similar in that the VVIX/VIX ratio could make a third lower high relative to a higher high in the S&P index.
We’ve placed a red arrow on the chart to show where the index may be in the progression. If the S&P were to make
a new high, we’ll be monitoring the ratio to see if the 2020 pattern remains intact in 2021. This discussion is moot
of the S&P completed an upward at pattern at this afternoon’s high. In this case, the VVIX/VIX ratio is on the
verge of declining back below the trendline from last March.

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(https://my.elliottwave.com/chartfolder/stu/djia020321.gif)

The DJIA has ve, overlapping waves down from the 31,272.20 high on January 21. The top view is that the
decline is a series of rst and second waves that will lead to more selling pressure and lower prices. The alternate
count is that this “ ve down” is wave c of a at pattern. The latter view implies a rally to new highs. A decline
through 30,250.00 will strengthen the bearish case. Until then, we must respect both interpretations.

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This chart shows the wave structure in the E-mini NASDAQ 100 futures from September 21. The upward push
from the 12,727.25 low last Sunday night (Jan. 31) is wave v (circle) of 5. It may have ended today at 13,584.50,
but it is too soon to con rm it. Today’s high was slightly shy of the January 26 high, so one could conceivably label
an upward at correction, similar to the top chart of the S&P 500. If the rally pattern is complete, the E-mini NDX
should continue lower in a series of stair step declines. We will know more once we see additional development of
the pattern and we’ll talk about in Friday’s Update.

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(https://my.elliottwave.com/chartfolder/stu/usa020321.gif)

The trend in bonds remains bearish. Minute wave iii (circle) of Minor wave 3 down in [U.S. Treasury long bond
futures] continues to draw prices lower. The next downside target area remains 163-164, with lower potential after
that. Short term, prices are approaching the Minor wave 1 low at 167^11.0, which could elicit a snapback bounce
within the declining trend. If it occurs at all, it should be short term in nature. The alternate count is that Minor
wave 2 is tracing out a at pattern, which would make the decline from 170^29.0 wave b (circle) of 2. If the odds
were to change in favor of the alternate, we’ll discuss it in an upcoming STU.

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(https://my.elliottwave.com/chartfolder/stu/euro020321.gif)

The [Euro]’s decline has drawn prices to 1.2004 today, as wave iii (circle) down continues to progress. The next
downside target remains at 1.1890 (±). The alternate count labels the decline from 1.2190 as wave (b) of an
expanded at pattern (see text, p.45). The alternate scenario means a rally to meet 1.2190 to complete wave (c) of
ii (circle). At 1.2004, wave (b) is a Fibonacci 1.382 times wave (a), the most common relationship in an expanded
at. A continued selloff below today’s low would therefore diminish the odds of the alternate interpretation and
strengthen the odds of the top count.

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The [U.S. Dollar Index] rallied to 91.309, continuing the advance that started on January 6. The index has met
resistance at a prior fourth wave of lesser degree. If there is a short-term setback, prices will meet support at
90.800-90.827. The next upside target surrounds the 91.500 level. Higher potential exists.

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[Silver] plunged nearly 13% in a matter of ten hours from Monday night to Tuesday morning. The sketchy new
stories of an impending “short squeeze” for silver prices were bogus. As we showed in Monday’s Update,
speculators are net-long a third of all open interest in silver, not net-short as some have erroneously reported. At
least one large silver option buyer is in trouble on their purchase, according to a Blomberg story yesterday (Feb. 2).
“A single block of RM121.76 ($30) June calls in iShares Silver Trust (SLV) sold for RM13.80 ($3.4) million on
January 28. Yesterday the same block was worth about RM4.87 ($1.2) million.” The push to RM122.12 ($30.09),
Monday night’s high, occurred with the silver DSI (trade-futures.com) jumping to 91% bulls, the rst time the DSI
exceeded 90% since August 6, 2020 (93%), the day before the August 7 high. As we noted, this move was not
con rmed by gold, creating a large 5½-month non-con rmation. Fractured trends are often unsustainable. Short
term, today’s snapback rally has been weak so far. The pattern may be a triangle (see text, p.49), which would
make the rise from RM106.58 ($26.26), yesterday’s low (Feb. 2), a fourth wave. When the fourth wave is nished, a
fth wave decline should draw prices below RM105.89 ($26.09), overlapping the high of January 20 and
con rming silver’s downtrend.

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[Gold] has been stoic relative to silver since January 27 and the near-term forecast remains intact. A ve-wave
decline from RM7952.02 ($1959.35) to RM7347.83 ($1810.48), January 6 to January 18, has led to a three-wave
bounce to RM7612.89 ($1875.79) on January 29. This high either completes wave (ii) or it will be complete with
one more upward pop above the January 29 high. In either case, wave (iii) down will be a strong decline that

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2/5/2021 FreePass: U.S. :: Elliott Wave International

should draw prices to RM6615.36 ($1630)-RM6777.70 ($1670), initially. A push above the January 6 high would
rescind the forecast.

Next Update: Friday, February 5, 2021.

--Steven Hochberg, Editor.

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