The S&P 500 moved slightly lower and mostly sideways, remaining above our invalidation point on the hourly chart and remaining within the parallel channel. We had expected it to more likely move higher, but this final upwards wave may take longer to unfold than the last analysis anticipated.

With Friday’s downwards movement the target for this last wave is recalculated. This recalculation allows for closer Fibonacci ratios at more than one wave degree and has a reasonably high probability of being met.

Click on the charts below to enlarge.

This main wave count follows on from our main historic monthly chart. It sees a flat correction at primary degree unfolding, and wave (B) black within that flat correction is probably within its last upwards wave and may end within the next day or two.

Waves a and b pink within wave Y blue lasted a Fibonacci 8 days. Wave c pink is much longer, so far at 50 days. The next number in the Fibonacci sequence is 55, and wave c pink could possibly end on the 9th of March, 2012 (give or take one day either side of this date). Please be aware this is a rough guideline only. While Fibonacci price ratios are commonly seen, Fibonacci time relationships are less reliable. If the main hourly wave count is correct and upwards movement ends within another one or two trading sessions then wave c pink would have no Fibonacci time relationship.

Wave (B) black is here labeled as a double zigzag, which is a relatively common structure. When the second zigzag labeled wave Y blue is complete the probability that wave (B) black is complete will be very high indeed. The only way wave (B) black could continue further would be as a rare triple zigzag and the rarity of this structure means it has a very low probability.

Wave (B) black may move beyond the start of wave (A) black, and in fact for flat corrections this is most common. The maximum common length of B in relation to A within a flat is 138%. This would be achieved at 1,459. It is likely we shall see a trend change before this price point.

We may use Elliott’s channeling technique to draw a channel about wave Y blue. When this channel is breached by a full daily candlestick below it then we shall have strong confirmation of a trend change.

Wave (C) black is extremely likely to take price below the end of wave (A) black at 1,074.77.

Main Hourly Wave Count.

Within wave 5 purple zigzag, the final zigzag upwards of this ending contracting diagonal for wave v orange, wave (B) aqua has moved lower.

Downwards movement has again found support about the lower edge of the parallel channel. Keep drawing this on hourly charts, it should continue to be useful. Draw the first trend line from the lows of (ii) to (iv) green (find the low for (ii) green as labeled on the daily chart) then place a parallel copy on the high of (iii) green. When we have a clear channel breach on the hourly chart this will be our first indication of a trend change. The small overshoot at the low labeled (B) aqua is not a channel breach at all.

There continues to be divergence with price trending higher and MACD trending lower. This indicates an expiring trend. Divergence can be seen on the hourly chart and time frames above hourly.

Within the zigzag of wave 5 purple there is almost no room for further downwards movement of wave (B) aqua. It should be over there. At 1,386 wave (C) aqua would reach 1.618 the length of wave (A) aqua.

At 1,386 wave v orange would reach equality with wave iii orange. Therefore 1,386 has a reasonable probability of being met.

The diagonal for wave v orange is for this wave count contracting. Because third waves may never be the shortest wave 5 purple is limited to no longer than equality with wave 3 purple. This limit is at 1,389.57.

Wave (B) aqua may not move beyond the start of wave (A) aqua. This wave count is invalidated with movement below 1,363.81. If this wave count is invalidated with downwards movement (before a new high is made) then we shall use the alternate hourly wave count below.

Alternate Hourly Wave Count.

If wave v orange was an expanding ending diagonal then it could be complete and we may have seen a large trend change a few days ago from the S&P.

This wave count has a lower probability than the main hourly wave count for a few reasons. The ending diagonal has a third wave which is the longest as wave 5 purple failed to reach a longer length than wave 3 purple. This is not what we would expect from an expanding diagonal, but I have seen this happen numerous times. It does reduce the probability that this wave count is correct though.

If wave (B) black in its entirety is complete than wave (C) black has begun. So far downwards and sideways movement is not convincing. Particularly Friday’s session; if this is the start of a third wave, even a small one, it does not look convincing at all.

Only if we see movement below 1,363.81 should we use this wave count. At that stage I would be looking for a clear channel breach here on the hourly chart to provide some further confidence in this wave count. Movement below 1,337.35 (the low labeled iv orange) would provide some further confidence in a big trend change as at that stage downwards movement could not be just a second wave correction within wave v orange and wave v orange would have to be over.

Any movement above 1,378.04 would invalidate this wave count.

Alternate Daily Wave Count.

This alternate has a lower probability than the main daily wave count. At this stage it is starting to look even more unlikely. If this wave count was correct I would have expected to see reasonable downwards movement for wave iv pink by now.

If the upwards wave labeled here A blue was a five, and not a three, then wave (B) black is a single zigzag. Wave C blue is incomplete.

The subdivision of wave A blue as a five is not nearly as satisfactory as seeing it as a three, which the main wave count does. This is the reason why this alternate has a much lower probability.

Wave iii pink could possibly again be complete. When wave iv pink begins we would expect it to last one to two weeks and be a relatively shallow correction of wave iii pink. It should look about equal in duration to wave ii pink.

Wave iv pink may not move into wave i pink price territory and this wave count is invalidated with movement below 1,267.06.

I am really only continuing to consider and publish this chart for you because of the important implication of a breach of 1,267.06. Eventually when we see movement below this point we can be certain that downwards movement is not just a fourth wave correction, and that the upwards trend must be over. At that stage we may have confidence that the S&P is likely to move to a new low below the end of (A) black at 1,074.77.