Friday, August 7, 2009

Thursday 7/30/09-Friday 8/7/09 3m Chart

The market made a substantial rally today on strong volume. A loss of wedging and decisive, impulsive looking waves give doubts about an ending diagonal unfolding. The previous count is no longer valid unless expanding ending diagonals are legitimate patterns. Since there is a remote chance of this being the case, some alternative counts are shown.

The primary labellings seem the most likely to me. A channel fits the action since mid to late July (not shown). This also incorporates the strong rally on 7/30/09 as a third wave which is fitting. An expanding triangle 4th wave follows with an impulse today completing the larger pattern (triangle are always in a position prior to the final actionary wave in the pattern of larger degree), probably wave [v].

However the impulse drawn from yesterday's lows can be counted as a zigzag based pattern. This is the case for the two alternate counts shown. The first alternate assumes an ending diagonal (v) of [v] wave is unfolding. To preserve wedging, the lower channel line needs to be preserved. If this channel line breaks, the second alternate count, Dan's count, may be in play.

This count depicts an expanding triangle following an ending diagonal [v] wave completed Tuesday 8/4/09. One would expect blow over on the (e) wave to sufficiently retrace wave A. An expanding flat could also substitute for the expanding triangle, in which case the flat may be wave [a] of B. However this pattern does not seem capable of retracing much of wave A but even worse, it is following an ending diagonal, a strong signal of trend reversal. The trend was not revered however, in fact new ground was confidently hit in the opposite direction!

No matter the count, it appears that an impulse has developed from the peak made today at 1018.00. Following that impulse, a small zigzag bounce can be seen preceding a possible impulse down followed by an expanding flat, then another impulse. This may be setting up for a gap down. 'c' waves are not typically as sharp as 'a' waves, so a gap down may be indicative of a trend reversal. Certainly if the lower channel line is broken, it is a bearish signal as it invalidates any ending diagonals still playing out that I can see.

A few head and shoulders patterns are labeled, but notice the larger possible head and shoulders pattern today. If prices break below the neckline, prices should reach 1004. This may be close the the lower channel line shown.

Finding counts has been very painstaking and frustrating. Hopefully the market will give some clear signals next week.

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