SPX Wave Count 9 Jan 2012

DeMark Levels of Interest From Monthly Chart

Still Watching 804.30

The cash S&P500 made a slightly higher high on Thursday before ending down. This keeps us all guessing as to whether we will exceed the 804.30 level.

At this point the market has respected the Fibonacci cluster adjacent to the wave i’ low (804.3) and the downtrend line drawn from the start of the proposed Elliott pattern across the ending point of wave ii’.

However, price action still remains within the recent upward regression channel shown in today’s chart. If weakness continues we will want to start seeing signs that the wave up from March 6 is complete. Breaking out of the channel is one such sign. A move below 749.93 would be proof (that is the current PRP trend change marker).

Any break of 804.30 and the alternate wave count discussed Wednesday becomes the new roadmap. Elliott is the roadmap used to map how we get from one point to another. The destination right now (next Level 5 PRP) is a new low (below 666) before a potentially large multi-month rally can unfold in equities.

At this point I am in a waiting mode. With a bearish bias I wouldn’t even think about the short side until 749.93 is broken.

Roadmap Dead End?

Further rally in the cash S&P500 on Wednesday has pushed the wave iv’ scenario as far as it can go. We can’t exceed 804.30 under this scenario, which is just under the next Fibonacci cluster (805-809). Any break of 804.30 and the alternate wave count discussed yesterday becomes the new roadmap. Elliott is the roadmap used to map how we get from one point to another. The destination right now (next Level 5 PRP) is one more new low (below 666) before a potentially large multi-month rally can unfold in equities.

Note that the high on 3/16 and low on 3/17 have now been marked as Level 1 Price Reaction Points. The Elliott Wave from the 3/6 low can not be deemed complete until either the Level 1 PRPs show a trend change or a CIT is reached.

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.

Retest .... Done? or Ongoing?

The cash S&P500 index reached the minimum target pointed out in this journal last Friday morning. We certainly arrived there quickly! Was the low last Friday and subsequent move higher the expected successful retest of the low? I can't say for sure, can you?

I can tell you that we did not get a technical buy signal on the retest and so that facet of my work remains negative. Note also that we found resistance yesterday at the "red" moving average and the 50% retracement of the most recent decline.

My "gut" says we are going to visit the lows again over the next few days, get a technical "buy" signal and then rally upwards back towards 1500. All of this action, if it were to unfold this way, would be corrective (Elliott Wave Principle) in nature and part of wave "2 or b".

If it doesn't play out this way? No harm done ... I'm flexible. At the very least the weekly chart shows no reason to become a bull at this juncture. I continue to sit on the sidelines waiting for the next "clear" shorting opportunity.

Quick Elliott Update

Let's start the new month by reviewing the short-term Elliott Wave count. Turns out the low last Thursday was just the end of wave iii. Still watching the target "boxes" from the previous post.

Fibonacci and Gann Work

The bounce from last Thursday's low was much weaker than I expected but it doesn't matter - as I am not touching this one with a ten foot pole! The Elliott count on today's chart reflects the recent events. The chart also shows two support areas (boxed) right under the market based on Fibonacci and Gann principles.

The fifth wave down might end in one of these areas either today or Wednesday/Thursday.