Wednesday, September 30, 2009

Wednesday 9/30/09 Market Update

Today was wild. The market had a big drop just after the open, then rallied all the way back and was actually positive for a time. Another sell-off occurred in the afternoon before a bounce just before the close. Both the Dow Jones Industrial Average and the S&P 500 closed lower.

Above is a 5 minute chart of the Dow over the last 6 days. Prices have been within a downward sloping channel line with the Dow breaking below 9629.37 today, a possible [i] wave peak that was seen 8/28/09. This peak can no longer be wave [i] of C of (Y) of [2] unless a wave [iv] triangle (or some other correction) is underway with its (e) wave (or final wave) ending above 9629.37. Also possibility is a (XX) of [2] wave correction underway but neither of these corrections are likely at this stage.

There is a fairly clear 5-wave pattern from 9/25-9/29 that was completely retraced today (this full retracement did not occur on the S&P 500). Assuming the pattern was correctly identified, this tells us the wave was 'c' of a flat, not a bullish setup. An alternate leading diagonal (i) wave was labeled above, but because flats are not often seen as corrective waves within that pattern and leading diagonals are not common, it is not a probable scenario.

The strength of the labeled ii wave was a surprise today. But second waves are known to retrace a good portion of their preceding first waves, although i is not a clear 5-wave pattern. The alternate shown below is also an option, it is a corrective combination (ii) wave that may or may not have completed. The first count needs lower prices immediately for confirmation. If 1063-1065 is broken on the S&P 500, the second count or some other larger correction is likely taking place. Considering the continuing weakness in the Dow Transports, I favor an (XX) of [2] wave correction if the market is correcting down.

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