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Friday’s session saw upwards movement from the S&P 500 which is what our main wave count had expected, but momentum is unconvincing as a third wave, even a low degree one.

We should always assume that the trend remains the same, until proven otherwise. We have zero confirmation of a trend change at this stage and this is the reason why my main wave count expects the current trend to continue. We should expect targets to be reached next week.

We may use the parallel channel on the daily chart to provide confirmation of a trend change, which we shall have only when this channel is breached by a full daily candlestick below it.

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 3 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 3 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

At the end of the trading week the hourly chart is not quite looking right for this wave count. However, it remains valid.

Proportionally waves iv and ii orange are not quite right, but I don’t have too much of a problem with that as at this small degree on an hourly chart it still looks reasonable.

However, wave 2 purple was also large in comparison to wave ii orange, and I consider this has reduced the probability of this wave count. That does not have quite the right look.

If wave (2) aqua also turns out to be longer lasting than wave ii orange of two degrees higher the probability will further reduce.

I have considered the other structural possibility for wave (v) green, that of an ending diagonal, but that does not have the right look either.

This wave count expects a small wave C red downwards to complete an expanded flat correction for wave (2) aqua. At 1,398 wave C red would reach 1.618 the length of wave A red, and wave (2) aqua would end about 0.618 the length of wave (1) aqua.

Thereafter, wave (3) aqua within wave 3 purple should increase upwards momentum.

If we see upwards momentum increase in Monday’s session (after wave C red down completes first) then I will have an increase in confidence for this wave count.

Wave (3) aqua must move price above the end of wave (1) aqua.

Likewise wave 3 purple must move price above the end of wave 1 purple at 1,419.15, far enough above that to allow room for downwards movement for wave 4 purple to remain above wave 1 purple price territory.

This wave count requires new highs next week.

I continue to chart this as my main wave count for two main reasons;

    we should always assume the trend remains the same, and the alternate sees a major trend change

    in my experience third waves have clear subdivisions, the second and fourth wave corrections within them are very clear, and this may be what is unfolding here

If we see any movement below 1,391.56 this hourly wave count would be invalidated. Downwards movement could at that stage be a continuation of wave 2 purple, but that would look extremely strange. Movement below 1,386.93 would invalidate that possibility also.

If price moved below 1,386.93 next week it would be likely we have seen a major trend change. This would also take price below the parallel channel on the daily chart. At that stage we would use the alternate 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.