Friday, September 7, 2012

Friday 9/7/12 Market Update

This week, the market made new recovery highs which should not be a surprise; this happening had been suggested and expected here for weeks.  But given the form of this week's rally, and considering the larger context, there are a number of good counts that describe the wave action over the past few years well.

One of the best counts is an ending diagonal since the middle of 2010.  In the longer term, there is clear wedging with upward legs that can be counted as zigzag-family patterns.  In the shorter term, the rally since June looks like it may have trouble reaching high enough prices in order for the pullback following to not cross into wave [1] territory.

In the alternate count above, there are two ways to describe an ending diagonal.  If it is nearly complete, wave [1] is shorter than wave [3] which is unusual for this pattern.  On the other hand, if the other ending diagonal pattern is valid, the first leg is either strongly resembling an impulse or wave b is an odd structure.  Of the ending diagonal options, the nearly complete one seems to make the most sense.  Then the structure since Mach 2009 also looks good.

It was mentioned above that the rally this week has shaped the longer term count because it looks to be having trouble clearing wave [1] territory.  This is because there is already a complex set of 1-2 waves since June (with a reasonable "3rd of a 3rd" wave in the picture) and the rally this week looks like an impulse wave underway (labeled as 5) that is already winding down.  In other words, the market is trending higher, but with not as much energy as expected for a 3rd wave; 5 can very well be winding down with prices barely above the last recovery high reached a few months ago.  If 4 is still underway or the July-August impulse wave is a first wave, these are positive signs for the market.  But they are adding complexities and are going against the short term probabilities of what the intermediate term market picture is suggesting.

Wave (4) should really not enter wave [1] territory if the bullish case is to remain alive.  Notice that the ending diagonal alternate is suggesting that the final impulse higher of the final zigzag higher of the current leg is underway.  And if this leg is [5], a top to the rally since March 2009 could be seen next week.  For the reasons discussed already, this is not a reasonable option!

In the short term, there is a clear impulsive structure higher.  This makes a zigzag 'b' wave higher since the Tuesday low not a high probability, especially since prices continue to move higher above resistance.

As mentioned in Elliott Wave International's publications, I will be teaching a live seminar in September entitled, "Introduction to the Elliott Wave Principle-One Day Seminar". Find out more about this course and read my bio here. Elliott Wave International interviewed me not long ago. Find that interview here.  See you at the seminar!

I will be out of town next week and through the weekend.  I cannot grantee updates during that time.

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