Friday, October 30, 2009

Amazing...again... about volatility! I hate relabeling waves, but now I have to do it again. Because of yesterday's strength, I thought it a given we would have a pullback and at least a higher high. When I left for work the market was sitting right in my target zone for a pullback. Once it broke through that, price went over a waterfall!

Now, if you have been watching how I label waves for awhile, you'll know that I keep larger wave structures framed by the hourly 34 SMA. As I thought we would break it for sure (we pratically kissed it at the close yesterday), that is what drove me to relabel it from a w4 to a w2. While I didn't like the count, those are the rules. Now, after today's action you'll notice that we did not break the hourly, which puts the wave structure back to where we started.

Now it all gets to price targets and possible extentions to determine where this wave might end. I like to use 2 different fib methods: 5:1 wave ratios and the 1.382 extention of the 5th wave using the wave 4 price pivot (which is 1033 btw even though I didn't put it on the chart). Based on both of these targets, we may have bottomed at today's close or may have an exhaustion move on Monday (1020-1030 area). Any move down more than that, and we are likely extending wave 5 and will sell off all week.

The more important development is that we have an impulsive wave structure coming off a perfect area for primary wave 2 to end. So far so good, but we can't declare primary wave 3 for certain until we at least break our X wave low at 870. Once this first wave finishes, we should see a wave 2 make it back to our wave 4 area around 1067. This will be the point to buy December dated puts or use leveraged etfs to take advantage of the following wave 3, which will be a very nice move to the downside.

Happy Halloween!


  1. E-wave is about the most unwieldy method around for market forecasting because there are always several-more than two- counts that fall into the "good answer" category. The right answer is only revealed, and then, only just, in retrospect.

    I tend to agree with the count(s) that have us in the process of making a wave 5 low, with perhaps some more selling into Monday. However, FWIW, I present the following count, which has a far more bearish cast.

  2. Edwardo - that is why I gave my target range because if we blow through that in you are right and we are going down!