Major Development in the Price Action

Yesterday’s price action in the cash S&P500 is classified as an “outside day”. The major development yesterday was that the crucial 1396.02 level was broken. No matter how bad I personally believe the economy is or will be, the breaking of this number convinces me that a significant low has been made in the equities market. Specifically that low was 1256.98 and was set on March 17 (Vernal Equinox). What does significant mean? It is a low that will not be broken until at least the autumn and more likely not until 2009.

Accepting this result I have modified the Elliott Wave count presented yesterday. The entire decline from October 2007 to March 17, 2008 is seen as an a-b-c-x-a-b-c “Double Three” correction. It will be followed by another Elliott wave corrective pattern that fails to make it above the October 2007 high.

From the March 17 low I believe that we are now in the “c” wave of an a-b-c zigzag pattern. We will know the zigzag is complete if we break below 1369.84.

Bottom Line: I can foresee a choppy, but overall upwards move in the S&P500 that lasts at least into the Autumn and perhaps into 2009.

A Bearish Elliott Wave Count - But is it Correct?

Yesterday’s price action in the cash S&P500 is classified as “uptrending”. While I continue to watch the key levels of 1396.02 and 1324.35 I present today my current Elliott Wave view of the market since last October’s high.

To put this action in perspective, I believe that the bull market (defined by five complete upward waves) which began in 1982 (basis the cash S&P500) is not over. The high in 2000 marked the end of wave 3 up. Since then I think we have seen waves A and B of wave 4 down. Wave A completed in October 2002 and Wave B this past October. Therefore we are now in Wave C of wave 4 down.

The immediate question is whether or not the low of 1256.98 set on March 17 was significant (i.e. a low that will last for months). I think the market is in the process of answering that question now. My preferred wave count says “no”. If we are ending the terminal impulse (Ending Diagonal) pattern from March 17 then we should see a move down to retest the lows over the coming couple of weeks.

Let’s see what happens.

Watching for Support and Then the Next Bounce Up

It was a downtrending day in the cash S&P500 on Tuesday and the high at 1395.90 is now a price fractal. We have a lot of room to drop before the short term trend changes to down, and plenty of moving average support in between. In particular, 1360-64 and 1340-45 may be very good support. The question as to whether or not we have just seen a key top will most likely be answered on the next bounce upwards, not with a collapse straight away to below 1324.35.

Last Line of Resistance Holds Another Day ....

Monday’s price action formed an “inside” price bar on the daily chart of the cash S&P500 index. The critical level of 1396.02 has still not been breached by the bulls. This continues to be the “line in the sand” mark.

Can the bulls do it? The daily and weekly charts are technically strong and there is plenty of room available for the bulls to run to the upside in the current Y-pulse. Let’s see if they are in the mood.

Challenging Final Resistance?

It was another strong day (and week) for the bulls. There is now little room for the bears to keep the current leg of this decline (from October 2007) going: they need the market to decline immediately this week.

All retests of previous highs (1388.34 and 1386.74) have been successful except for the last barrier of 1396.02. Breaking that last mark would imply to me that the low associated with the vernal equinox will hold for quite some time. The cash S&P500 would have “time” to rally; i.e. for months - perhaps into next year. How much price would be consumed in this time period is another matter.