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The invalidation point at 1,399.63 was very close by and price breached this point a little early in Wednesday’s session invalidating the hourly wave counts. Both daily wave counts remain valid. The structure unfolding is a little different from yesterday’s analysis.

After this current structure is complete the wave counts will diverge. At this stage the price point which differentiates them is fairly close by and so we should know within a week which wave count is correct.

Today’s analysis expects the same movement to start tomorrow’s session from both wave counts.

Click on the charts below to enlarge.

Main Wave Count.

S&P 500 daily 2012

Within wave (2) black wave A blue was a leading diagonal and it would be likely that wave C blue would be an impulse to see alternation between the two.

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. Prior to confirmation of a trend change we should expect more 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.

S&P 500 hourly 2012

The current upwards movement is still incomplete. The final fifth wave within it looks to be unfolding as an ending diagonal.

At 1,409 wave v orange would reach equality with wave iii orange. Because the diagonal is expanding it is very likely price will reach to this target, or a little above.

At 1,412 wave (v) green would reach 0.618 the length of wave (iii) green.

Thereafter, this main wave count diverges from the alternate. This main wave count expects a short term trend change to the downside for a fourth wave for iv pink which may not move into wave i pink price territory below 1,391.71. At that stage, if price does not move below the invalidation point, this main wave count will remain valid. If price does move below this point the alternate will be the likely explanation and we would expect a trend change at intermediate degree would be possible.

This main wave count expects wave iv pink to be mostly sideways moving, lasting about two or so sessions. Thereafter, a final upwards fifth wave would end wave (2) black.

Alternate Wave Count.

S&P 500 daily alternate 2012

It is also possible that wave (2) black is a very rare triple zigzag. The rarity of this structure reduces the probability of this wave count, but it is valid and all subdivisions do fit.

If this is correct then the final wave c pink of wave Z blue may be almost complete. Downwards movement below the start of wave c pink at 1,354.65 would confirm a trend change.

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 alternate 2012

For this alternate wave count the structure within this upwards movement is the same as the main hourly wave count, except here it is a C wave not a third wave.

Within wave c pink the final fifth wave of (v) green is unfolding as an ending diagonal. The final fifth wave needs to complete.

When markets open tomorrow it is most likely we should see at least a little upwards movement, probably to a new high at least. Prior to that a short term invalidation point is at 1,396.13, as wave B purple may not move beyond the start of wave A purple.

Targets are the same.

At 1,409 wave v orange would reach equality with wave iii orange, this price point is very likely to be met and probably exceeded at least a little.

At 1,412 wave (v) green would reach 0.618 the length of wave (iii) green.

Thereafter, this alternate expects a big trend change and the start of a third wave for (3) black at intermediate degree.

At that stage I would still want confirmation of this trend change by a channel breach.