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Movement slightly above 1,409.16 has invalidated the hourly wave count indicating that a double combination may be unfolding.

I have the same daily wave count for you which remains valid, and two hourly wave counts which look at most recent movement differently but expect the same direction next.

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.

Main Hourly Wave Count.

S&P 500 hourly 2012

It is clear that this correction is not over. What is unclear is what structure is unfolding. This main wave count looks at a more likely single zigzag structure.

If the movement to the high labeled wave (A) aqua is seen as a complete five, which it can be (this movement is unfortunately ambiguous) then we have just seen wave (B) complete and wave (C) aqua upwards begin.

On the five minute chart wave (C) aqua is incomplete and the fifth wave within it may have just begun. This main wave count expects more upwards movement to complete the structure. At 1,426 wave (C) aqua would reach 0.618 the length of wave (A) aqua.

Thereafter, movement below 1,385.43, the start of wave (C) aqua, would indicate that wave (C) aqua would be complete as no second wave correction within wave (C) aqua may move beyond the start of the first wave within it.

This wave count has a typical look. The only problem within it is the fourth wave of 4 red within wave (A) aqua. This structure is labeled here as an expanded flat correction, but wave b teal within it is more than twice the length of wave a teal which is unusual. This does not break any Elliott wave rules though and the wave count is valid.

Alternate Hourly Wave Count.

S&P 500 hourly alternate 2012

As stated in yesterday’s analysis if we saw yesterday’s hourly wave count invalidated with movement above 1,409.16 then it would be possible that wave 2 purple would be continuing as a double combination or double zigzag. A double combination is more common.

This alternate wave count also expects more upwards movement, but not as deep. The purpose of double combinations is to move price sideways and take up time. This alternate wave count expects wave (Y) aqua to be most likely a flat and to last about a week.

Within a flat correction its B wave may make a new low below the start of its A wave. This means that movement to a new low below the start of wave (Y) aqua at 1,385.43 does not invalidate this wave count, and in fact would be reasonably likely for a flat. If we see movement below 1,385.43 only careful attention to the structure of downwards movement (is it a three or a five?) would indicate which wave count is correct. This alternate would expect downwards movement to subdivide into a three for a B wave.

For this alternate I would expect wave (Y) aqua to end a little above the end of wave (W) aqua, possibly up to the 0.786 ratio about 1,414.81.