Monday, July 5, 2010

Friday 7/2/10 Market Update

Wednesday's update (the last update) suggested a completing wave [5] of iii wave within a larger wave [i] of 3 impulse wave lower. Wave [5] appears to have completed Thursday with wave iv ensuing after that low.

A 1 minute chart is above. The price action higher since the Thursday low is corrective looking; it does not look impulsive. Wave iv may be complete as a single or double zigzag (with its [C] or [Y] wave truncated), but of course other patterns are possible.

If iv is complete, there may be a gap down tomorrow (this is actually my preferred view). Expect some follow through for a symmetric impulse wave if the market opens below Friday's low. This symmetry should be similar to that seen in the 5th waves near the end of wave 1 in late May here and here. The first chart above shows some v wave targets.

A nice channel has formed to the downside. Prices reversed just after reaching this upper line Friday. It is not uncommon for 4th waves to move outside channel lines as an impulse wave winds down, but wave iv is already wide when compared to wave ii.

A new target for wave [i] is shown above in blue. Wave [i] will be roughly symmetrical in price terms at 990. This is also near a July Fibonacci resistance level (as a reminder, the Fibonacci support and resistance levels I chart are found using a technique from Jeffery Kennedy at Elliott Wave International).

Note that there is no positive divergence on the 30 minute RSI and MACD indicators. A lack of divergence is not typical for a complete impulse. At least one more 5th wave impulse lower should unfold before a strong second wave bounce higher ensues. A very strong sell-off to the downside in the coming days (crash) is also possible if wave [iii] of 3 is actually underway.

The larger view has not changed. Wave [i] may complete at the lower channel line above. This works well with the 990 target discussed above. In addition, a yearly Fibonacci resistance level is near 995 with wave 1 and [i] of 3 equality just a few points above this. 38.2% of [2] was retraced at 1014.14.

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