Quarterly Chart Time

The yearly chart of the cash S&P500 left me with the question “Are we in wave ‘Five’ or wave ‘B of Four’?” Today I turn my attention to the quarterly chart. The last quarter of 2007 displays as an uptrending price bar with a lower close. The most recently completed price pulse (the blue lines on the price chart) went from the 2Q2006 low of 1219.29 to the 4Q2007 high of 1576.09. A new downward moving pulse began at the 1576.09 high.

The middle pane of today’s chart is the Elliott Wave Oscillator as described by Tom Joseph (http://www.esignallearning.com/education/marketmaster/tjoseph/default.asp).
Note that the oscillator peaked where we have Primary degree wave “Three” labeled in 2000. The oscillator then pulled back to the zero line giving a high probability signal that a wave “Four” was forming.

Now take a look at the RSI. Of importance is that the 40 level held during the pullback into the 2002 low. This indicates that even with such a large decline we are still operating within a larger bull market environment. This interpretation was confirmed when we broke back above the RSI 65 level in 2007. Of course, the bull market view was confirmed by price itself when we made a new all-time high during this year. Not shown on today’s chart is the Composite Indicator. It flashed a “buy” signal when it made a bullish divergence with the RSI at the 2002 low. As we enter 2008 we do not have a corresponding “sell” signal.

As mentioned yesterday, my Elliott counts are guided by the formation of price fractals. Also important are the CIT (Changes-In-Trend) points labeled with the green ellipses. The last CIT was at the 2002 low.

What about the wave count? The technical evidence supports the view that the preferred count should have the 2002 low as Primary Wave “Four”. From that low we are in the third wave up: intermediate degree wave (3) of Primary wave “Five”. The alternate count would have the 2002 low as Intermediate wave (A) of Primary “Four”. Under that scenario we are in minor wave c of Intermediate wave (B) of Primary “Four”.

Although we have two choices it is important to recognize that both counts indicate that a bearish move lies ahead. It will either be intermediate degree (4) of Primary “Five” or intermediate (C) of Primary “Four”. But how close are we to this bearish scenario? That is, how close are we to completing intermediate degree wave (3) of Primary wave “Five” or Intermediate wave (B) of Primary “Four”? I’ll take a stab at answering that question when I look at the new monthly chart in tomorrow’s posting.