If You Are Counting a Triangle ....

... there is now only one good way to do it. Regular readers of this humble blog will note that we have been tracking this potential contracting triangle for a good bit of time now. But the moment of truth is now looming!

It now appears that Wave “D” ended at the September 10 low and we are now in “E”. If this analysis is valid the cash s&p500 is limited to the upside by the downsloping “A-C” trendline which sits at about 1493 today. Adding support to this resistance line is the fact that the long moving average on the daily chart now coincides with the September 4 high just above 1496.

Wave “E” should end, and the “thrust” downward out of the triangle apparent, before September 26; the day the triangle’s converging trendlines meet. Any decisive break below the upsloping “B-D” trendline would be an indication that the triangle is over. That line sits at 1455 today.

Regardless of what happens today I'll take a fresh look at the weekly chart in a posting over the weekend. Cheers!

Triangle Conjecture Continues

The cash S&P500 refused to reveal its hand yesterday and so I really don't have much more to add at this point. Watching and waiting .....

Is Wave "D" Over?

The cash S&P500 rallied on Tuesday causing the question to be asked: "Has the D wave of our contracting triangle completed?" I have two scenarios that describe possible price action over the next four or five sessions. Here they are:

1) The rally that began Tuesday becomes a choppy sideways affair the rest of the week and never exceeds 1481.49 (we closed yesterday at 1471.49). We essentially bide time into early next week.

2) The rally that began Tuesday is either already over or ends early today without exceeding the 1495 level. We then fall hard into Friday of this week breaking below 1439.29 (target of 1429) in the process. We then bounce into early next week.

Both scenarios can actually cover situations where the contracting triangle scenario unfolds to completion. However, only scenario 2 provides a situation where Wave "D" ends at a Fib ratio to Wave "B" and the entire triangle is in time symmetry with the move down between July 16 and August 6.

Therefore I choose scenario 2 for academic purposes. Not that it matters, for in either case the larger trend is now down and should remain that way over the next few weeks -- and yes, I know that the Fed will most likely cut rates next week.

Triangle Tracking

The last time we chatted about the daily chart we were waiting for price action to form both a price fractal and "squat" bar with the 9/4 high. This has happened and our confidence can continue high in the contracting triangle scenario. Wave “D” is now unfolding in this wave pattern and Connie Brown (Technical Analysis for the Trading Professional) says “Wave D is not as tricky (compared to wave C) because it frequently forms a Fibonacci relationship relative to wave B.” We also know that Wave D can not exceed the end of Wave B and today’s chart shows all of these factors. Just as importantly, we should not exceed the end of the just completed Wave C, which gives us a bearish view here.

As we watch for the end of Wave D I will keep this in mind: The move down from July 16 – August 6 was 21 calendar days. Our triangle will reach 42 days if it ends next Monday. Now that would be a pretty symmetry! Ideal would be for Wave D to end this Thursday and E to complete early next Monday morning. But let's see what the market will give us.

Weekly Chart Update

The weekly chart remains on a technical “sell” signal as previously described, this week doing nothing to improve that situation. Notice that after poking up against the short term moving average on this chart (red line) we failed and then could not even hold the intermediate term average (blue line).

As posted in my blog on July 3 I was looking for an intermediate low in the cash S&P500 this fall with the final low most likely in May-Jun-Jul 2008 or perhaps late Dec 2008 or Jan-Feb 2009. I am sticking with that view and believe the current A-B-C pattern unfolding on the weekly chart (where wave “B” is the contracting triangle we’ve been following on the daily chart) will end in October as the intermediate low.

On June 29 I posted two price targets for the 2008 low. 1250 was one of them but this looks more likely to be the low of this October than the final low. Note that if we are to reach 1250 by October that the majority of the decline in the current A-B-C pattern is yet to come.