Saturday, July 31, 2010

Friday 7/30/10 Market Update

During Friday's opening gap down, it was fairly clear the count suggested in Thursday's update was on shaky ground; the market did not have much downward momentum remaining, and the entire move down resembled a zigzag. The down gap was quickly filled by what looks like a clear upward impulse wave.

The count has been modified and simplified to a count that works surprisingly well with the recent action. A single flat wave 2 correction unfolding since 5/25 is now the primary count. Ending diagonal wave [c] of 2 should be completing with zigzag family wave (v) underway (probably a single or double zigzag). 2 is certainly quite wide, however this is typical for sideways corrections and ending diagonal waves. In addition, because the legs higher within [c] are easily labeled as zigzag waves and work well within contracting lines, [c] works very well as an ending diagonal.

Finally take note that the technical picture also makes sense with the view above given that from 7/6 a large impulse with large "3rd of a 3rd" ahead is best alternative from a wave perspective. The momentum required to carry the market significantly higher at this stage of the rally (since 7/6 and since March 2009) is likely lacking. Also remember that due to the structure it is difficult to label a correction lower from the April highs to the last low and difficult to modify the larger count since March 2009 to a more impulsive view.

An alternate above that works off of the update in Thursday's update can be seen above. Clearly a running flat + zigzag double is not the most likely option.

Because of its width and the fact that prices should only carry into the 1120-1140 region in zigzag family wave (v), the correction following the initial impulse higher Friday morning is best suited as a 'b' wave. What may be another complete impulse following the correction is quite small in price (not giving much room for an 'x' wave), so the Friday 'b' wave has been labeled as wave b of (v) rather than wave [B] of w of (v) (a single zigzag is also more likely to unfold than a double or triple zigzag). In other words, expect higher prices Monday. A break under 1098 is bearish. The alternate count should be used if 1094 is broken to the downside.

With the exception of a few changed labels the last few months, the larger count has not changed.

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