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The S&P 500 has moved sideways in a narrow range for Thursday’s session. Price has failed to break below our confidence point and until it does that I will have concerns about this wave count. However, price remains below the invalidation point and the wave count remains valid.

Click on the charts below to enlarge.

S&P 500 daily 2011

Price moved in a very small range, less than 8 points, for Thursday’s session. The bigger picture is unchanged from yesterday.

Wave (3) black would reach 1.618 the length of wave (1) black at 872 and this long term target is months away. Wave (1) black lasted 4 months and wave (2) black lasted 3 months. We may expect wave (3) black to last at least 2 months and possibly longer.

When the parallel channel containing wave Y blue zigzag is breached by downwards movement then we shall have final confirmation of this big trend change. Now that it is more likely that a leading diagonal is unfolding in a first wave position this trend channel confirmation is likely a little longer away than initially expected; normally diagonals take longer to unfold than impulses.

Wave (2) black is labeled here as a double zigzag structure, which is relatively common. The only way wave (2) black could continue further sideways when the second zigzag of Y blue is over is as a rare triple zigzag. The rarity of triples means this has a very low probability. Furthermore, the purpose of triple zigzags is to deepen corrections. Wave (2) black is already a very deep correction of wave (1) black and it does not need to be deepened further.

The probability that wave (3) black has begun is very high.

S&P 500 hourly 2011

I am concerned that in downwards movement for Thursday price failed by the narrowest of margins to move below 1,321.41, reaching only down to 1,321.57. However, this may have been because the lower edge of this parallel channel provided support for downwards movement at that point.

If this wave count is correct then tomorrow we should see movement below 1,321.41 which would provide confidence in this wave count.

Trend channels for Thursday’s movement on the 5 minute chart suggest that tomorrow we should see further downwards movement from market open.

So far movement downwards from the high labeled ii orange subdivides neatly on the 5 minute chart as 5-3-5. This would be labeled 1-2, 1 for this wave count but my concern at this stage is that it also subdivides neatly as a zigzag. They have the same subdivisions. Thus, it still could be a fourth wave correction of a new impulsive movement upwards which could make a new high.

If 1,333.47 is breached tomorrow then look to the Dow. If the Dow has moved above 12,876 then we will use my second alternate historic analysis; this is a very significant invalidation.

If price moves below 1,321.41 tomorrow then I will have increased confidence in this wave count. At that stage expect price to continue falling to below 1,300.49.