After reviewing the yearly, quarterly, and monthly charts of the cash S&P500 index the Elliott analysis issue (in my mind) is whether the October 2007 high was a fifth wave or a “b” wave. If the former it would mark the end of intermediate degree (3) of Primary “Five” or minor C of intermediate (B) of Primary “Four”. That is, we will have completed a 1-2-3 (or a-b-c) up from the October 2002 low. If instead the October high was a “b” wave it would be wave b of minor 4 within intermediate (3) or wave b of 4 within minor C of intermediate (B).
Put more simply: Did the October high mark the end of an impulse pattern from the October 2005 low or not? In my last posting we saw that the RSI indicator on the monthly chart voted “yes”. Furthermore, it was clear that a wave 3 ended at the July 2007 high. Today I present the latest weekly chart to explore what came after that point.
Using the price fractals and CIT’s to help define the wave count; there is little doubt in my mind that Elliott waves (from the July 2007 high) ended at the August low, October high, November low and December high.
At the July high the RSI (top panel) signaled a “sell” when it formed bearish divergence with price. Of interest is that this signal came at the RSI area which may signal the transition to a bear market – although a bear market would only be confirmed if the RSI can not hold the 40 level on the subsequent fall. Finally, note that the Derivative Oscillator (bottom pane) peaked in May of 2007 where the Elliott “third of the third” peaks.
The market then declines to the August low where it is supported by the long (green) moving average. This is either wave 4 or wave a of 4. Note the RSI holds the 40 level. The market then rallies to the October high. This wave marks either wave 5 or wave b of 4. Once again the RSI forms bearish divergence with price as does the Derivative Oscillator. This is also where the monthly chart gave an RSI “sell” signal. Lastly we note that once again the RSI fails in the 65 area.
If; even after the October high, wave 4 were still unfolding it would have to be a Flat or Triangle since the October high is greater than the July high. The move down into the November low would have to be labeled as wave c of 4. Subtle, but important is the fact that the lowest closing price during the August low is lower than the closing low in the November decline. This is opposite of the RSI, which makes a slightly lower low in November. This “positive reversal”, the ability of the RSI to again hold 30 and second-time support from the long moving average might sway me to believe that the “continuing” wave 4 analysis is correct.
However, things became worrisome in December when price was unable to clear the short and intermediate moving averages (red and blue lines respectively). Was the December high the first wave in a new impulse pattern? Was it part of a continuing wave 4 from July - wave d of a contracting triangle? Both are possible. But more worrisome is the Derivative Oscillator failing to move back above zero. And then there was this past week.
We began 2008 with a strong downtrending week and now the S&P is again testing the long moving average while the RSI indicator tests the support area for bull markets. Most importantly may be the fact that the “positive reversal” in the RSI discussed earlier has been negated. Therefore both the monthly and weekly charts are on “sell” signals.
If we break the November 2007 low I think there would be little doubt that the market has completed a 1-2-3 (or a-b-c) move from the 2002 low. Also intriguing me is a new technique I am exploring which shows that the move from the August to October high was impulsive. If that was the case we would have proof that wave 4 bottomed in August and wave 5 in October. I will show that wave count in my next posting.
Today I present a “guest” wave count. It comes from a friend of mine who usually likes to hold it close to the vest. Although it also show that the S&P500 index has completed a full 1-2-3 (or a-b-c) up from the October 2002 low it differs in how the waves are composed.
