Tuesday, December 1, 2009

Wave 3 up it was...

The market played the wave 3 card just as required: a gap above 1100 with strong follow through. My biggest disappointment, however, is the lack of strength into the close. From all accounts our wave 3 finished weakly and we have now entered the 4th wave.

I come up with my 4th wave targets by looking at the following:

- key support lines
- 38.2% and 23.6% retracements of the 3rd wave
- 61.8%, 78.6%, 100%, and 138.2% relationships with the 2nd wave

I look to see where most of the lines come together. Now look at my chart. Here is what I have:

- key support at 1102/1103
- 23.6% 3rd wave retracement at 1106
- 38.2% 3rd wave retracement at 1102
- 61.8% wave parity with wave 2 at 1105.5
- 78.6% wave parity with wave 2 at 1103.5
- 100% wave parity with wave 2 at 1101

My best guess is a wave 4 termination in the 1101-1104 area. Wave 2 was a flat, so wave 4 should be a simple zigzag.

The biggest question will be what do we have when our 5th wave is in. Our options are:

- Primary wave 2 top (very bearish)
- Wave A of the final wave C (mildly bearish)
- Wave 1 of the final wave C (pretty bullish)

I have to put my analysis in that order based on price action in the other indices and a possible bottom in the USD. We'll see how it works.

A move below 1098 should move us into sell mode.
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