Sunday, January 30, 2011

Friday 1/28/11 Market Update

The market had a big down day Friday. Given that any extension of [iv] is not likely for proportionality reasons (and for other structural reasons illustrated below) and that there is a good wave count in place for a complete impulse since late November, look for prices to continue lower over the next days or weeks.

The wave count in the short term has been modified since Thursday's update. The count for ending diagonal wave [v] is not an appealing one since waves (i) and (iv) do not cross, (iv) is a flat (a non-zigzag family correction), and the upper (i)-(iii) line does not contain prices. This is a very reasonable count however considering the corrective action particularity during the first 4 days of the advance. Also, following the pattern, prices broke strongly lower through key support zones.

Interestingly, the three concerns listed above were exactly the features of the December 2009-January 2010 S&P 500 ending diagonal (currently labeled as wave (v) of [iii] of C of (Y)). That ending diagonal also had almost non-existent wedging. It brings me back to the original thesis that in addition to the structure of ending diagonals, it is key that the ending diagonal's 1st wave be longer than its 3rd wave and its 3rd wave be longer than its 5th wave.

Wave [iv] is likely complete for a few reasons. First, if it were still completing, [iv] would be very wide in comparison to [ii]. Second, the most natural labeling for an incomplete [iv] wave is a triangle. The 'c' waves of triangles are rarely this sharp however.

If the labellings are moved forward in time to squeeze in an additional 4th wave that perhaps started Friday, this can justify a wave [iv] underway. It is very difficult to move the current labellings forward however. Regardless, this is the best alternate count at the moment.

Prices broke and closed under the trend-line above. This alone does not prove the uptrend is complete, but it is another piece of evidence that supports at least a multiple day or week correction.

The larger rally since March 2009 may be complete. If not, the completion of the rally since late August or at least late November is likely.

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