Tuesday, October 12, 2010

Tuesday 10/12/10 Market Update

Picking up the count where prices left off in Monday's update, wave iv of ending diagonal (v) should be complete with the majority if not all of v following.

Wave v has already reached the upper i-iii line and is likely in the process of throwing over that line if it has not already completed doing so. A throw-over is a typical move for the 5th wave of ending diagonals. There may be a small move higher tomorrow, not more than a few points, to complete a single or double zigzag beginning at the morning low.

The Dow 30 is in a better position for a top when considering the selling just before the close. Given this, perhaps the best count for both indices is a complete double zigzag wave v with 5 of (C) of [Y] truncated.

Even if v is complete a noticeable gap down is not expected tomorrow, especially one that will not be filled soon after the open. In fact a gap higher (of only a few points of course) would actually better support the count so the decline is not initiated with a breakaway gap. Most breakaway gaps are moves within a correction (look at the 1/20/10 8/11/10 downward gaps for instance; these were both following ending diagonals as well).

Because wave (iii) was shorter than wave (i), there is a strict limitation for the length of wave (v). This number is 1176 but can be extended to 1180 with a modified wave (iii) top.

(v) is very well formed at this point and can clearly be counted as a complete or nearly complete ending diagonal. Even if the short term labellings are not correct, an ending diagonal since 9/23 is a high probability.

Wave (v) should complete impulse wave [c] of flat wave 2. As mentioned in earlier updates, [c] works very well as the final leg of a flat. Even if wave 2 is actually a 'b' or 'x' wave, prices should still break below 1000.

For those interested, there is a great interview with Robert Prechter on this page from last week. I agree with the points he presents.

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