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Yesterday’s analysis of the S&P 500 had expected upwards movement for Thursday’s session. Price moved lower to touch the parallel channel on the daily chart, before turning higher. Although this is not what we expected the wave count remains valid as price remains above the invalidation point.

At the end of Thursday’s session we now have a hammer candlestick for Thursday, indicating a low in place here.

If downwards movement invalidates our hourly wave count we may use the alternate daily wave count.

Click on the charts below to enlarge.

S&P 500 daily 2012

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 4 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 4 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. At 1,434 wave v orange within wave (v) green would reach equality with wave iii orange. 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. At 1,443 wave v orange within wave (v) green would reach 1.618 the length of wave i orange. This gives us a second two point target zone.

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

Downwards movement for wave 2 purple moved price just below the lower edge of the orange parallel channel containing wave (v) green. Price remains above the invalidation point.

The parallel channel which contains wave 2 purple is now clearly breached by upwards movement.

If wave 2 purple is a double zigzag as labeled here then the only wave it could continue further would be as a very rare triple zigzag. The rarity of triples means the probability that wave 2 purple is finally over is very high.

Wave 2 purple is now a long lasting and extremely deep correction of wave 1 purple. It would be likely that wave 3 purple is either 1.618 the length of wave 1 purple reaching 1,443, or it may have no Fibonacci ratio to wave 1 purple.

I would still expect wave 3 purple to end about the upper edge of the orange parallel channel.

If price moves lower tomorrow and breaks through 1,386.93 then we must seriously consider the alternate daily wave count below.

Alternate Daily Wave Count.

S&P 500 daily alternate 2012

It is possible that wave (B) black is over. Upwards movement for wave Y blue zigzag has now a count of 7 on the daily chart which is corrective.

However, this wave count would only be used if we see movement below 1,386.93. Thereafter, we would need trend channel confirmation of a trend change with a full daily candlestick below the pink channel here on the daily chart. Only when we have this confirmation would I call a high in place and calculate targets for wave (C) black downwards. This would be a very big trend change and a little patience is a good idea.

This alternate wave count is invalidated with any movement above 1,419.15.