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Movement above 1,298.90 has invalidated my hourly wave count. Upwards movement is still corrective, but it is two degrees higher than I had it.

I was expecting a larger more time consuming correction to arrive but I expected it to arrive next week, not this week. It must be here early.

At the daily chart level both wave counts look very good and remain valid. This is the point at which they diverge and I will use the price point which differentiates the two to see which one is correct.

Click on the charts below to enlarge.

S&P 500 daily 2012

We have recently seen a very large trend change on the S&P 500 and a new downwards trend, to last months, has begun.

At cycle degree wave a (teal green) is an expanded flat correction. Primary wave A (maroon) within it subdivides into a three, and primary wave B is over 105% of primary wave A at 123%. The minimum requirements for an expanded flat are met. We should expect primary wave C to subdivide into a five and move price substantially below the end of primary wave A at 1,074.77.

At 967 primary wave C would reach 1.618 the length of primary wave A. If price continues through this first target, or it gets there and the structure is incomplete, then our second (less likely) target is at 685 where primary wave C would reach 2.618 the length of primary wave A.

Primary wave A lasted 4 months. Primary wave B lasted 6 months. We may expect primary wave C to last at least 4 months, if not longer.

Wave 3 blue is now complete. Wave 4 blue may not move into price territory of wave 1 blue. This wave count is invalidated with movement above 1,357.38.

S&P 500 hourly 2012

Upwards movement cannot be wave (iv) green, as labeled for yesterday’s analysis, and it must be wave 4 blue, at two degrees higher. I was expecting this fourth wave to arrive next week after one final push to a new low, but it is here earlier than expected.

The piece of analysis which I had wrong was the end of wave v pink. Wave (iv) green within it must have already been over and somewhat out of proportion to its counterpart wave (ii) green, giving this fifth wave a slightly odd look. However, on the 5 minute chart I can see all subdivisions correct and complete, even if the proportions are odd.

Wave 3 blue has no Fibonacci ratio with wave 1 blue. When wave 5 blue arrives I will then expect it to be extremely likely to exhibit a Fibonacci ratio to either of 1 or 3 blue.

Ratios within wave 3 blue are: wave iii pink is just 1.71 points longer than wave i pink, and wave v pink 4 points short of equality with wave i pink.

Ratios within wave v pink are: wave (iii) green has no Fibonacci ratio to wave (i) green, and wave (v) green is 0.53 points short of 0.236 the length of wave (iii) green.

Wave 2 blue lasted 15 days (3 weeks). We may expect wave 4 blue to last at least a week, and possibly up to 4. It really depends upon the structure it unfolds as, and at this stage it is much too early to know which structure that may be.

Wave 2 blue was a deep flat 89% correction of wave 1 blue. Given the guideline of alternation we may expect wave 4 blue to be relatively shallow and we may favour the 0.382 Fibonacci ratio of wave 3 blue at 1,323.50.

Fourth waves often end about the same level as the fourth wave of one lesser degree. Wave 4 blue may end about the high labeled wave iv pink at 1,334.93.

When we have waves a and b pink clearly complete with wave 4 blue at that stage I will be able to calculate a smaller target for wave 4 blue to end. At this early stage we can only have this somewhat wide target zone as a rough guideline.

At this stage, so far, upwards movement looks impulsive and may be a five wave structure for wave a pink. This would indicate a zigzag unfolding for either the entire structure of wave 4 blue or maybe only the first structure of a double for wave 4 blue.

Within wave a pink there are no Fibonacci ratios between waves (i), (iii) and (v) green. This makes me suspicious that wave (v) green is incomplete. If it moved slightly higher to 1,318.50 wave (v) green would be 0.382 the length of wave (iii) green. I think because of this that to start tomorrow’s session we will see a little more upwards movement to complete wave a pink.

When wave a pink is complete we should expect a three wave structure downwards for wave b pink. Because wave a pink subdivides into a five wave b pink may not move beyond its start. This wave count is invalidated in the short term with movement below 1,266.74.

(There is a very small possibility that wave b pink could move below 1,266.74, if wave 4 blue unfolds as a running triangle and wave a pink within it is an impulse. The probability of this is very low because wave A within a triangle is normally a zigzag.)

We should expect choppy overlapping movement and new highs over the next one to four weeks.

Wave 4 blue may not move into wave 1 blue price territory. This wave count is invalidated with movement above 1,357.38.

Alternate Daily Wave Count.

S&P 500 daily alternate 2012

Primary wave B may have ended at 1,415.32 with a fifth wave truncation. The truncation reduces the probability of this alternate.

If primary wave C has more recently begun then it is probably within wave (1) black.

Wave (1) black is complete. This alternate now expects a second wave correction for wave (2) black. Wave (2) black can move right up to, but not above, 1,415.32.

This wave count now diverges from our main wave count. The price point which differentiates the two is 1,357.38. The main wave count would not allow movement above that price point and this alternate sees it as reasonably likely. If price did move above 1,357.38 the main wave count would be invalidated and this alternate would be our sole wave count.

This alternate wave count now expects a more long lasting and deeper correction than our main wave count. If this alternate is correct then intermediate wave (2) may last at least 4 weeks and possibly longer.

Wave (2) black may not move beyond the start of wave (1) black. This wave count is invalidated with movement above 1,415.32.