Tuesday, August 4, 2009

Target is now 1016

Today's action looked like we may have topped out until the selling stopped and the buying resumed. Today's low actually fits the pattern better because it makes a stronger trendline off of the previous pivots and now clearly gives the index a chance at the 38.2% retracement at 1016. There are a few other projections that line up nicely in that number. You add in the fibonacci turn date last week (+/- one week) and that leaves this week open to make this a top of some kind. We should get a nice correction if not more off of this move. I'm looking for at least 950-960. If we break 930, then we are likely in either primary wave 3 or intermediate wave B (which would have me changing my counts by one degree). Should we break today's lows before getting to 1016 then the move down has already started.


  1. Rich,

    After review I am also in agreement with the above count.

    There is heavy resistance at 1007 going all the way back to October 2008

    Is it possible we turn down early with perhaps a truncated wave 5?

    This quote taken from wikipedia
    "Wave three often extends wave one by a ratio of 1.618:1."

    Are you able to comment, as this wave 3 is much shorter than optimal.


  2. sweet tooth - according to prechter there is no perfect ratio between waves 1 & 3. Instead, waves 1&5 often show equality and you can often cut the entire wave either at the start of wave 3 or the end of wave 3 into a .618/.382 ratio. In an ending diaganol, however, the only requirement is that wave 3 not be the shortest wave (as is always the rule) and wave 1 is usually the longest wave in an ED (which according to my count is the case).

    As to the likelihood of a truncated wave 5, that is absolutely a possibility.

  3. Interesting TL's Rich. I've drawn mine slightly different with Monday's high 1 connecting Tuesday's highs. That puts a nice overthrow at 1007 today for potential 5. The fib relationships for those three peeks are impressive compared to wave 1. 61.8:38.2. Regardless of top TL it's the 2-4 that must die prior to serious action. Appreciate your blog and updates.

  4. HD, for what its worth I noticed when creating the Aug 3rd to Aug 4th trend lines it creates a bullish ascending price channel inside of the ascending wedge

    Are we sure that this is an ending diagonal and not a leading diagonal wedge?

    Thanks in advance

  5. ya, my post made very little sense, meant connecting W1 996 and W3 1003. Leading or Ending? Internal waves look like 3's to me (ED). A LD would probably have a larger retrace. Rich's 2-4 TL is what I'm watching GL

  6. HD, I agree that you could draw a resistance line off of the 1 and 3 and get a sharper line with a throw over target of 1007. I just wanted to give the bulls more latitude on this one with the 38.2% overhead.

    Sweet tooth, an LD only occurs at the beginning of trends, which this definitely doesn't qualify.

  7. Rich,

    Is it a concern for the structure of the ED that there is no 2-4 overlap? Is this a requirement for an ED?


  8. ollie, although it is common for waves 1&4 to overlap it is not a requirement.

  9. Rich,

    Are you initiating any shorts here?

    Either the last count was correct or this is a false break down?


  10. I did initiate some this morning (FAZ) and had a limit order for QID that never got filled. I'll be looking at some possible option plays tomorrow or Friday (aug/sept expiry dates with xlf, iwm, and qqqq).

    We did hit new highs during the european session before the US session opened, so maybe that was it. Financials are very strong today so I'm cautious.