Monday, July 13, 2009

Monday 7/6/09-Monday 7/13/09 1m Chart

Today the market rallied as I expected. I agree with Dan's count today from a wave structure perspective. Look at his chart and notice the three wave advance. It is possible to make a five wave advance out of the action but it is not as likely. Now recall this chart from the 8th and 9th and notice its zigzag nature with ending diagonal c wave. There are also varying counts here as I have mentioned, perhaps as a 5 wave advance, but it would be a stretch. But putting these two charts together, we see a possible double zigzag corrective pattern on the S&P 500 index.

The Dow 30 also looks corrective but more like a flat. The decline on the 9th and 10th was a very deep retracement of the advance and is a corrective characteristic. However one can make out a 5-wave advance on the 8th giving some doubts about it being a three. But even if this were the case, an argument can be made for the Dow 30 having formed a single zigzag.

This deep retracement on the Dow 30 reminds me of May 22nd as shown on this chart from Kenny. The [b] wave on the actually ended up being the second wave of an impulse. Even more surprising is the [a] wave actually being five waves! Even with Elliott Wave theory nothing is certain, sometimes the most unlikely of scenarios play out.

Obviously if the past few days have been a correction on the indices, the markets will break down validating the head and shoulders patterns. Note that the Dow 30 has been below the neckline for some time but this could be a false break. The Dow Transports have not confirmed this break.

Even if the market is not correcting, it is still due for some sort of fourth wave pullback respecting the 890s on the S&P 500 although lower levels are possible (watch for wave crossing if the market is showing weakness, it can rule out what cannot be happening). With small first wave and large third wave, regardless of whether or not this advance from 872.81 was three or five waves, there is a good argument for an impulse forming or having been formed. This ratio between waves one and three is also seen in the the larger impulse that would then be forming since the 8th. However this 8th through 9th five wave chart lacks wave proportionality, it just does not look right. If this is the valid chart and the market pulls back and advances beyond today's highs, a single zigzag correction may be still be valid. But then even more concern about the even larger 'c' wave must be given.

A lower market price is the most likely scenario but more market information is needed to give certainty.

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