Thursday, November 18, 2010

Thursday 11/18/10 Market Update

In yesterday's update it was mentioned that the 50% level of the last down swing is an important area that should hold if the downtrend is to remain intact. This resistance area did not hold prices so the count of the rally since 8/31 has been changed to a single impulse A wave with a double zigzag wave B pullback. In my opinion, this count captures the characteristics of all small waves well, actually better than the last count; wave B is larger and better proportioned, and the 9/21 spike higher looks like a clear zigzag and is once again treated as one.

The choppy, gaping decline since 11/9 works well as a correction in this short term oversold market. It was the breadth and structure of the last swing lower and the larger structure that brought doubt to the bullish picture yesterday, although it was listed as the alternate count.

Given the size of the A wave, wave C should complete in December with January being a possibility. Looking at the structure of the advance at this early stage, it appears that wave [i] of C is already nearly complete. If this is the correct view, there should be only a minimal new recover high. A less desirable view is a complete wave [iii] wave today, but this would change the time line and target significantly.

Given that wave A was long and very complex with many shallow corrections, the expectation is for a simple, quick wave C with deeper (more "notmal") corrective waves. This works well with completing wave [i] idea.

There has been an alternation pattern throughout the rally since March 2009 where within each intermediate degree zigzag, the minor impulse waves' structure differed; on a daily chart, one impulse leg has had obvious subdivisions, the other no clear subdivisions. When complete, wave A should be seen as being subdivided or not subdivided in relation to wave C. Because of the alternation point expressed in the previous paragraph and the larger technical picture, wave C is expected to be faster to complete, so wave A should end up looking more subdivided than wave C on the daily chart.

In the short term, the wave higher today looks like a clear 3rd wave. Unless there is a sharp pullback tomorrow, the shallow correction following should be a 4th wave, wave (iv) of [i] of C. Wave [i] as viewed above may also be (a) of [i] for an ending diagonal wave C.

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