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Sunday, January 6, 2013

Sunday, 1/6/13 update

The whole fiscal cliff circus led to what may be viewed as an "artificial" sell off in the last half of December.  In like manner the explosive rally last Wednesday upon the resolution of the fiscal cliff could also be viewed as "artificial".  Except that the mid-week rally confirmed and extended an intermediate term bull market that has been in progress since mid-November.  So for the time being the underlying impulse has to be viewed as bullish until proven differently. 

From an EW standpoint the sequence since mid-November is best counted as a Minute Wave 1 & 2, with Minute W3 now in progress.  Minute W1 was a sloppy affair that is labeled as ending with a high at ES 1438.75 on Dec 12, and Minute W2 is a flat type correction that bottomed on Friday, Dec 28 at 1382.25.  The explosive up move of mid-week fits nicely with what might be expected from a 3rd wave, so it is being labeled as Micro W1 of Minute W3.  There almost certainly will be a pull back early this coming week, but it should be of short duration as it would be Micro W2 of Minute W3.

The long term perspective is becoming important at this point in time.  The whole bull market since the March '09 lows appears much more corrective in nature than impulsive.  There is a long term alternate count possible for this structure that views the sequence as a series of waves 1 & 2 of ever declining degree.  That view, although allowable under EW rules, just doesn't fit well with the seemingly endless overlaps and choppiness of the long term pattern, so this alternate case has to be assigned a low probability.  But it is possible.
Which leaves this site's preferred long term count, which is that the whole series since March '09 is in fact a Cycle degree "X" wave which will lead into another severe LT bear market series upon its conclusion.  In that context, the ES/SPX appears to be in the late stages of the second zig-zag of a double zig-zag that has been formed since the March '09 lows.  In point of fact, this count has the market in the "C" leg of that second zig-zag, and further, it has the 5th wave of that "C" leg currently in progress.  So the message is that equities are getting closer and closer to what could be a very significant long term top.  Using fibonacci analysis likely targets for that top currently are in the ES 1535 to 1546 area and after that in the 1578 to 1594 area.

One final thing that I can't resist pointing out.  Ending diagonal counts have recently been popping up all over the place on various market analysis blogs.  This site has been carrying an ending diagonal count as a possible alternate for almost a year now.  So stay tuned.
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