Wednesday, September 1, 2010

Wednesday 9/1/10 Market Update

There was a large rally in the market today that appears to be the majority of wave [ii], a corrective zigzag wave. The count above has been modified slightly since yesterday's update but the view is still a significant move down unfolding (perhaps within minor wave 3 of (1) of primary wave [3]) retracing most of the rally since March 2009.

It is possible to label a zigzag down since 8/9/10 given that waves (i) and (iii) as marked above are nearly equal. The problem with this view is the "extra" wave (wave (v)) following (i) and (iii) (a final impulse in the zigzag is possible, but its 2nd and 4th waves do not alternate. The 2nd and 4th waves are also disproportionate). A double zigzag down is also an option, but in my opinion this does not count naturally. The first zigzag would be a stretch as an "extra" wave would need to be squeezed in. (i) counts well as an impulse wave without modification.

Note the 9 waves within wave (iii), clearly the most complex wave within [i]. (iii) also exceeded the length of (i). These are typical features of impulse waves.

On the other hand, note that (iv) did not alternate with (ii). In addition, (iv) did not move above the upper channel line as mentioned n the chart above. It is more typical for the 1st wave of an impulse to lie within the Elliott channel (connecting waves 2 and 4, 3; not shown), not outside.

The rally that began Tuesday has an impulsive characteristic; a 1st wave that was deeply retraced with a gaping 3rd wave then sideways consolidation following. There are some notable concerns of an unfolding impulse however.

First, it is difficult to find a labeling for the 1st wave that unfolded Tuesday without complicating the 2nd wave. An impulse 1st wave would need to be followed by a 2nd wave flat+zigzag double correction because the move to higher looks very much like a zigzag.

Second, the profit taking that took place today was very shallow; less than 11% of the large advance was retraced. 4th waves normally reach at least the 23.6% retracement level and probably more likely the 38.2% level. It is possible that a move down to these levels will be reached tomorrow, but a correction so off balance or at least very disproportionate seems unlikely. The consolidation today looks like a 'b' wave.

Given the view already presented here on a few scales, a small move higher to the mid to upper 1080s seems in line for tomorrow. This should complete wave [ii] in its entirety. Due to the upward momentum of the market, it may take some time for c of (y) to complete. an ending diagonal would work well for c. At the same time, please note that it is possible that [ii] has already completed.

(y) = 261.8% of (w) at 1081 and within (y), c = 38.2% and 23.6% of a at 1090 and 1085.5, respectively. A move above 1100 will invalidate the count.

The larger view is still calling for decline below resistance near 1040 then 1010. The larger view has been summarized about 1 year ago here, but other possibilities exist. Most notable is an upward flat or triangle unfolding since March 2009 (the presumed primary wave [1] low). These options are near the top of my list if not at the top. Right now however it is being assumed that primary wave [3] down is in effect. The formation of the coming sell-off will help us better see the larger picture.

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