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Last analysis expected either upwards movement towards the target, or choppy overlapping sideways movement. Tuesday’s session can certainly be described as choppy, overlapping and sideways which was the second option that was expected.

I have still the same daily and single hourly charts for you. The target has been recalculated and is slightly different.

Click on the charts below to enlarge.

S&P 500 daily 2012

This wave count sees a big trend change at the price high of 1,422.38. Primary wave C should make substantial new lows below the end of primary wave A which had its low at 1,074.77. Primary wave C would reach 1.618 the length of primary wave A at 967, completing a typical expanded flat for cycle wave a.

Within primary wave C wave (1) black is a complete five wave impulse downwards. Wave (2) black may be completing a single zigzag structure. Within wave (2) black wave A blue is a leading contracting diagonal, wave B blue is a sharp zigzag, and wave C blue is a simple impulse. Waves A and C blue have good alternation in structure.

We may use Elliott’s channeling technique to draw a parallel channel about wave (2) black. When this channel is breached by downwards movement we should have confirmation of a trend change.

The only way at this stage that wave (2) black could continue further would be as a very rare triple zigzag. The rarity of triples means the probability of wave (2) black continuing further is extremely low. Also, for the S&P 500 to continue further within this correction it would diverge significantly with the Dow. For the Dow the only corrective structure which fits the upwards movement and meets all rules is a triple zigzag, so when this last movement is over the correction cannot continue further.

Wave (2) black may not move beyond the start of wave (1) black. This wave count is invalidated with movement above 1,422.38.

S&P 500 hourly 2012

Yesterday’s analysis expected that wave iv pink was either over or could continue further sideways as a double flat or double combination. If it did continue I did not expect significant downwards movement.

Sideways (and slightly lower) movement during Tuesday’s session subdivides nicely into a double combination structure on the 5 minute and 1 minute charts. This combination is a flat – X – zigzag.

Doubles are reasonably common but triples are very rare. It would be possible, but highly unlikely, for sideways movement to continue tomorrow as a triple. It is more likely that this correction is either over, or that the final wave c orange is almost over and may move slightly lower.

At the end of Tuesday’s session there is not enough upwards movement to confirm on the 5 minute chart that wave c orange within the second structure of wave (y) green is complete. It may be an ending diagonal which is over, or it may continue further as an impulse which would require more downwards movement.

If wave c orange of wave (y) green is complete then wave iv pink in its entirety may be complete. At 1,401 wave v pink would reach 0.382 the length of wave iii pink.

At 1,399 wave C blue would reach 0.618 the length of wave A blue.

This gives us a small 2 point target zone which should be reached in another one or two sessions. I favour the upper edge of the target zone.

We may redraw the parallel channel about this upwards movement using Elliott’s second channeling technique. Draw the first trend line from the lows of waves ii to iv pink, then place a parallel copy upon the high of wave iii pink. We may expect wave v pink to end most likely midway within the channel, or less likely about the upper edge of the channel.

When this channel is subsequently clearly breached by downwards movement then we shall have our first indication that wave (2) black would be over and wave (3) black should then be underway.

Wave (2) black may not move into wave (1) black price territory. This wave count is invalidated with movement above 1,422.38.

Wave iv pink may not move into wave i pink price territory. This wave count is invalidated with movement below 1,343.98 in the short term.