Friday, January 13, 2012

Friday 1/13/12 Market Update

The morning action today clearly brings change to the count seen in yesterday's update; the alternate on the scale above is now the primary. The wave structure of the impulse since the December low is far from desirable, but it appears to be the best option given today's overlap of last week's waves. But on the other hand, there is now greater proportionality between A and C.

In the short term, wave [iv] looks like a fairly clear double. Wave [iv] may be a flat with [v] complete at Thursday's highs, but the wave structure of the Thursday rally and Friday decline are both corrective 3-wave patterns.

In the longer term, there are a surprisingly large amount of options now present. Given that wave C of (Y) is expected to terminate soon (perhaps early next week) at a level not much greater than the high of (W), the probability that an impulse lower has unfolded since the last recovery high is suddenly much greater because of the expected retracement level at termination of the post-October rally. But for weeks prices have been spending considerable time above the 61.8% retracement level which is not typical for second waves, so an 'a' wave down has the best probability, no matter the longer term count (guidelines are bent more often in corrective waves). So a sideways correction underway following the year 2000 is still preferred.

If there is a complete single zigzag higher since March 2009, with no second zigzag higher following, the proportionality in the long term (following 2000) suggests that the most likely count is a sideways (x) wave underway with b down just beginning at the last recovery high. There is a good chance that a flat has already unfolded 2000-2009 given its structure and the 3-wave appearance to the post-March 2009 rally. This rally has been small in size and time in relation to the large 2000-2009 flat which suggests there is more to come of an upward correction since March 2009.

(x) can be a sideways correction, but it is important to recognize that 'x' waves are most typically zigzag-family patterns. So given the facts presented, the best remaining option is still a double zigzag correction higher underway since March 2009 with its 'x' wave incomplete.

Wave 'x' can be a single or double zigzag and unfortunately the sub-waves are not clearly pointing in one direction or another at this time. There is some slight preference to a double zigzag lower when factoring in the structure of the action since July 2011, but this does create a more complex double zigzag 'x' wave which is not desirable. Since the options are so close, there is an "or w" labeling marked above.

As a final note, regardless of precise form, a downward 'x' wave since mid-2011 is probable for an interesting reason. If the market will sell off to retrace most of the post-March 2009 rally following a complete single zigzag higher from that time, there is some added undesired complexity to the larger picture. The small size of the 'a' wave down already complete following the recovery high implies the 'c' wave following will be quite large and out of proportion with 'a'. Again, the market usually traces out waves well-proportioned with one another in a simple fashion.

The longer term view (2000-present and earlier) can be seen visually in this long term update.

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