Tuesday, December 8, 2009

Tuesday 12/8/09 Market Update

A 10 minute chart of the S&P 500 is shown above. The market traded lower today breaking through some support in the 1095-1100 area. Although it is still possible that the bullish wave [iii] is C of (Z) of [2] is underway (wave [i] would have begun 11/27 with a wave [ii] flat + zigzag double still unfolding), it seems highly unlikely at this point.

In my estimation wave B completed today. If the chart above is correct, B was a double whose [x] wave was a flat and [y] wave a zigzag. [y] never reached a new low but this is not a requirement.

Above is a 1 minute chart. The sharp rebound off the lows was a bit surprising today, but wave iv completed with non-impulsive characteristics. As expected, prices broke lower after this corrective wave completed. Choppiness of the final sell-off ensued as is typical for diagonal or corrective patterns. I did my best to find an ending diagonal v wave count but it did not come naturally. I did not find a 5-5-5-5-5 leading diagonal to be valid here. Notice also the upward impulsive looking wave at the close. A zigzag correction may have followed. Also the downward trend line shown above has been breached.

So a count is established, but notice the truncation of wave v. This is a bothersome feature of this count given that v is an ending diagonal. Wave v has a better "feel" as a 'b' or 'x' wave, but what larger pattern could it be correcting? It is possible that a flat unfolded 12/3-12/4, with an 'x' wave correction occurring 12/4-12/7, then a zigzag followed to complete a three with the zigzag's wave 'a' wave seen 12/7-this morning and its 'b' wave still unfolding since the lows today. This is fine, but given the larger picture I have a hard time believing that B is not nearing completion (a corrective combination cannot form a [y] wave; and since an upward impulse would precede the hypothetical scenario, it tells us that [x] completed as a flat). A large triangle still unfolding is an option, but again this calls for another up and down wave within 1115-1085 or so.

A less dramatic structure arrangement would arise if (b) of [y] were moved to the morning of 12/7. This would make room for another wave lower. But waves are disproportionate with this count.

A final thought is the placement of the minute waves within B. If B is an unfolding flat with wave [a] completing 11/20 and wave [b] completing 12/4, then wave [c] down may be an impulse still unfolding. This does not change structure since 12/4 from that in the above charts, but it can help to explain a weak bounce after what would otherwise be the completion of wave (c).

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