Saturday, October 23, 2010
Let's start off with the hourly chart above. I continue to stress that the market continues to stair-step it's way higher around that pink ascending trendline.
After pouring over the EW Oscillator count and the previous 60 min chart, I have consolidated it down to this, at least for now.
Because the waves have been overlapping up and down, I believe we may be working on a wave 5 ending diagonal for minute [iii].
[EDIT 5:00 PM] Ok. I wanted to minimize the options I presented to you but I couldn't help think about this scenario as well. Since I posted my EW Oscillator chart with the alternate labels, I was thinking about some of the headlines regarding what the market may do up to the midterm election. If we just move in a holding pattern (think rangebound consolidation) I think this may be one possible path we take into it.
Wave (iv) ends near/on Nov 3rd. This is speculative obviously, but just preparing for what may come.
As most of you may know, I mainly rely on MACD when trying to gauge where we are with the waves. Earlier in the week, the daily crossed down signaling a sell.
I had been waiting for this to give me an idea when minute [iii] (bull) or c (bear) was over. With the cross down, I'd say we are close but not quite there yet. Why you may ask?
Looking at the base and acceleration chart above, the daily crossed up and down during April for about a month before the larger sell off occurred. During that time period it traded in a range between 1180-1200. Might we be seeing this happening again?
In the event that we have topped, I believe 1129.24 is the key level to watch to determine whether the five wave count up as I have it is over. A break below 1129.24 results in a 4-1 overlap and renders the current five wave count up out.
We will have to keep an eye on the MACD trendline as well. It has steadily trended higher ever since May. If the bull count is correct, minute [iv] will eventually pullback and find support on that trendline as well as stay above 1129.24.
[EDIT 4:32 PM] Perhaps CCI may shed some light? Back in April, three touches of the descending trendline, negative divergence and a break below 100.
Currently, we see two touches and on the verge of breaking below 100. It is hanging on by a thread since it is sitting at 100.33 as of Friday. Let's see if it rallies to the trendline and see what happens there.
Just a reminder of the strong Fib confluences above at 1232 and a possible target at 1290.
Should the market take out 1129.24, see my two main options below (keep in mind I have several more options but I will only show my top two):
I believe many have seen this option before. Option 2 has us working out a flat. Wave B in flats, per EW rules, must retrace A at least 90%. That would place B at 1196.
SPX hasnt' hit that level yet but it is a level I posted on Fri as a potential target for the ED. Once there, this option has us dropping back to the beginning of wave A to form the flat.
As a guideline, wave C is usually between 100 and 165% as long as wave A. The blue Fib extensions in the chart show a target of approximately 980 if C is 100% of A. 160% takes us to approximately 860.
That's a significant drop but that is no P3 bear wave down.
The burden of proof for this count belongs to the bears. In fact any bearish count out there requires the bears to prove that the trend has changed.
The first thing they must do is present us with five-waves (of minor degree) down. I would like to see a pretty clear cut five wave move down to and not the forced count that many bears presented for the move off the April highs.
The two weekly charts above represent what I has led me to option 3. Back in May I speculated that perhaps the market may triangulate after the April high to consolidate before marching higher.
Compare the 5/13/10 chart with the 10/22/10 chart. Not quite what I had projected, but the idea of consolidation is pretty good.
One can argue as far back as Jan of this year, we have only seen three-wave structures up and down. So working off the top two charts above, I have made some adjustments to this thought and present it below.
The more I think about this option, the more I think this should be option 2 since the market will have to break 1010.91 to rule this count out.
Anyway, it doesn't matter at the moment. Both option 2 and 3 imply that a move back near 1010 is possible.
Break below 1010 and option 3 is out and focus on option 2. If option 2 turns into a minor degree five-wave impulse down, then we must start thinking of a much larger correction in store.
Remember the first three moves in any direction (up or down) will be 5-3-5. So if we see a five wave move down of minor degree, we should expect a three-wave counter trend move up and then followed by five more waves down.
But that is still a long way to go. So in summary this is what I see:
1. Minute [iii] is wrapping up
2. If minute [iii] is complete, I'll be watching for minute [iv] to play out as it consolidates above the 1129.24 level.
3. Watching for a break of 1129.24 for signs of a larger correction to come.
4. If the market breaks 1129.24, start truly focusing on options 2 and 3.
If you are interested in seeing what my other thoughts are on potential counts, check out the links at the top of the blog: Preferred Count, Alternate and Interesting Charts