Saturday, October 9, 2010
As posted yesterday the DOW signaled a golden cross (50/200 SMA) on 10/1 and we have seen a month long rally since the end of Aug.
A few weeks ago I commented on the fact that this move up reminded me of July 2009 and February of this year where the leg kept extending higher even though the indicators continued to show that the market was overbought.
The ball is in the bull's court right now and the bears are the ones who need to prove their case. There are several hurdles the bears must clear below.
I have posted my bull and bear daily charts above. Both allow for this impulse wave up off the Aug low and currently has us in minute [iii].
Previously I was looking for a top to minuette (i) of minute [ii] but one thing I am now considering is that we are in an extended minute [iii] versus working on minuette (i) of minute [iii]. If the ending diagonal scenarios below play out, I will stick to the minuette (i) of minute [iii] count.
I think there are a few simple things to watch for next week as highlighted in the 60 min chart above. The wave pattern has begun to look like it is wedging but keep in mind my daily view may have us working on an extended minute [iii], which would break above and out of the wedge.
There are three options on the 60 min chart above:
1. We are working on wave  of subminuette v. The blue Fib shows that = at 1183.
2. We are in an ending diagonal for subminuette v that began at 1131.87. Friday's high was all of subwave 3 of the ED or there is a little more to go. A quick pullback for subwave 4 and then a final push higher for subwave 5.
3. A larger subminuette v ending diagonal that began at 1122.79. Labels are in gray.
If the leg off 8/30 is complete, I would like to see two trendlines break, the pink and the red bottom ascending trendline break.
Its that simple. If we pullback next week and bounce off the pink trendline and break above the red wedge forming, I believe option 1 will be confirmed.
Here is an updated look at this Fib extension chart I posted the other day. There are two areas of confluence indicating a possible level the market will head to. Those levels are:
1183-1190 and 1232.
1183-1190 matches up with my 60 min chart above. Wave = there.
It is clear the confluence is very strong at 1232. What should also be noted is the fact that this level is pretty much back at the 62% retracement of the entire bear market decline that began in Oct 2007. This confluence is also highlighted on the daily charts above.
So in summary, these are my thoughts for the coming week and end of the year:
- We are in minute [iii] up with minute [v] most likely targeting 1232.
- We are working on wave  of subminuette v of minute [iii]. The blue Fib shows that = at 1183.
The alternatives are:
1. We are in an ending diagonal for subminuette v that began at 1131.87. Friday's high was all of subwave 3 of the ED or there is a little more to go.
2. A larger subminuette v ending diagonal that began at 1122.79. Labels are in gray.
- Watch the ascending trendline for a break to confirm the move up is complete, if not, we continue higher
- DOW golden cross signal last week.
- EMAs are rising and in a bullish configuration
- The 1232 level is also an inverted head and shoulders target and a diamond bottom target