Select Page

The S&P 500 moved lower during Tuesday’s session which was exactly what our last analysis expected. This is most likely another small degree fourth wave correction. The only question now is is it over? For an answer the 5 minute chart may provide illumination.

At this stage the targets for this trend to end remain the same, but these may be refined when there is more structure and another wave degree to use in target calculation.

Click on the charts below to enlarge.

S&P 500 daily 2012

I will only use this one daily chart. The previous alternate daily wave count was adding nothing to the analysis, and due to its low probability and zero divergence in its expectation I’ll drop it.

This wave count sees the S&P 500 as within a final fifth wave upwards to complete a large correction at intermediate (black) degree. If wave Y blue is to have a Fibonacci time relationship then it may take another 11 sessions to complete, lasting a Fibonacci 89 days. Please note though that Fibonacci time relationships are not as reliable as price ratios, and this expectation of another 11 sessions is a rough guide only.

Wave (B) black is correcting the three wave structure of wave (A) black within a flat correction at primary degree. The maximum common length for wave (B) black in relation to wave (A) black is 138%. This would be achieved at 1,464 and it is likely we shall see a trend change before this price point is reached.

At 1,432 wave (v) green would reach 0.618 the length of wave (iii) green. This is our first target for upwards movement to end.

If price continues through the first target, and the structure requires further upwards movement to complete it, the second target is at 1,445 where wave (v) green would reach 2.618 the length of wave (i) green.

Within wave (v) green no second wave correction may move beyond the start of the first wave. This wave count is invalidated with movement below 1,340.03.

We should keep drawing the parallel channel on the daily chart about the zigzag of wave Y blue. Draw the first trend line from the start of Y blue to the low labeled b pink, then place a parallel copy on the high of a pink. Only when this channel is breached by a full daily candlestick below it shall we have confirmation of a big trend change, and until that time we should expect upwards movement to continue.

S&P 500 hourly 2012

Wave iv orange looks like it is unfolding, so far, mostly as expected. Downwards movement labeled A purple is a five wave structure on the 5 minute chart, and this tells us that it is unlikely that wave iv orange is over already. It is possible that I have my analysis of the 5 minute chart wrong, and if we see a new high above 1,414 (prior to a C wave downwards) in the next session then I would expect that wave iv orange is over and upwards movement would be wave v orange. However, this seems unlikely.

At this stage the structure of wave iv orange is most likely a simple zigzag, but it could also be a triangle (very unlikely) or a double (reasonably likely).

Wave B purple subdivides neatly to a three wave structure on the 5 minute chart, which ended just prior to the end of Tuesday’s session.

We would be most likely tomorrow to see further downwards movement for wave C purple.

At 1,390 wave C purple would reach equality with wave A purple. This is the first (less likely) target for wave iv orange to end.

At 1,384 wave iv orange would correct to the 0.618 Fibonacci ratio of wave iii orange. At 1,381 wave C purple would reach 1.618 the length of wave A purple. This gives us a 3 point target zone for the second (more likely) target.

That could be the end of wave iv orange, or it may yet continue to be a more time consuming double zigzag or double combination.

Wave iv orange may not move into wave i orange price territory. This wave count is invalidated with movement below 1,374.76.

If this wave count is invalidated with downwards movement then we may be seeing a leading diagonal unfold for wave (v) green, and downwards movement would be a zigzag for wave ii orange which may not move beyond the start of wave i orange at 1,340.03. This is where the invalidation point would move to. However, the channel on the daily chart would be significantly breached if this structure were unfolding and this would give it a very strange look. For this reason I will not chart this unlikely possibility, unless it shows itself to be true.