"It is possible that the series since the July 20th high is a sequence of nested waves 1and 2, but that interpretation is beginning to strain credulity. If that is in fact the case, then this market should break south hard and fast very soon."
As we all know, the market did break south hard and fast this last week. So the possibility I considered least likely is in fact what we have (sort of, more on that later).
Last weeks plunge broke solidly below the interminable trading range we've seen this year, and also it broke under the channel that has defined the bull market from the Oct 2011 low. So it is being labeled as Primary Wave IV of the bull market off the Mar 2009 lows:
Primary W IV appears to be forming a multiple zig-zag. This alternates nicely with the irregular flat that defined Primary W II.
Best guess on the internal count on these zig-zags looks like this:
The whole sideways slop from the "a" wave low on Jul 27 into the Aug 17 interim top is very difficult to fit into the EW paradigm. It could be a series of nested waves 1 and 2 as mentioned in last weeks update, but there are a couple of reasons why that interpretation is not a good fit, at least not for the ES. After long study, the best labeling is that of a convoluted "b" wave as in the above chart. From there however there is a very clear impulse in progress. So far the current "c" wave appears to have waves 1 and 2 in place with wave 3 in progress with that 3rd wave possibly done or close to done. However, as severe as this sell off has been there could be an extended 3rd wave. As Yogi Berra said, it ain't over until it's over. Identifying targets for this "c" wave is highly problematic, so the best would be to let the market tell us when it's done selling off.
