Developing the wave count from October 2007 - Part I

As I have stated before I use price fractals (blue diamonds on my charts) and CIT’s (Changes In Trend, shown by green ellipses on my charts) to help me craft my wave counts. Assuming the October 2007 high began a new Elliott wave to the downside (it was the end of a 1-2-3 or a-b-c from the October 2002 low), the weekly chart shows fractal highs on October 12 and December 14. There is a fractal low on November 30. Therefore, we are in the third wave down from October.

What type of pattern is forming? Since the December high was lower than the October high and the current prices lower than the November low I can rule out a triangle pattern (both expanding and contracting). This leaves either a flat, zigzag, or impulse. Tomorrow I will dig deeper into the pattern but first a few quick points on the weekly chart.

1) Note that the long term moving average (the green line) has been violated and acted as resistance this week. This is the first time this average has not held since the upward move began at the 2002 lows.

2) The weekly RSI is now poised to close below the key 40 area for the first time since the upward move began in 2002. We will have to wait for the week to end before we can say this is fact.

Both of these events continue to make me believe that the pattern from October 2002 to October 2007 is now a complete a-b-c Zigzag.