Is this a Top?

The continued sell-off on Thursday has allowed us to eliminate some wave counts in the medium and short terms.  The longer term options remain unchanged however.

We are monitoring a wave higher that began at the 2009 low that should be either a single zigzag or impulse wave higher.  Months to years more of additional price action is needed to better determine which option is correct.

There are various impulsive possibilities since the wave [C] of b low.  If the market is drawing out an impulse wave higher from (4), the best way to fit this into the larger picture is by having an impulse higher from [E] to A of (3) where [2] to [3] is its 3rd wave and [4] to A of (3) is its 5th wave.  In the 5th wave, the structure of the individual subwaves is acceptable but its 4th wave crosses under the core of the 3rd wave with near wave crossing and its 5th wave is truncated with the ensuing correction essentially not existing for months.  These behaviors are not typical so this wave count is not preferred.

There can be an impulse wave higher from [4] to (1), but its 2nd wave (A) and 4th wave ((i) of [i], not drawn) are much different sizes.  So this possibility is also unlikely.  If there is an impulse wave higher from the (3) low underway, there still must be an impulse wave from [4] to (1).  Therefore this option is also unlikely.  It also has a complex impulse underway since (3) which certainly does not help its standing.

A sideways pattern underway from the wave (1) high is a reasonable option if the wave is used as a 4th wave and paired with [C] that is a 2nd wave.  This is in an impulse wave underway since [A].  The other sideways possibility from (3) is adding significant complication and not improving the situation for any wave count so it is a weak option.

An ending diagonal higher from [4] or B of (1) remain clearly the best options because they have no structural problems.  An ending diagonal higher beginning at (2) is not preferred because it requires a weak impulsive from [4] to (1).

The sell-off this week following the Monday wave C high is now clearly larger than any corrective waves from B.  The single zigzag option discussed last time from (4) to ii of (a) of [w] also has a small 'b' wave in relation to the current sell-off.  It is now likely that an impulse wave that began at B has terminated.

We are left with two possibilities.  The first is a double zigzag possibility from (4) where 'w' terminates at (b) of [y] of B and 'y' is underway since B where its 'b' wave is currently underway.  The second is an impulse wave higher from the (4) low where its 4th wave is unfolding.  Both of these call for the correction underway to extend for a greater period of time so better corrective wave proportionality is obtained.  Getting under wave [iv] support will generate some concern for these wave counts.

The double zigzag possibility from (4) is not the best option due to the added complexity and the fact that (c) of [y] looks most like a 5-wave pattern.  The impulsive option is better, but as discussed above following the first chart, this possibility is weak due to the requirements of the waves preceding it.

There is an interesting character to the sell-off since C.  The only two options that stand out here are a triple zigzag or an impulse wave lower still developing.  The triple zigzag is 'w' to b of (a) of [ii], 'x' to [ii], 'y' to [B] of w of (ii), 'xx' to (ii), and 'z' to i.  The reason for only these two possibilities is that (i) is shorter than [i] and i so there cannot be a complete impulse wave down.  Also the corrective waves [ii] and (ii) are so large in relation to the other corrective waves that this limits the possibilities significantly.

There can be an impulse down beginning at [ii] where (ii) is the 2nd wave and ii underway is the 4th wave but not without a major problem.  Wave ii has retraced nearly all of the core of i, going deep into wave i territory.  It is not typical of 4th waves to retrace so much.

The bounce following the wave i low has a somewhat corrective nature where the advance to the high just after [W] does not work well as 5 waves and (B) of [W] is small relative to [W] to (B) of [Y].  So a set of 1-2 waves higher does not make a great deal of sense, nor does a sideways correction from (A) of [W] to (B) of [Y] (wave (A) of [W] territory was barely reached).

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A Stall with Bearish Potential

Last time the long-term options were discussed in great detail.  Because nothing this week has caused a change to these possibilities, please refer to the last post for a full explanation of the long-term situation.  To summarize, an impulse higher unfolding since the wave (4) low is a weak option at best due to the structure required before (4).  A sideways pattern since wave (1) is not a poor option and is growing in probability.  If correct, it is most likely a 4th wave where [C] in 2011 is a 2nd wave.  A sideways structure underway since (3) is unlikely.  Finally an ending diagonal higher since the [4], B, or (2) lows remain the best possibilities but the one beginning at the wave (2) low is the weakest choice among these.

1975.65 is an important level and is near current action.  If it is taken out, wave (3) is then shorter than the wave higher from (4) which invalidates the only non-weak possibilities that currently exist, namely the ending diagonal possibilities as marked here.  The wave count possibilities since (4) and later seem to confirm that this level will not be reached for some time.

Two double zigzag possibilities remain; zigzag 'w' to ii of (a) of [w] or zigzag 'w' to (b) of [y].  Both suggest another zigzag is underway or complete that began at the wave B low.  If 'w' to (b) of [y] is accurate, the market is weeks away from completing 'y' because 'b' should be proportional to 'b' of 'w'.  If there is a zigzag 'w' to ii of (a) of [w], the wave higher since B can be complete or nearly complete.  This is a better option because proportionality between 'w' and 'y' is better and a single zigzag down from ii to [w] works well with the small sub-waves.  It comes at the cost of greater complexity like all double zigzags vs single zigzags however and there is then a very small 'c' of 'w' wave that is truncated, an unusual development.

