Sunday, December 6, 2009

Friday 11/4/09 Market Update

Friday was a wild day. As you can see in the 1 minute S&P 500 chart above, the market made a strong open only to see all the gains wiped away in the late morning hours. Volume was high with over 2 billion shares traded in the Dow Jones Industrial Average.

The rally Friday may have been a part of corrective wave [ii] of C or a wave (c) of a larger B wave correction. The chart below highlights the second option in a 5 minute chart.

For a few reasons I believe a wave [ii] flat correction has unfolded since the peak Thursday (my primary count). First, after a beautiful 4-day impulse wave formed, there was a sudden jerk higher Friday. This forms a highly disproportionate zigzag making it likely that the last upward move was actually part of another wave. Second, look at the complexity of the [x] of B wave in the chart above. The degrees of the waves are getting far too small, something that is inconsistent with other corrective waves since March. Finally a flat pattern has already unfolded. Additional complexity is not typical. And given that a clear impulse higher followed the bearish media on Friday 11/27, it is a bit hard to believe that the correction is still underway.

If prices move lower breaking below Friday's lows, I expect a final (c) wave to unfold to complete a [y] wave zigzag. This works well with what may be an unfolding expanding triangle on the Dow Jones Industrial Average (in an earlier post I was not clear in pointing out that the triangle was only valid on the Dow). Kenny presents a picture of this count here.

But tomorrow I expect higher prices with a possible setup for a large gap higher on Tuesday's open in addition to a possible gap higher Monday.

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