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Saturday, March 28, 2015

Saturday, 3/28/15 update

Last week it looked very likely that the ES was going to continue up to new ATH's, but that didn't happen. Because of the failure to follow through to the upside all three alternates discussed in last week's update remain on the table.

Two of those alternates are shown in the chart below:

The 1st of those two has the Primary Wave III bull market off the 2011 lows terminating at the late Feb high and Primary Wave IV now in progress.  The 2nd has Major W5 of Primary Wave III still working its way out with Intermediate W1 of Major W5 done and Intermediate W2 in progress and probably close to done.  That would leave Inter W3, W4 & W5 yet to occur to complete Major W5 and establish a top for Primary Wave III.

The 3rd possibility is that Major W3 of Primary III is still in progress.  In this alternate Intermediate W5 of Major W3 has been tracing out an ending diagonal since the mid-October low of last year, with Minor W1 thru W3 of that structure in place and Minor W4 done or close to done.  That would leave Minor W5 to occur into the Major W3 top.  But it would also mean that Major W4 & W5 have yet to unfold into the Primary III top - so a bit yet to travel for the bull in terms of both time and price.

The nice thing here is that there are some clear invalidation points for the 3 alternates.  The 1st alternate that has the Primary III top in place at the late Feb high will be ruled out with a rally to new ATH's.  The 2nd alternate that has Major W5 of Primary III extending will be ruled out with a drop below the assumed start point of that structure at 1973.75.  The final alternate will be invalidated if the current sell off continues unabated down through 1999.25.  That is the point where the current Intermediate W4 of the diagonal will exceed the length of Intermediate W2, which will violate the conditions necessary to form a diagonal.  All 3 of these alternates have roughly equal probability IMO.

On the short term, last week's sell-off left the count as a three wave structure with a final down thrust (at a minimum) necessary to form a 5th wave and thus an impulse.  The counter trend rally that was laid in on Thursday and Friday has a very corrective looking pattern, with the result that so far it looks like there will be more selling in the very near future.  So there is a pretty fair likelihood that a 5th wave will be put in place.  However, if it does occur and is a 5th wave then be prepared for a snap back rally, and that's where the rubber will meet the road.  If in fact the Primary III top is in place then that rally will be weak and short lived, if not then one of the other two alternates might well be in play.

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