Wednesday, July 9, 2014

Low Volatility

We begin this update as usual by discussing the possible wave counts beginning with the long-term options while working towards the short-term options.  Since the 2009 low a developing impulse wave or zigzag wave are most likely.  If the former is correct, a pullback should stop at resistance in the mid 1500s or higher, then the rally will resume.  If the 1500s are broken, the latter should prove to be correct where a sideways correction since the 1999/2000 high is still underway.
It is extremely likely that an impulse wave is underway beginning at the wave [2] low.  As discussed repeatedly here there are many wave options higher, but the 2013 [iv] to (3) region is best utilized as described above.  This statement remains true from last time: "Only the wave count in color stands out from the pack. ...Still, it is important to watch for several patterns, ordered by importance.  First, a sideways corrective wave lower from 2014 [iii] where 'b', underway since [iv], is either a single or double zigzag.  Second, an impulse wave higher since 2014 [iv].  Third, a creative use of the waves higher since 2013 [iv] for one or more 5th waves that follow the structure of the remaining weak impulsive options."

Following 1 of (5), there are several possibilities work noting.  First, the wave count in color breaks the April-May congestion period down into two 1st and 2nd waves.  Within this impulse wave higher since (4), the 3rd wave works by far the best as described by 3 (better than this 3rd wave's 4th wave incomplete as a very large wave).  The 4th wave is most likely complete at 4, but it important to consider the possibility of an incomplete wave that is likely a triangle with its 'c' wave underway.  The size of a sideways correction would likely terminate as a very large wave relative to wave 2 which is one main reason why it seems unlikely.  If wave 5 is underway, it should be an ending diagonal.
Following the wave (4) low, a 2nd wave following 1st wave 1 can be at [ii].  Then there is a 3rd wave to [iii] followed by a sideways 4th wave correction still incomplete.  The large size of a correction underway relative to 1 to [ii] brings this possibility also into question.
A zigzag-family wave higher since (4) is hardly worth considering because of the required structure and very limited use in the larger picture (only used if there is a sideways correction since 2013 [iii] underway or an ending diagonal with 1st wave underway since (4)).  But if correct, the wave count implies that there is a top of some degree at [i] with impulse wave lower to [ii].  Structurally, wave 'c' of the zigzag option is an ending diagonal since [ii].  A zigzag wave [v] of 3 is hard to imagine.

The options above that are not presented in color all suggest that the selling following [i] is incomplete as a zigzag-family or impulse wave.  But this seems unlikely given that the rebound following [ii] looks incomplete.  A double zigzag with 'w' to 1971, 'x' to 1965 was in the running until the 1973 high was taken out by a small additional wave to 1974; this "extra" wave suggests there is more than one complete impulse since today's 1966 afternoon low.  It is now very difficult to view a complete or incomplete upward correction since [ii], even when considering unusual patterns like a triple zigzag or significantly structurally unsound patterns.
The move down following the wave [i] high also look much more like a '3' than a '5'.  It works as a single or double zigzag, but both of these likely limit continued selling to the wave 4 low because moves tend to be symmetric.  A zigzag-family pattern also obviously takes any significant top at [i] out of the running.
Wave [i] looks significantly more like a zigzag-family pattern than an impulse wave.
Final Analysis:
The past two updates emphasized the very bullish short-term condition of the market where all-time highs were expected.  Last time it was stated, "the very bullish outlook remains in the hours and days ahead due to the fact that it is difficult to view the rally from 4 to (iii) as a complete wave of any kind.  There will probably be a new all-time high tomorrow with Dow 17000 after the jobs report is released."  This is exactly what played out.  This time, with inspection of all the possibilities, ...

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