Sunday, October 31, 2010

Friday 10/29/10 Market Update

The market opened lower Thursday, but did not come close to breaking below the Thursday low. A gap lower to complete wave [iv] of C as suggested in Thursday's update is still a possibility, but the futures are currently trading at Thursday's high. It is most likely that wave [v] is underway.

It is possible (c) of [v] (or c of (w) of [v]) is quite subdivided as the first alternate above shows. However because none of the first waves in this count have broken out of resistance, the structure of the small corrective waves do not work well, and it is unusual for an impulse to be this widely subdivided, this is not the primary count.

Considering all the factors, the view is a gap higher Monday morning to complete wave (c) of [v] (unfolding zigzag family waves are assumed to be single zigzags until proven otherwise, so a double zigzag wave [v] is the next best count). The chances of [v] completing tomorrow grow more likely the higher the market opens; a high open will help rule out the subdivided (c) wave alternate. Ideally the market opens above 1196. There is no follow-through higher expected after the gap; stocks should sell-off almost immediately following the open.

In addition to simplicity, a completing single zigzag wave [v] works very well from a time perspective. Each consecutive leg higher within C will be shorter in time (and price) if all goes as planned tomorrow.

1208 is the maximum for [v], so the upper blue [i]-[iii] line may not be reached by [v]. If [v] truncates or double tops at 1196, this will add additional weight to the market after the sell-off begins.

If the count is correct, (Z) will not come close to making a new recovery high. This truncation should cause a dramatic fall for at least part of November as a new down leg in a larger bear market begins.

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