October ended up being an uptrending price bar on the cash S&P500 monthly chart with a closing price at new all-time highs. The price pulse is up from the fractal low and Change-In-Trend (CIT) at August’s low of 1370.6.
At the end of June 2007 (1503.35) the monthly chart gave a technical “sell” signal when the composite index failed to confirm the new May high in the RSI and both indicators turned down. Then, at the end of August (1473.99), the RSI registered a positive reversal with a minimum target of 1579.07. These two events mark waves 3 and 4 respectively (see chart). Since the positve reversal signal the market has reached 1576.09.
From an Elliott perspective there are only two possibilities from the October 2002 price low. We are either in a large wave “5” or a large wave “B”. If we are in a “5” then the sub-waves will be “1-2-3-4-5”; if in a “B” they will be “a-b-c”. I don’t have a firm opinion on which it is at this point but I do believe that we are near the end of the third sub-wave be it a “3” or “c”. Most likely the rally from the late 2002 low will be confirmed complete if we break the trendline joining the August 2004 and August 2007 lows. That trendline (slope of 8.608 per month) stands at 1396.4 this month. Another important trendline (slope of 2.48 per week) in my work joins the June 16, 2006 low and the August 17, 2007 low. It stands at 1397.91 right now.
From a technical viewpoint the market is starting to look wobbly due to very long term divergences. However; we won’t have an outright “sell” until either, 1) The positive reversal is negated; or 2) the RSI turns down. In other words we better close November above 1549 or we may be in deep trouble.
Bottom Line: Although danger may be building in this time frame, the market must be considered bullish on the monthly chart until it gives a clear signal otherwise
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