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Elliott Wave chart analysis for the SPX500 for 22nd October, 2010. Please click on the charts below to enlarge.

We still have two wave counts to end the trading week. Both are technically valid.

Main Wave Count

SPX500 daily 2010

We are still expecting a little more upwards movement to end wave 2 blue. I have recalculated the target for you today. At 1,219.65 wave 5 green will reach 0.618 the length of wave 3 green.

We will still use the pink parallel channel drawn using Elliott’s technique around wave C blue. When we see price move below the lower end of this channel we may have seen a trend change. When we have a full candlestick closed outside the lower edge of this channel then we will have confirmation of a trend change. Until we have that confirmation we must continue to assume the trend remains up. However, we are much closer at the end of this trading week to the end. Exercise extreme caution at this stage because when downwards movement begins it could be very fast.

On Thursday, November the 4th, wave 2 blue will have lasted a fibonacci 89 days. We may see a trend change at this date, give or take two trading days either side. Therefore, we may see the start of the next wave down on Tuesday the 2nd of November to Monday the 8th of November. We must be very cautious on these dates.

If downwards movement begins explosively it may be difficult to access trading accounts. It could be very costly to your account if you were holding unprotected long positions and you may not be able to enter shorts.

Another possibility is that we see mostly sideways movement drag this out for another week or two. We will see.

SPX500 hourly 2010

This wave count expects further upwards movement which should be a third wave at this stage. Wave behaviour is not conforming to this expectation; there is too much sideways movement to be a third wave. However, it could redeem itself with some strong upwards movement as it moves into the middle though.

A nice triangle is forming, for this wave count, in a fourth wave position. We may expect wave E to come down a little lower but not move beyond the end of wave C at 1,179.6. Thereafter, we should expect a short sharp thrust to the upside which is likely to be about 5.5 points long.

Thereafter, a downwards second wave should unfold which cannot move beyond the start of wave 1 purple; this is our invalidation point at 1,170.6. This second wave correction may only correct to about the fourth wave of one lesser degree though, which may be about 1,179.8.

If we extend the trend lines of the triangle out towards the right, they cross over about 3pm for Monday the 25th trading session. Look out for a trend change at that time. This tendency of markets to see a trend change at the apex of triangle trend lines is a tendency and not definitive.

At 1,201.1 wave 3 orange will reach equality with wave 1 orange within wave 5 green. This is our short term target for this wave count.

If price moves below 1,170.6 then we should use the alternate wave count presented below.

Alternate Wave Count

SPX500 daily 2010

This wave count sees a high in place and the trend change to down having occurred. This trend change will be unconfirmed, however, until we can see a full candlestick outside and below the pink parallel channel containing wave C blue.

I shall not calculate targets for the downside until the trend change is confirmed. To do so at this time is premature.

SPX500 hourly 2010

We may be seeing a leading diagonal develop to the downside. A leading diagonal requires waves 2 and 4 to subdivide into zigzags while waves 1, 3 and 5 may subdivide into impulses or zigzags. Here, wave 1 purple is a zigzag.

If this wave count is correct wave 2 purple should not move beyond the start of wave 1. Therefore, price cannot rise above 1,189.4.

It is likely that for the first few hours of Monday’s trading session the triangle structure will complete with wave E down, then an upwards thrust about 5.5 points in length will complete wave 2 purple.

Thereafter, price should again turn down. This wave count expects a third wave down which must move beyond the end of wave 1. Therefore, price must move below 1,170.6. This will confirm this wave count. This is also the invalidation point for the main wave count.

Movement above 1,189.4 will invalidate this wave count and confirm the main wave count. At that stage we may expect price to continue higher towards our targets, with a lot of sideways movement along the way.