Thursday, February 18, 2010

Thursday 2/18/10 Market Update

It appears that single zigzag wave [ii] completed just before the close today. The 1 minute chart above shows a close view of recent price action. If [ii] has not completed, wave iv of (c) of [ii] is beginning. This is the alternate count. There is a small chance [ii] will become a more complicated correction after pulling back significantly, but this is not likely.

Volume in the S&P 500 today was the lowest seen this year (not shown). Volume has been waning since the 2/5 rally began, a bearish sign.

As the above chart shows, 61.8% retracement was nearly reached (other indices including the Dow Jones Industrial Average reached just beyond the 61.8% retrcement level). Also the previous wave (iv) peak was just crossed. These areas are very logical termination points for wave [ii]. The overbought condition of the market supports this.

Within wave [ii], wave (c) was much longer than wave (a). Since 5th wave extensions are quickly retraced, perhaps extended (c) waves are quickly retraced as well.

The Federal Reserve announced a new discount rate of 0.75%, a 0.25% increase. The futures immediately sold off as the above 1 minute chart shows. This slide is very encouraging the for the count above. I find it remarkable that this news came out just as [ii] appears to have completed.

It appears that the S&P 500 cash index will gap down tomorrow. Although [iii] seems to be underway, I do not expect a freefall at this early stage. Expect many subdivisions within wave [iii] just as there were quite a few within [i]. In fact several days passed before a collection of 1st and 2nd waves completely wound up the market. Some of the these 2nd waves retraced good portions of the preceding 1st waves as they often do. [iii] will probably be larger than wave [i], so expect it to complete in weeks, not days.

One final chart is below with a wave [iii] target. Wave degrees may be too low; minute waves may actually be minor waves. For either case, the structure remains the same.

The next post will be Sunday evening.

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