Time Targets

The cash S&P500 formed another uptrending price bar on Thursday as it pushed through resistance at the Fibonacci cluster from 732-733. Other than price resistance I like to calculate “time” resistance. Gann said that time was more important than price. I agree.

Just as price targets are calculated from previous Elliott waves so can time targets. In the current scenario the first few dates of importance fall out as March 13, 20, 30, April 6 and 13. However, just like the market should not overlap the wave i’ low of 804.3 in price, the current wave iv’ should not last longer than April 10 (associated with a Level 3 PRP).

Choosing amongst these dates is hard. One way is to use Level 2 and Level 1 PRP “due” dates to rule out some of the choices; but that doesn’t work in this case. Finally we can use the dates that “square” price in a Fibonacci sense. March 30 then becomes the choice. Not completing wave iv’ until March 30 while not going above 804 seems strange at this point. Keep in mind these techniques don’t always work! Let’s see what plays out one day at a time.

A Change In Trend (CIT)

The move higher in the cash S&P500 Wednesday pushed the Swing Index (created by Welles Wilder and represented in conjunction with price on this blog by the blue “swing lines” on the chart) above the last swing high of March 4. This price activity has created a Change-In-Trend (CIT) in price at the 666.79 low and is represented on the chart by the green ellipse.

Price CITs are important because they help solidify where Elliott Wave patterns have completed. The fact that this CIT has occurred in conjunction with a move above the most recent Price Reaction Point high means that I can have high confidence (hence the blue wave label color) that the March 6 low was wave v” of a complete trending impulse pattern from the February 9, 2009 high.

This complete Elliott pattern must be placed within the context of the larger market structure. Trending Impulse patterns can form within waves 1, 3, and 5 of a larger impulse or waves A (in a Zigzag) and C (Zigzag and Flat) of a larger Corrective Pattern. In this case I believe it was wave iii’ of a larger impulse from the January 6, 2009 high.

My next analytical step is to create targets for the next wave in the sequence, wave iv’. The first step in the process is to create Fibonacci price targets. They are shown on the chart as dashed horizontal lines. Note that we have hesitated at the cluster from 732-733. The next cluster is at 773. Wave iv’ should not go above 804.3 (the price area of wave i’). I will discuss my second step in setting wave iv’ targets tomorrow.

A Price Fractal Is Formed

The cash S&P500 drove higher on Tuesday and we can have more confidence that we have hit a fifth wave target. The positive price action created a price fractal (symbolized by the blue diamond symbols on the chart) to form at the 666.79 low. As used in this blog, a price fractal low is a price bar where the low is lower than the two bars both before and after it. Similarly a price fractal high is a price bar where the high is higher than the two bars both before and after it.

Price fractals are important because I have learned that every fractal is also a Price Reaction Point (except for those occasions where there are two consecutive fractals of the same type; for example two low fractals without an intervening high fractal). Since the market made a high yesterday greater than the two previous price bars we know a price fractal high will come next. This ensures the price fractal low at 666.79 was a Price Reaction Point. Based on this information I can tentatively (hence the gold color) label the March 6 low as wave v”.

The odds now favor the interpretation that a complete trending impulse pattern has formed from the February 9, 2009 high.

Price Reaction Points

The creation of the Elliott count is a process. In my preceding post I mentioned that we “may” have hit a fifth wave target. Note that the chart does not yet contain a blue label for wave v”; this is because I don’t have enough information to say it is complete with a high degree of certainty.

One driver of the wave count is the formation of what I call “Price Reaction Points (PRPs)”. The Level One PRPs are shown on the chart as red dots. A preliminary condition for deciding that wave v” is complete is for the low at 666.79 to become a PRP, which hasn’t happened yet.

Elliott Wave Built From the Ground Up

This latest version of the blog will describe my efforts on maintaining an Elliott Wave count on the S&P500 cash index.

I start by showing that we may have hit a fifth wave target in the impulse pattern that began at the February 9, 2009 high. The horizontal blue lines are Fibonacci targets for wave v" based on wave iii". The red lines Fibonacci targets for wave v" based on wave i".

Note also the similarity in time between wave i" and the proposed wave v". If this interpretation is valid the market should now begin an upward rally.

All chart notations will be explained over time and each daily posting will be limited in scope.