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Sunday, September 23, 2012

Sunday, 9/23/12 update

The current count in the ES/SPX has it in Wave C of the second zig zag of a double zig zag bull market dating back to the Mar '09 lows.  This C wave dates back to the lows of last October and appears to be taking the form of an ending diagonal.

As can be seen, the count has the ES in the 5th wave of C with the start of Wave 5 at the low of Jun 4.  In equities 5th waves tend to be the weakest wave, and this move has certainly had that characteristic.  It's not been particularly explosive and hasn't generated any bell ringing A/D or Up/Down Volume statistics.  It's also been quite choppy, and therein lies a problem for EW analysis.  As a wave in a diagonal it should have a three wave a-b-c count, but the pattern so far makes it difficult to determine with any confidence whether prices are still in wave "a" or have completed an "a" - "b" sequence and are in wave "c".  With this in mind there are two possible alternates.

Alternate #1

Alternate #2

Alternate #1 shows "a" & "b" done with "c" in progress, Alternate #2 shows "a" still in progress.  The difference is significant in both time and price.  In Alt #1 the top is only 30 - 40 points away and thus should be seen in the next month or so, in Alt #2 the top is in the vicinity of the 2007 highs in the 1580 area and thus should take several months to be achieved.  This a very important long term top because it could very likely mark the conclusion of the entire bull market run from Mar '09 (there is the possibility of a 3rd zig zag from the Mar '09 lows, but that doesn't seem likely).  Unfortunately the only way to finally decide which of the two alternates is correct is to watch the pattern as it unfolds.  Particular attention needs to be paid to the form the corrections take - the EW rule of alternation should help to determine the accurate EW count. 

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