Wednesday, July 16, 2014

New Highs Imminent

On Saturday the long-term options were discussed in great detail here.  Nothing has changed in the long-term so there is nothing to add to the long-term analysis.

Following wave (4), there is very likely an impulse underway that is in its final stages.  The wave 4 triangle above works very nicely with recent action with one drawback; wave [e] did not retrace much of 3 and is a bit small.  The alternatives are weaker however.
If wave [d] completed at today's high and wave [e] is underway, there is a loss of symmetry in the triangle (wave [d] is then bigger in time than [c] and the upper line becomes more horizontal (it is already more horizontal than the [a]-[c] line)).  The small wave after [e] also does not work in naturally; [d] and (b) of [d] are larger than the wave from [e] to today's high and the pause in the wave from [e] to today's high, respectively (wave [d] would need to be a double zigzag).
If there is an ending diagonal underway since [a], a test of 1965 probably needs to occur but this seems complex and unlikely given today's action (discussed below).  The 1965 expectation is arrived at through the following thought process.  Any move higher to make a new all-time high (required for this pattern) should remain under 1994 or so so the 3rd wave of the ending diagonal remains shorter than the 1st wave.  However to arrive at an impulse of zigzag higher since [e] that has any chance of being paired with [d] (even though [d] best resembles a zigzag) before 1994 is reached becomes very difficult to imagine.  There is just not much room for an impulse or zigzag to unfold in this [e] to 1994 region given the action already seen.  An ending diagonal since [e] would be the best possibility.  An impulse wave down for a flat since [d] would wipe the upward progress since [e] away and the ending diagonal pattern would have an improved chance but still not a good one; the depth of [c] is still deeper than is typical for ending diagonals.
A final option worth considering on the above scale is an ending diagonal that began at [iv].  It can serve as the 5th wave of an impulse higher that began at (4).  This pattern does not have such a limiting upper bound as an ending diagonal since [a], but it seems just as unlikely.  [v] subdivides by far the best as an impulse wave due to the great difference in size of the 'a' and 'c' waves.  Wave [b] has a similar problem but is not quite as pronounced.  In addition the 'y' wave subdivision that is [a] adds complexity to the pattern.  The entire wave higher since [iv] is large compared to 1 which brings the entire structure into question.  But if this ending diagonal is the correct wave count, 1965 could be tested.
The waves within 4 can be used to build larger corrective patterns that have few structural problems, but then the pattern becomes huge relative to waves 2, [ii], and [iv] or even 1 to [ii] itself, not to mention very complex.

A closer view of recent action shows some interesting characteristics.  Following 3-wave [e], the market showed two legs higher followed by a deep and large pullback.  This immediately calls into question the possibility of an impulsive rise higher following [e].  But the advance after (ii) retraced nearly all of (ii) including the very small 1981.5 resistance area, the last before the day's high.  This rise moved the pattern back to the bullish side.
There can be a double zigzag higher from [c] to (ii), but again [ii] is smaller than (b) and [e] to (i) is smaller than [d] making the possibility questionable and not as desired as the one above in color.  Perhaps better is a flat lower developing from [d], but the rise following (ii) looks least like the 2nd wave of such a move.  A triple zigzag higher since [e] is possible where 'c' of 'z' is underway, but triple zigzags are rarely seen.
Considering the structure of the post-[e] waves where (ii) is larger than [ii] (typically corrective waves are no larger than the corrective waves of the next largest degree wave), there can be an ending diagonal underway since [e] where its 3rd wave or 'y' of is 1st wave is underway.  This pattern allows a test of a sub-1976 level such as support in the 1973 area.  If its 3rd wave is underway, the size of 5 will then fairly small relative to wave 1 so this pattern is not very desirable.

Our consensus view is at

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