Sunday, November 8, 2009

Weekend Analysis

I love to take my time on Friday's post to analyze the week and look for wave relationships that might help frame the upcoming week.

I decided to take a look at the first move down off of the October 2007 high and its subsequent retracement, shown in the top chart. Wave 2 nearly made it back to the 786 retracement and got hit hard with the sellers that were sitting at the left shoulder pivot. In addition, wave 1 took 8 days and wave 2 also took 8 days.

Comparing this to our current situation: wave 1 took 9 days, and wave 2 is currently in day 5, so we shouldn't be surprised for 1-3 days of choppiness to see our wave 2 top. Looking at weekly tendencies, the market tends to put the high or low for the week on a Monday or Tuesday (with a possible retest on Wed). This also fits nicely with our timing window for wave 3 to begin.

Zooming into the price action on late Friday, we can see that we had back to back 786 retracements. My experience is that whenever you have back to back 786 retracements you are likely looking at a triangle forming. There are a couple of ways to count the triangle from here, but my preference is option 1:

And option 2:

With that in mind, we should see higher prices come Monday or Tuesday. That is why I have revised my wave 2 target upwards to the 1075-1085 area. There are distint resistance zones in this area as follows:
- relationship between waves Y/W (1:1) at 1076
- relationship between waves Y/wave 4 (1.382:1) at 1078
- left shoulder pivot (1080)
- .618 retracement of wave 1 (1074)
- .786 retracement of wave 1 (1086)

Best of luck and we should see lower prices by Friday!


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