Price Waves #6 - The Daily Chart From The November 2012 Low

After the first five postings in this series we have reached the point of showing an A-B-C-X-A-B-C-X Double Three pattern in the cash S&P500 ending at the November 2012 low. The hypothesis under examination states that the pattern requires one more A-B-C that will be visible on the daily chart.

Using D-Wave Criteria the count is laid out in the attached chart. The five wave impulse up into the May high composes the larger ‘A’ wave. We then have an a-b-c decline into the June 24th low which delineates the larger ‘B’ wave. The rally since then is part of the final ‘C’ wave up which will complete the pattern. At that point this wave count portends a major top will be in place.

Price Waves #5 - The Weekly Chart From The 2011 Low

Looking at the cash S&P500 from the “x” wave low of October 2011 from an objective wave view:

Starting from the October 2011 low of 1074.77 (which was a 57 period low) which was identified as the last low on the next higher time frame (Monthly chart):

1. H greater than12H: 1/13/2012.

2. L less than 7L: 05/11/2012. This means that W.1 up ended at the 1422.38 high of 04/05/2012.

3. H greater than 20H: 08/24/2012. This means that W.2 down ended at the 1266.74 low of 06/08/2012.

4. L less than 12L: 11/09/2012. This means that W.3 up ended at the 1474.51 high of 9/14/2012.

5. H greater than 33H: 01/18/2013. This means that W.4 down ended at the 1343.35 low of 11/16/2012.

6. L less than 12L : Not yet recorded. This means that W.5 up is still underway.

The D-Wave pattern is exactly the same as the one on the monthly chart examined in the last post of this series. To transform from a D-Wave to Elliott Wave count we once again need to change to an A-B-C-X count. Once again, in order to keep the D-wave synched with the Elliott wave, the D-wave 5 on the weekly chart (from the November 2012 low) must; in Elliott terms, be an A-B-C pattern. This A-B-C will be the last in a Triple Three formation from the 2009 low and will compose the “D” wave of an Expanding Triangle that began at the year 2000 high.

We’ll explore this idea on the daily chart in the next posting.

An RSI/Composite Divergence

The cash S&P500 pulled back yesterday as it appears that we have completed the end of wave 3 in a suspected five wave impulse sequence from the June 24th low. Note the Fibonacci confluence area of 1)Wave 1 projected from the end of wave 1 (the boxes); 2) the retracement of Wave 2; and 3) Wave 1 projected from the end of Wave 2.

At the July 22 closing high the RSI (top pane) indicator poked to a new high for the move while the Composite Index (middle pane) did not. I believe this bearish divergence marked the end of wave 3 as oftentimes the composite will record its max reading with wave 3 of 3.

In my ideal scenario: going forward the current fourth wave pullback will be followed by a rally to a new high that is accompanied by another bearish divergence with the RSI/Composite and a DeMark exhaustion signal. Right now the TD Combo is on countdown bar 11 (shown in the chart) and the Sequential is on bar 9. Such a high would then have to be placed within the larger price structure.

Price Waves #4 - The Monthly Chart From The 2009 Low

Now let’s look at the cash S&P500 on the monthly chart from an objective wave view:

Starting from the 2009 low of 666.79 (which was a 150 period low) which was identified as the last low on the next higher time frame (Quarterly chart):

1. H greater than 12H: November 2009.

2. L less than 7L: June 2010. This means that W.1 up ended at the 1219.8 high of April 2010.

3. H greater than 20H: November 2010. This means that W.2 down ended at the 1010.91 low of July 2010.

4. L less than 12L: October 2011. This means that W.3 up ended at the 1370.58 high of May 2011.

5. H greater than 33H: February 2012. This means that the W.4 low ended at the 1074.77 low of October 2011.

6. L less than 12L: Not yet recorded. This means that W.5 up is still underway.

Now we note two developments: 1) W.4 overlaps W.1, and 2) W.3 is the shortest when compared to waves 1 and 5. These two developments are perfectly permissible under the TD D-Wave system but NOT under classical Elliott Wave. In order to align the two systems I propose that under such a structure, the TD-Wave labeled W.4 be relabeled as an “x” wave and the waves labeled as W.1; W.2; and W.3 be relabeled as W.A; W.B; and W.C.

The chart shows both the D-Wave (1-2-3-4) and Elliott Wave (A-B-C-X) labels.

Under Elliott Wave theory there exist both Double (A-B-C-X-A-B-C) and Triple Three (A-B-C-X-A-B-C-X-A-B-C) patterns. Going forward, in order to keep the D-wave synched with the Elliott wave, the D-wave 5 must; in Elliott terms, be either an A-B-C or an A-B-C-X-A-B-C pattern. Does it? I’ll continue explore this idea using the weekly chart in my next posting.

Price Waves #3 - The 2007 to 2009 Decline

In my last post we reviewed the wave count from the 1974 low using Quarterly Chart data. We wound up with an A-B-C count for the price action between the years 2000 and 2009. That A-B-C pattern is either an Expanded Flat or the first three legs of an Expanding Triangle. The difference being that the third leg (down into the 2009 low) would be a five wave impulse in the Expanded Flat scenario but a three wave corrective pattern in the Expanding Triangle. To distinguish which pattern is forming requires price data on a lower time frame. Since the monthly chart does not resolve the data well enough to answer the question I will take a look at the weekly chart.

The above chart shows a clear Zigzag pattern. We must therefore conclude that it is an Expanding Triangle and NOT an Expanded Flat forming in the fourth wave position from the 2000 high. This implies that the subsequent rally from the 2009 low is wave “D” of the triangle and will itself be a corrective wave pattern. I will start to explore that premise next time and introduce a D-Wave modification.

Price Waves #2 - Quarterly Data

Looking at the DJIA from an objective Elliott Wave view:

Starting from the 1974 low of 570.01 (which was a 48 period low) which was identified as the last (Wave 2) low on the next higher time frame (yearly chart):

1. H greater than 12H: 1976.3.

2. L less than 7L: 1977.4. This means that W.1 up ended at the 1026.26 high of 1976.3.

3. H greater than 20H: 1981.2. This means that W.2 down ended at the 729.95 low of 1980.1.

4. L less than 12L: 2002.3. This means that W.3 up ended at the 11,750.28 high of 2000.1.

5. H greater than 33H: 2006.4. This means that W.4 down ended at the 7197.49 low of 2002.4.

6. L less than 12L: 2008.4. This means that W.5 up ended at the 14,198.10 high of 2007.4.

7. H greater than 7H: 2010.4. This means that W.A down ended at the 6469.95 low of 2009.1.

8. 2007.4 high is exceeded: 2013.1. This requires that the W.4 low be moved to 2009.1 since the model requires an A-B-C after a five wave impulse.

A. The chart shown is of the cash S&P500 but is similar to the DJIA.

B. Note that a complete five wave impulse from the 1974 low, which would compose the larger Wave 3, is not yet complete. This meshes with the fact that the yearly chart (last posting) showed the larger Wave 3 not yet completed.

C. The A-B-C pattern from 2000 is either an Expanded Flat or the first three legs of an Expanding Triangle. The difference between the two is that the third leg (down into the 2009 low) would be a five wave impulse in the Expanded Flat scenario but a three wave corrective pattern in the Expanding Triangle. To distinguish which pattern is forming I will take a look at the weekly chart in my next posting.