Back to the Drawing Board

The question has been answered. Not only did we not hold the October 24th low, but we also took out the supposed wave “1” top of 1479.40. Needless to say it was a very bearish day as we formed a downtrending price bar on the daily chart. The upward price pulse from 1489.95 ended at 1520.77 and we are now doing a new downward pulse.

Whenever I step off track (which happens too often I am afraid!) I like to step back and simplify. Going back to the weekly chart (shown in this post), I have been tracking the bearish divergence of the momentum indicators with price in my weekend posts. A “sell” signal was generated July 20 when the RSI failed to confirm the new high in price. I have been calling that top a wave “3” peak. We then formed three distinct price pulses to the downside. Next, the weekly chart formed an RSI “positive reversal” on August 10. In my post of October 6 I wrote “Last week I wrote about the positive reversal signal generated in the weekly RSI on August 10 that pointed to a calculated minimum target of 1548.54. This target has now been realized.” On October 19th the weekly chart produced yet another technical “sell” signal when the RSI again failed to confirm the price high. From the August low until that signal we had THREE clear price pulses to the upside.

To recap: we had a “sell” on July 20 followed by three waves down. A positive reversal on August 10 followed by three waves up. Another sell signal came on October 19. In my weekend posting for October 20-21 I wrote “We now have three distinct price pulses up from the August low. At one time I was viewing this action as an “A-B-C” Zigzag pattern. I have recently changed that view to a “1-2-3” of an Impulse pattern.” I now believe that was my big mistake.

At this point it appears that we are still in the corrective pattern that began at the July high. As labeled on the chart above the move down into the August low was wave “a” and the recent peak wave “b”. We are now in wave “c” of that correction; which is either an Expanded Flat or Triangle. Of course there could be other counts, but I will keep it simple for now.

The last technical signal on the daily chart was on October 10th when the Composite Index failed to confirm the RSI’s new high. This coincided with the “b” wave peak in the weekly chart. As stated in this blog more than once, we have not had a new technical “buy” signal since that point. As of this morning we still don’t have one.

How far will wave “c” go? The first support I note is from the short term moving average on the monthly chart. That is at 1468. My next Fibonacci clusters are at 1461-1463 and then 1413-1417. The weekly long term moving average is heading towards the lower area now (currently at 1400). From the recent high I have Gann Wheel targets at 1469.5, 1459.5, 1437, and 1421.

Bottom Line: I’m still on the sidelines. Let’s see how the market reacts at the 1468-1469.5 or 1459.5-1463 areas.