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business newsSPX Update: Finally, the Fifth Wave
By
Jason Haver
Feb 17, 2012 11:00 am
It appears the long-awaited fifth wave up began yesterday. This should be the final wave before a meaningful correction.
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In honor of the fact that today is National George Stephanopoulos Day, I'm going to keep this update a bit on the short side. (Actually it's because I spent a good part of yesterday dealing with personal health issues and have only had about five hours to work tonight. But how much fun is it to say that? No fun! That's how much.)
Yesterday, the market launched upward, finally beginning the fifth wave up we've been looking for since Monday. There is still no indication as to whether the fifth wave will extend or not, so I went digging into a lot of other indices, and maybe found an answer in the Philadelphia ("City of Brotherly Shove") Bank Index (^BKX). ( I was born in Allentown, so I'm allowed to poke fun at Philly.)
The pattern in the S&P 500 (^GSPC) is a typical fourth-wave blob. Fourth waves are usually choppy sideways affairs and difficult to pin down -- basically they often act schizophrenic, much like the market acted this week. On the one-minute charts, the fifth wave looks to me like it needs a few more points of upside (at the minimum) to be complete. The preferred target zone, assuming no extensions, is 1363-1368.
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Click to enlarge
Since there's no real way to know ahead of time if this wave will extend and make Bob from those commercials even happier ("Why is Bob the Bull smiling? Because he found out about Fifth Wave ExtenZe!"), I looked at all 56,000 other indices to try and figure it out. The best argument I found against a fifth-wave extension (sorry, Bob) is the BKX chart, below:
.png)
Click to enlarge
The BKX chart suggests a bit more upside, same as SPX, but then suggests a solid correction. This is, of course, assuming I'm interpreting it right. Obviously, there's no guarantee of that. The argument that bothers me about the SPX stopping at 1368 or lower, for example, is that I'd really like to see it knock out its 2011 highs, which the Dow Jones Industrials (^DJI), NASDAQ Composite (^ixic), and NASDAQ 100 (^NDX) have already done. The vast majority of the time when the Dow makes a new high, the SPX follows. And I'm still inclined to think 1376-1378 should act as a magnet for this leg of the rally -- so we'll see.
In any case, the BKX chart would line up pretty well with the bigger picture count, as shown below:
.png)
Click to enlarge
Even if the fifth wave does extend, based on the one-minute counts, the odds are very good for an intraday reversal today or Tuesday (depending on how long "The They" stretch out the micro fourth wave of this larger fifth wave). Whether this expected reversal will prove to be only a very short-term correction will have to be determined as the structure unfolds. If it unfolds as a three-wave move, it means higher prices on deck for this wave. If it unfolds as a five-wave move and trades below 1340.80, then the odds become very good that the market is finally embarking on a meaningful correction. Trade safe.
This article was originally published on Pretzel Logic's Market Charts and Analysis.
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.
Yesterday, the market launched upward, finally beginning the fifth wave up we've been looking for since Monday. There is still no indication as to whether the fifth wave will extend or not, so I went digging into a lot of other indices, and maybe found an answer in the Philadelphia ("City of Brotherly Shove") Bank Index (^BKX). ( I was born in Allentown, so I'm allowed to poke fun at Philly.)
The pattern in the S&P 500 (^GSPC) is a typical fourth-wave blob. Fourth waves are usually choppy sideways affairs and difficult to pin down -- basically they often act schizophrenic, much like the market acted this week. On the one-minute charts, the fifth wave looks to me like it needs a few more points of upside (at the minimum) to be complete. The preferred target zone, assuming no extensions, is 1363-1368.
Click to enlarge
Since there's no real way to know ahead of time if this wave will extend and make Bob from those commercials even happier ("Why is Bob the Bull smiling? Because he found out about Fifth Wave ExtenZe!"), I looked at all 56,000 other indices to try and figure it out. The best argument I found against a fifth-wave extension (sorry, Bob) is the BKX chart, below:
Click to enlarge
The BKX chart suggests a bit more upside, same as SPX, but then suggests a solid correction. This is, of course, assuming I'm interpreting it right. Obviously, there's no guarantee of that. The argument that bothers me about the SPX stopping at 1368 or lower, for example, is that I'd really like to see it knock out its 2011 highs, which the Dow Jones Industrials (^DJI), NASDAQ Composite (^ixic), and NASDAQ 100 (^NDX) have already done. The vast majority of the time when the Dow makes a new high, the SPX follows. And I'm still inclined to think 1376-1378 should act as a magnet for this leg of the rally -- so we'll see.
In any case, the BKX chart would line up pretty well with the bigger picture count, as shown below:
Click to enlarge
Even if the fifth wave does extend, based on the one-minute counts, the odds are very good for an intraday reversal today or Tuesday (depending on how long "The They" stretch out the micro fourth wave of this larger fifth wave). Whether this expected reversal will prove to be only a very short-term correction will have to be determined as the structure unfolds. If it unfolds as a three-wave move, it means higher prices on deck for this wave. If it unfolds as a five-wave move and trades below 1340.80, then the odds become very good that the market is finally embarking on a meaningful correction. Trade safe.
This article was originally published on Pretzel Logic's Market Charts and Analysis.
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.
No positions in stocks mentioned.
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