Elliott Wave chart analysis for the SPX500 for 27th October, 2010. Please click on the charts below to enlarge.

The S&P remains within the trend channel containing wave C pink. Until we have confirmation of a trend change, with a breach of this trend channel, we must accept the possibility of new highs. We must assume that the trend remains up, until proved otherwise. Therefore, I have two wave counts for you today.

Main Wave Count

This wave count expects that we have a high in place.

If this wave count is correct then we should see strong downwards movement very soon.

Ratios within wave C pink are: wave 3 green is 13.7 points short of 1.618 the length of wave 1, which is not a very close fibonacci ratio. However, wave 5 green is just 0.4 points short of 0.382 the length of wave 3 green.

The trend channel drawn around C pink is Elliott’s technique. This channel has all of the ends of waves 1, 2, 3 and 4 touching the parallel lines. A trend line is first drawn from 1 to 3 and a parallel copy is placed on the low of 2.

We need to see a full candlestick closed and below the lower edge of the pink parallel channel drawn here around wave C pink to confirm a trend change from up to down.

With the deep correction for the 27th this wave count is looking a little less likely than yesterday. Unless wave 3 to the downside moves quickly below the low of wave 1 pink at 1,171.1 this wave count will not make sense. Third waves should be strong waves. However, we have to be open that at the moment it may be developing an extension.

Wave 2 purple is most likely extending further upwards. At 1,188.63 wave C aqua will reach 0.618 the length of wave A aqua.

Thereafter, a short term target for the end to wave 3 orange lies at 1,159.34 where it reaches 1.618 the length of wave 1 orange.

If we see movement above 1,189.6 this wave count will be invalidated. At that stage we should use the alternate wave count.

Alternate Wave Count.

Thanks to Sid Norris for pointing out this wave count to me.

It is possible to see wave 5 green as an ending contracting diagonal, with only wave 5 of that to complete.

Because wave 3 green is slightly shorter than wave 1 green this wave count has a maximum allowable upwards limit of 1,198.7.

This wave count is shown on a 4 hourly chart to see all of this ending diagonal structure.

Wave 1 orange is a double zigzag correction. All subwaves of an ending diagonal must be zigzags.

Wave 4 is shorter than wave 2. Wave 3 is shorter than wave 1. Therefore, wave 5 cannot be longer than wave 3. Equality with wave 3 orange would take price above 1,198.7 which would invalidate this wave count.

If wave 5 orange reaches 0.618 the length of wave 3 orange it will end about 1,194.1 and will be truncated.

We only need one final zigzag to the upside to complete this wave count.

Movement below 1,171.1 will invalidate this wave count.