We saw the cash S&P500 form another downtrending bar last Friday and the parameters for a possible long trade were not met. Although the U.S. market is closed for the Martin Luther King, Jr. holiday, other world markets are open. It is not a pretty picture. Therefore today’s post will focus on a bearish interpretation of the daily chart.Using price fractals and CITs I previously wrote about how the weekly chart was showing us to be in either wave 3 or c from the October 2007 high. The daily chart shows five waves down using fractals from October 2007 to November 26, 2007. To count these five waves as a complete pattern it must be a Leading Diagonal since waves i’ and iv’ overlap. These five waves therefore make up a larger wave 1 or a.
The rebound from November 26 to December 11 is clearly corrective when using the price fractals. This zigzag move would be either wave 2 or b. When counting the decline from December 11 it is critical to note that the consolidation around January 10 did not contain a fractal high. This would imply that we are in wave iii’ of 3 (or c). Furthermore, it may be that the consolidation around January 10 was a second wave. If that is the case we are now in wave iii” of iii’ of 3 (or c) – typically the most bearish part of a wave pattern.
At this point I won’t even contemplate establishing a long SPY position. Be safe out there!
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