Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

SPX and INDU Updates: Europe Adds a Wave to the Outlook


It appears the current wave is becoming more complex, which extends the bounce.

MINYANVILLE ORIGINAL Yesterday's outlook expected lower prices, which happened. The market then launched a strong bounce from the lower end of the trading range -- and then, after the cash market closed, Europe announced that it had solved the majority of the world's problems. When it was further revealed that, during the course of the summit, German Chancellor Angela Merkel had developed a cure for cancer and a viable Unified Field Theory, futures shot higher.

If you're feeling frustrated with this market at all, you're probably not alone -- and that's a pretty normal function of a trading range. It now appears likely that Minute wave ii is becoming more complex than initially suspected. Unfortunately, this type of development often can't be predicted in advance. Sometimes a corrective wave will form a complete ABC fractal, then decide to add a couple more ABC fractals (or similar). This appears to be happening now.

The S&P 500 (SPX) did not make a new low yesterday, but the Dow Industrials (INDU) did, and that opens up the potential of an expanded flat developing in INDU. The typical target for such a wave is 12720-12775.

Click to enlarge

Moving on to SPX: After studying the overall structure, and a number of other indices, I've decided it is probably appropriate to label the decline from 1320 to 1310 as a failed fifth wave. A fifth wave is considered a "failure" when it fails to make a new price low beneath the bottom of the third wave, and when it's unable to hold down a steady job. (Sorry, just a bit of bad Elliott Wave humor there!)

Anyway, the targets here are 1337 or 1352, give or take a couple points. The black alternate count targets are listed, but the basic structure of that count is detailed on the next chart.

Click to enlarge

Now, because 1306 has not been traded under, the alternate count is still alive. I continue to give this count lower odds because the retracement level of 1363 was 61.8% of the prior decline, and that's wholly appropriate for a Minor wave (ii) -- but the market is always the final authority. We'll see how excited investors are about Europe because this alternate count is still technically possible. I think if the trendline connecting 1422 and 1363 is materially broken, then at that point, we should probably give strong consideration to this potential.

Click to enlarge

The chart below shows the preferred count, big picture targets, and some things to watch. Keep in mind that red Minor wave (iii) should take several weeks to months to unfold -- targets won't be reached tomorrow and there will be rallies along the way.

Click to enlarge

In conclusion, the short term expects higher prices, and a reversal to follow -- but the more bullish alternate count cannot be ruled out yet, and traders should stay alert to it if the upper trendline is broken. Trade safe.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos