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With price moving lower, albeit relatively slowly, I have a new alternate wave count today.

The main hourly wave count remains valid. The daily wave count also remains the same.

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 is 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. Until we have some confirmation of a trend change we must accept the possibility of new upwards movement.

When wave C blue is confirmed as complete then the only way 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.

When we have confirmation of a trend change I will move the invalidation point to the end of wave (2) black and calculate a target for wave (3) black.

Main Hourly Wave Count.

S&P 500 hourly 2012

This new hourly wave count has a better fit with recent movement on the 5 minute chart, and for that reason it is now my main wave count.

It is possible that wave iv pink was over as a very brief zigzag and wave v pink a short impulse.

There if no Fibonacci ratio between waves A and C blue.

Ratios within wave C blue are: wave iii pink is 4.75 points short of 4.236 the length of wave i pink, and there is no Fibonacci ratio between wave v pink and either of i or iii pink.

Recent downwards movement subdivides nicely into a series of overlapping first and second waves. If this is correct we may see strong downwards movement tomorrow or the day after as a third wave down gathers momentum.

Within the new downwards trend any second wave correction may not move beyond the start of the first wave. This wave count is invalidated with movement above 1,391.74.

Alternate Hourly Wave Count.

S&P 500 hourly 2012

This wave count follows on directly from yesterday’s single hourly wave count. At this stage it is starting to look implausible because wave iv pink is now hugely out of proportion to wave ii pink. However, that does not violate any Elliott wave rules and this wave count remains valid, and must be considered.

Wave iv pink here is a double combination correction: flat – X – zigzag. However, the purpose of a double combination is to move price sideways and take up time. In this case price is clearly moving lower so the normal purpose is not met which reduces the probability that this wave count is correct.

At 1,395 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 4 point target zone for more upwards movement, in one final push. I would favour the lower end of this target zone.

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