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.

Weekly Chart Review for November 11, 2007

The weekly chart of the cash S&P500 index formed a downtrending price bar this week. As shown in the chart we were not able to hold support at the confluence of the short (red) and medium (blue) moving averages. The downward price pulse from the recent 1552.76 high continues.

On October 19th the weekly chart produced a technical “sell” signal when the RSI failed to confirm the price high. At this time we still don’t have a “buy” signal. My current Elliott count is that we are forming a corrective pattern from the July high. Furthermore, I believe that we are in wave “c” of that correction now.

What else do I believe about the S&P500?

1) We will hold the August low during the current correction.

2) That the correction will terminate by the end of the calendar year.

I have added two likely target zones to the chart for the end of the correction. The higher aligns with the 1413-1417 zone previously discussed.

Bottom Line. All of the above work helps to “frame” the price action but here is the true bottom line: With the weekly and daily charts on a “sell” signal I will remain on the equity sidelines.