SPX Elliott Wave Count 23 Dec 11

DeMark D-Wave Analysis (Part 3)

Following on from the last post .... Tom DeMark's objective wave counting routine counts out an impulse (1-2-3-4-5) pattern from the March 2009 low. I always try to make an A-B-C count after an impulse so I am expecting that from the April high.

Note the possible RSI divergence developing. We also have a perfected TD Sell Setup on the weekly chart now. So, possible exhaustion here but certainly not confirmed yet. If so we could be ending wave B of an Expanded Flat or Triangle.

Stronger Than Expected Rally

Without further follow through to the downside yesterday I must question the underlying premises of my technical view. That view is that the market requires one more new low (below 666) before a potentially large multi-month rally can unfold in equities. To get that new low the roadmap being followed was that the current upward correction is an Elliott Wave iv’ which would be followed by wave v’ down to below 666.

It is crucial to my methodology that the current rally not exceeds the January 28 high of 877.86. If it did the overall view that a new low is required would be called into question. The roadmap that we are currently in a wave iv’ counter-trend rally would be blown out of the water if the January 21 low of 804.30 is broken. There is one scenario that would keep the overall view in tact but would require a change to the roadmap (Elliott count) on how we get there.

If wave iv’ overlaps wave i’ at 804.30 but doesn’t exceed 877.86, I would have to believe that the swings from the January 6 high are not waves i’-ii’-iii’ of an impulse but rather waves a’-b’-c’ of a complete Zigzag pattern.

I’ll explore that idea further if a break of 804.30 occurs or is imminent.

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.

A Buy Signal?

For what its worth, we had a low yesterday within one of the target boxes posted recently. Of equal interest is that we now have a bullish divergence between price and the RSI indicator at that low. In my work that means we have a buy signal in place on the daily chart right where we've counted a full five waves down.

The attached chart (see arrows) shows how even though price made a new low (closing value) the RSI indicator did not.

I would view any rally from here as a "bear market rally". Also known as a counter-trend rally; which tend to be swift and at times quite dramatic.