Triangle Doesn't Appear; Daily Chart Remains Bearish

There is now no chance of a final fifth wave push higher. The fifth wave is in at the August 2 high which coincided with a TD Combo 13. And so the daily chart remains bearish.

The question now revolves around the significance of the August 2 high. Is it the end of the rally from the 2009 low? Does it mark the completion of a “D” wave in an expanding triangle from the year 2000? Or is it just a resting point on the way to higher highs? I am quite convinced that the August 2 top ends the rally from the June 24 low. Does it also mark the end of the trending impulse wave from the November 2012 low? From the daily chart itself there are a few ways to try and answer this question.

1) Price Pulses. The next trendline of interest is the much larger Beta – X line shown in orange on the chart. A close beneath this line will raise the chances significantly that the trending impulse pattern from last November is complete.

2) RSI. Two readings below 38 will also point to the August high as completing the pattern from November 2012. The RSI is currently at 40.8.

Another way to gauge the August 2 high is with charts of higher timeframes. I will look at the new weekly chart this weekend. Remember that a close today less than 1692.09 will flip this chart bearish!

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.

Signals and Evidence

We have now reached bar 12 of an aggressive TD Sequential sell countdown. Please note that bar 13 can only form after a high greater than 1660.06.

Going forward, besides watching the aggressive sequential just mentioned, there is the Beta-X trendline and TDST support to watch. A confirmed, validated break of these levels would; of course, be bearish.

From a wave perspective … A move to a new high means that the action from May 22 is wave 2 in an upward trending pattern. A break below the April 18th low (1536.03) would imply that the rally from the 2009 low is complete as the “D” wave of an Expanding Triangle.

On any timeframe you can also use the RSI as a trend indicator. Right now the monthly, weekly and daily charts are all in uptrends. I remain wary that the rally from 2009 is complete but need more bearish evidence (as outlined in this post) before committing to that view.

Intermediate Price Pulse and a Trending Pattern

To quickly summarize, my premise is that an Expanding Triangle pattern is forming in the cash SP500 from the 2000 high. Wave 'D' of that pattern is itself a Zigzag pattern from the 2009 low and is about to complete. The Monthly chart showed that Wave 'C' of the Zigzag is a Trending pattern (1-2-3-4-5) where we appear to be towards the end of wave '5'.

On the Weekly chart (below) we can see the Intermediate Term Price Pulses that make up wave '5' of the Monthly chart which began in June 2012. Once again we have the expected five wave Trending pattern of alpha-beta-delta-x-y. Note that pulse 'y' is still forming. In these Trending patterns the Beta-x trendline is the one to watch.

And so .... when pulse 'y' (wave 5) completes on this time frame it will also mark the end of the fifth wave on the Medium time frame, Wave C on the Medium-Long time frame and wave D on the Long time frame. A very deep sell off is then expected to unfold.

Next time I will introduce the daily chart.

A Trending Pattern In the Medium Term Pulses

My last post showed a Zigzag pattern (alpha-beta-delta price pulses) forming on the quarterly chart with the delta pulse beginning at the July 2010 low. In wave pattern terms the Delta pulse is synonymous to the 'C' wave of the Zigzag and should itself be a Trending pattern (five waves making higher highs and higher lows).

The chart of the Medium Price Pulses (using monthly bars) reveals this trending pattern (alpha-beta-delta-x-y).

Unlike Elliott Wave, the third wave (delta) in a price pulse trending pattern CAN be the shortest when compared to alpha and y. In such cases my early research indicates that alpha and y will very often be similar in length as they are now.

Since the Medium pulses show that the Zigzag from the 2009 low is nearly complete (in pulse 5 of C) we must be wary that the entire 'D' wave of the expanding triangle from 2000 is also nearly complete. The 'y' pulse (or fifth) on the Medium Pulse chart should itself be a trending pattern on the Intermediate Price Pulse chart. I will take a look at that in my next posting.