Sunday, January 10, 2010

Friday 1/8/10 Market Update

Prices moved higher Friday but again in a zigzag fashion. Wedging continues to be seen on the S&P 500, Dow Jones Industrial Average, and a variety of other indices.

An ending diagonal is the most likely unfolding pattern. It may be taking on several forms so a few different counts are shown above in the 1 minute chart. The count shown as primary is as such so the ending diagonal's 3rd wave is shorter than the 1st. this has been a good guideline to follow when charting ending diagonals. A zoomed in version of the chart highlighting the previous day's trading is shown below in a 1 minute chart.

The closing bars Friday give reason to believe the market is poised to move slightly higher Monday morning to complete the c wave impulse. Note that the 1137 area cannot be exceeded if the primary count is to remain valid. If it is exceeded, the ending diagonal is continuing but with different labellings. Barring any large gaps higher, after the rally completes a small pullback (wave (iv) or x of (v)) may ensue if not the start of primary wave [3]. It will depend on the magnitude of the decline.

It is 9:00pm EST and the E-mini S&P 500 futures have rallied 4.5 points from their Friday closing levels. I doubt this will translate into a strong gap Monday morning in the cash index. If there is a reasonably small gap higher Monday, it may be a good sized throw-over in which 1147 is exceeded by a few points and the first listed alternate from the first chat will be in play. Throw-overs in ending diagonals are not uncommon.

The above 15 minute chart gives a larger view of some options. In addition to the wedge described above, there is also wedging on a larger scale. Even if the prices within the dotted green lines are not forming an ending diagonal, it is still a good sign for the bears from a simple chart pattern perspective.

Quite remarkable is the above 15 minute chart of the Dow Jones Industrial Average. There is very clear wedging here. This is a harbinger of a strong sell-off and should be the completion of primary wave [2].

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