Monday, December 14, 2009

Nearing a 5 wave completion pattern

While the market opened up at 1110 it quickly hit 1113 only to selloff in an attempt to close the gap. That attempt failed, however, at 1109 and then after a quick push to a higher high, we spent the better part of the day in about a 3 pt range. Financials continue to show relative weakness, while the other sectors were strong today. So where does that leave us?

Well, looking at the 5 min chart (not shown) the best count shows a wave 3 ending at today's initial push. The caveat here is that our wave 4, which has either already finished or will finish early tomorrow is so far very shallow in comparison to our wave 2, which means that our wave 3 might possibly be still in play. Any wave 4 retracement should not touch 1109, so if we get that far, then we have already started our next wave structure. Of course, our wave 3 wasn't very strong, so a deeper retracement for our wave 4 would have gotten very close to overlapping our wave 1, so there it is. A 5th wave requirement is only a marginal new high. Looking at relationships with the wave 1, it does give us upside targets in the 1118/1123 range. But there appears to be lots of sellers lurking above 1115, so we'll see what happens.

I changed some of the degrees of trend and opted for an extended wave 5 as part of a complete 'C' wave in stead of a smaller A-B-C, which is how I started to count it. The reason is because our A wave is being counted as 5 waves, so we should be counting another 5 waves as standard wave counting. All in all with each new high the liklihood of THE top being in places increases as the wave counts have to keep subdividing to keep the bullish picture alive. Constant subdivision is not what fuels a rally and is subject to announced reversals. Instead, the back and forth of the market is the fuel that drives a market, and we have not seen a decent pullback since the summer.

I continue to be amazed at the disconnect between the USD, the bond, and equity markets. Based on recent correlation, the equity market should be cratering, so I don't know if it is just keeping the party going until the end of the year or just through option expiration Friday.

Key support levels to watch:

- 1108/1109
- 1100
- 1086

Best of luck!
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