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With price moving mostly sideways in a small range for Friday’s session the situation remains unclear at the end of the week.

We still have two wave counts with the main wave count having a slightly higher probability than the alternate, mostly because the subdivisions have a better fit on the daily chart.

Hopefully next week price will break out of the range it was trading in last week, giving us some clarity.

Click on the charts below to enlarge.

Main Wave Count.

S&P 500 daily 2012

This main wave count remains slightly more likely than our alternate. This is because the subdivisions within W blue of (B) black have a much better fit. Within wave c pink of wave Y blue the subdivisions also fit perfectly and there are good Fibonacci ratios within it.

At primary degree wave A would be an expanded flat correction because wave (B) black is a 123% correction of wave (A) black. We would expect wave (C) black to most likely reach 1.618 the length of wave (A) black a 967. If price moves through this first target then the next (less likely) target would be where wave (C) black reaches 2.618 the length of wave (A) black at 685.

If this wave count is correct then I expect that our main hourly wave count below would be the best fit, and have the highest probability. If price remains below 1,390.46 tomorrow this main daily and main hourly wave count will remain our highest probability. If price makes a new low below 1,357.38 tomorrow or the day after then this wave count will significantly increase in probability and I would probably then discard the alternate daily wave count. Below this price point we may have a lot more confidence in a major trend change for the S&P 500.

S&P 500 hourly 2012

With price remaining within the parallel channel on this hourly chart for Friday’s session we have no more clarity than we did after Thursday’s session.

Waves (i) and (ii) green may be over, and within wave (iii) green waves i and ii orange may be over.

Wave 2 purple within wave iii orange moved higher, but price remains below the invalidation point at 1,390.46.

If this wave count is correct then the middle of a third wave began at the end of Friday’s session. Momentum to the downside should increase early next week.

We need to see the small orange parallel channel here on the hourly chart clearly breached before we may have more confidence in this wave count.

Movement below 1,370.30 would confirm this wave count because at that price point the alternate hourly count below is invalidated.

Within wave iii orange wave 2 purple may not move beyond the start of wave 1 purple. This wave count is invalidated with movement above 1,390.46.

S&P 500 hourly 2012

If price moves above 1,390.46 early next week then this is the wave count we should use.

It is possible that wave (ii) green is continuing further sideways and higher as a double zigzag or double combination correction.

Within this double the first structure labeled wave w orange is a zigzag. Wave x orange, a three joining the two structures of the double, is complete. Wave y orange looks like it may be unfolding as a zigzag (most likely). If it is a zigzag then wave B purple may not move beyond the start of wave A purple below 1,370.30.

At 1,395 wave C purple would reach equality with wave A purple. At 1,398 wave y orange would take price just above the 0.618 Fibonacci ratio of wave (i) green, a common place for second waves to end. This gives us a three point target zone.

If price moves above 1,390.46 early next week then we may expect it is most likely to continue a little higher to 1,395 – 1,398 before turning downwards for a third wave.

Wave (ii) green may not move beyond the start of wave (i) green. This wave count is invalidated with movement above 1,422.38.

There is a slim possibility that wave y orange could unfold as a triangle. If the triangle is a running triangle then wave B purple may end below the start of wave A purple. This structure has a low probability and I will only consider and chart it for you if it shows itself to be true. We would know in one or two more sessions if this possibility looks likely.

Alternate Wave Count.

S&P 500 daily 2012

With price remaining firmly within this parallel channel all week this alternate wave count has increased in probability. However, upwards movement so far looks strongly corrective, in contrast to the clearly impulsive wave from the high labeled (B) green.

We need to see this channel breached before we can discard this wave count. Until then we must accept the risk that we may yet see new highs.

If the upwards wave labeled A blue here subdivides into a five then wave (B) black may be a single zigzag structure. This wave count has a fairly low probability because this wave subdivides most easily into a three, and it is difficult (but possible) to see it as a five. As a five it has a strange looking third wave which reduces the probability of this wave count.

At 1,466 wave v pink would reach equality with wave i pink. Wave (B) black would be almost 138% the length of wave (A) black, the maximum common length for a B wave in relation to an A wave of a flat correction.

Wave iv pink may not move into wave i pink price territory. This wave count is invalidated with movement below 1,267.06. However, in practice I would discard this wave count before price gets that low, as a strong and significant breach of the parallel channel containing wave C blue would reduce the probability of this wave count.