Because of the problems with these double zigzag options, they are labelled "weak".  A single zigzag from (4) counts far more naturally and is simple.

Notice also the impulsive possibilities beginning at the wave B low.  The sell-off from the C high is only well-proportioned to the wave [ii] and wave [iv] corrections.  If there is an impulse higher from [ii], [iii] is the 1st wave and [v] is the 3rd wave.  The 3rd wave is much shorter than the 1st and the core of the 3rd is nearly totally retraced.  These are unusual qualities.  The core of [v] can be moved lower, but there are then proportionality problems with the corrective waves nearest the end of the move.

[ii] to [v] can be an impulse wave where its 3rd wave terminated at the high just after [iii] and its 4th wave terminated at the low just before [iv] which brings moderate proportionality relative to the 2nd wave ((ii) of [iii]).  But there is again the same structural problem as mentioned above when moving the core of [v] lower.

It is more visible above what the problem is when trying to label an impulse higher from b of (x).  Within it, an impulse higher from (ii) seems to be the best attempt in doing so but the size of its corrections are distant from one another.

There is a choppy set of waves down following the all-time high.  If this is happening following a significant bottom at [iv], the pattern would be more bullish. Given what we know about the action higher following B, an impulsive structure down is workable here.  Structurally it labels as well as a double zigzag although the sideways upward 2nd wave corrections it uses are unusual.  Sharp 2nd waves are more typical in impulse waves.

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To the Moon!

The discussion of the longer term options, in 600+ words, is omitted here but can be found at http://ewaveanalytics.com.  The final analysis usually not available on this blog has been provided however.  Also find the viewpoints of two other analysts and a consensus view while enjoying a 1-week free trial.  You can cancel your subscription at any time.

The wave higher beginning at (4) is growing in size where the wave higher following B is pulling away and larger than A.  Going back to the impulsive option since (4), although the size of C in relation to A is meaningful, keep in mind that a 2nd wave from A to B as the sideways zigzag+flat pattern illustrates above is not unusual, but not the most typical.

The double zigzag possibilities since (4) are not strong options because of the complexity that they command.  The double zigzag underway where 'w' is to (b) of [y] of B becomes weak from not strong due to its size requirements and the fact that a sideways pattern since (3) is really the only place it can fit; a double zigzag from (2) is no longer possible and 1975.65 would likely be taken out invalidating the ending diagonal option since (2).  The other double zigzag possibility is weak when considering the complexity and the fact that the subdivision within C is as large as that of 'b' of 'w'.  It also does not fit well into the smaller waves that follow B.

The pause that occurred early this week and ensuing rally works naturally into an impulsive structure.  Last time using the price action from B, it was found that the 3rd wave of an advance that began at B very likely terminated at [iii] or b of (w).  Using this we can say that the 4th wave terminated at [iv] or b of (x).  The double flat structure as illustrated above is more complex than a single flat to b of (x), but it makes [iv] of best size in relation to [ii].  It also has the advantage of giving a more simplified structure of the impulse rally following where no waves are required to be subdividing and there are likely not going to be any subdivided waves.  An impulse beginning at b of (x) on the other hand must have at least one subdividing wave and the corrective wave (y) is a bit large in relation to (ii).  But it does allow (i) to be a 3rd wave which is the most typical position because it is the largest wave.  If this is the correct wave count, there is likely a 5th wave underway since (ii) that is an extended wave.  Obviously if an impulse higher from [iv] is the true wave count, the somewhat preferred option, wave (iii) must remain longer than (v) so it does not become the shortest wave.

Final analysis:

The discussion above leads us to conclude that the market is winding down waves on a variety of scales.  An impulse wave higher from B is likely nearing completion where we are only waiting for [v] to continue winding down.  On Wednesday it was correctly stated, "there can even be a pop higher where an impulse from today's low has not yet shown its core.  But Regardless of what happens, it is likely that the 4th wave of an impulse higher from B is underway or complete where [iii] or the 6/2 high marked the termination of the 3rd wave.".  Trading-wise, it was mentioned that there is "a speculative short-and-hold play for some with a risk appetite.  But it is important to recognize that the short-term is uncertain".  The same remains true now, but there is less risk attached to the trade.  There will only be confirmation of a complete impulse wave since B when we see a corrective wave of larger size than any corrective wave higher since B.  This confirmation is then only a "signal" on the larger website that needs conformation to change the view on the front member's page.

Since it is unlikely at best that an impulse is underway since (4) and a double zigzag higher underway from (4) is not that likely, the impulse underway from B should terminate the rally beginning at (4) and this should happen sooner than later.

In the longer-term, weeks to months, the picture remains bearish.  The reason is that there are only mediocre to poor bullish wave counts that allows for higher prices after an impulse wave since B and a zigzag-family pattern since (4).

The wave higher since 2009 remains uncertain and works well as both an impulse or single zigzag wave.

very short-term (hours): bullish

short-term (hours to days): neutral to bearish

medium-term (weeks): bearish

long-term (months to a year): bearish

very long-term (years-decade): neutral

Finally, if anyone is in the Minneapolis, MN, USA area on Thursday, you can come hear me give a free guest lecture for an hour at the local TCTG (Twin Cities Trading Group) Group.  The last speaker for this group was Ralph Acampora.