Developing the wave count from October 2007 - Part II

After using the higher time frame charts to get a feel for the overall Elliott structure, it is time to look deeper. Yesterday I arrived at the conclusion that either a flat, zigzag, or impulse was unfolding from the October 2007 high. Today’s chart is the daily cash S&P500. The dark red lines are the “waves” as derived from yesterday’s weekly chart analysis. If I were to use the price fractals and CIT’s from the daily chart I would see a five wave move down from the October 2007 high into the November 26 low. Note that in my work a price fractal high must be followed by a price fractal low and vice versa. Wave four overlaps wave one in this situation so I would be forced to conclude that a Leading Diagonal pattern had formed and was either wave 1 or wave “a” of a larger pattern. The rebound up to the December 11 high can be seen to be a three wave zigzag using the fractals. This then would be wave 2 or wave b of the larger pattern. Finally, from the December high it appears (using fractals alone) that we are in the third leg down of the larger wave 3 or c.

However, I don’t believe that analysis (as labeled on today’s chart) is correct. Complexity is added when one realizes that not all Elliott patterns end on the high or low of a move. Triangles and Flats are excellent examples of this phenomenon. To resolve the problem I rely on price and time relationships. Time is more important and Fibonacci the key. In tomorrow’s post I will start that analysis.

One other point that I would like to make today:
1) The cash S&P500 index may be making a short-term low here. I don’t have confirmation from either technical or price action yet, but any move above yesterday’s high would be a strong signal that a tradable bounce is underway. Therefore I will be looking to buy the SPY (in this blog related Investopedia trading account) at 139.13 unless yesterday’s low is violated first. If the trade is executed the initial stop would be at yesterday’s low.