Thursday, June 11, 2009

A complete pattern?

Ok, I have some great charts to look at tonight. We have what very well could be a completed pattern with today's high.

First I want to start with some analysis of the waves off of the bottom. I have the chart above followed by the analysis.

Minor Wave W
You'll notice that the first wave off of the bottom was a triple zigzag. This is easy to identify when looking at the corrections off of the bottom: two corrections lasting 4 days and avg. 50 points each.

Minor Wave X
This was our largest correction of the rally in terms of price/time. While the price correction was about the same as the others (~50 points), it lasted 14 days in stead of 4. This was a flat correction (3-3-5), which is why we got a picture perfect 5 wave move to finish off the pattern. If you recall, I pointed this pattern out at the time. Unfortunately, it was a finishing pattern instead of the start of our wave B.

Minor Wave Y
This wave consists of a zigzag (3-3-5) move off of the flat, which got us to the top of our range (950 area). Then we consolidated for 7-8 days in a b wave triangle. We finally (at least it appears now) finished off the triangle with today's high in a crisp 5 wave move giving us a nice 3-3-5 pattern. So far the price action is 'acting' just as it should off of a triangle: a sharp breakout followed by a sharp reversal. The pattern will need to be confirmed tomorrow.

Intermediate Wave A
These three waves: minor waves W-X-Y make up a double zigzag (3-3-3) pattern. From here (assuming I got the degrees of trend correct) we will correct in intermediate Wave B over the next approximately 4 weeks. What gives me such a high level of confidence of a significant correction here instead of a minor one? Well, it is simply the fact that we are up against long-term resistance lines. A break down here would also confirm a false breakout, which would be sold heavily by all the program traders. A break of 930 almost certainly guarantees a move to 875, which would almost certainly break. At that point we would already have our largest correction to date (>50 points). This would be your first clue that the correction is unlike the others.

Intermediate Wave B
I've mentioned it before, but the reason I do not feel confident primary wave 2 is over is because the correction has been too small in terms of price and time. Obviously a new low would prove me wrong ;-). I am looking for a minimum 50% retracement here to SPX 815. Certainly we could go lower.

The Bull Pattern
Since EW is all about probabilities, what would the price action need to do if I'm wrong. Well quite simply, tomorrow would be a w3 up and blow past today's high and close near the high of the day. We should know after the first 1-2hrs of trading where we are.

1 comment:

  1. Thank you for making your case with such detail. I agree, it does not feel or look right. It's out of proportion and the 38% retrace target has not been reached.

    Good work!