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Movement above 1,407.56 invalidated the hourly wave counts. Upwards movement was allowed for, but not expected, and certainly not as much as we have got.

This has required a reanalysis of recent movement, and the implications are important.

Click on the charts below to enlarge.

S&P 500 daily 2012

We have recently seen a major trend change in the S&P 500 and the DJIA. This wave count sees the trend at primary degree, so targets are long term and they are months away.

Within the new downwards trend we may be seeing a series of first and second overlapping waves complete. The most commonly extended wave within an impulse is the third wave, and within wave iii pink we should expect wave (iii) green to likely be extended. This necessarily begins with a series of overlapping first and second waves, and this wave count has a very typical look.

Cycle wave a is an expanded flat correction: primary wave A was a three wave structure, and primary wave B was a triple zigzag and 140% the length of primary wave A.

At 1,013 primary wave C would reach 1.618 the length of primary wave A. If price continues downwards through this first target then the next target is at 728 where primary wave C would reach 2.618 the length of primary wave A.

I have tried to see various combinations of a leading diagonal in the first waves after the high of 1,474.51 labeled primary wave B. I cannot find a scenario which fits expected wave lengths for a diagonal, and it would be neither expanding nor contracting. This scenario charted has a much higher probability.

S&P 500 hourly 2012

Wave 2 purple zigzag is incomplete. It requires at least a little more upwards movement to complete the structure.

Wave (C) aqua would reach equality in length with wave (A) aqua t 1,421.

The channel drawn about wave 2 purple zigzag is a best fit. We may see upwards movement end either mid way within the channel, or about the upper edge. When this channel is clearly breached by downwards movement then we shall have channel confirmation that wave 2 purple is over and wave 3 purple is underway.

The implications of this wave count are important. If it is correct then when wave 3 purple begins we may see explosive downwards movement. A series of overlapping first and second waves is like a spring being loaded with potential energy. The energy is released in a third wave.