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Feb 6th, 2010: Broadening Pattern ?

Posted by pugsma on February 6, 2010

12:00pm EST (edited 3:00pm):  A key in market analysis beyond E-wave is using all the tools in the tool box, like Pattern Recognition.  As first mentioned in Friday 2-5-10 EOD update, there is a potential for a broadening formation occuring on the SP-500.  Boardening formations form near the end of long winded runs, as the bulls and bears battle it out for control.  Volatility picks up and larger market swings ensue.  We have been seeing signs of this in the markets since the late Sept 2009 peak at 1080.  And it has intensified here in early 2010.

On Friday, I discussed the potential wave [4] large expanding triangle shown in green (purple a-b-c-d-e labels), which could lead to an alternate count with a new wave [5] peak near a 1180 to 1230 target area.  It’s not a classic expanding triangle (broadening parttern) because it is not symmetrical.  The classic boadening pattern is symmetric and is the polar opposite for the sysmmetric contracting triangle.  Now take a close look at my updated Daily chart below.   Notice the new drawn in yellow lower channel line.  This yellow channel line forms a perfect symmetric expanding triangle with the long standing green upper channel line.  And if you look at the yellow labels, you can see that the symmetrcal triangle as traced out a-b-c-d so far.  And wave-e could take the SP-500 to 1180 to 1230 very quickly as the price reverses.  Both the purple expanding triangle count for wave [4] and the yellow broadening formation pointo the same 1180 to 1230 area.  We may have seen the beginning of this resercal late in the day on Friday.  What we need to see now is some follow-through early next week.  Key levels to break on the upside are 1085, 1105, and 1115.  If 1115 is crossed again, it opens the door for new highs above 1150.  Also, it should be noted that the lower yellow channel line is a very close in slope and price to the Oct 2007 to Mar 2009 bear maket trend line.

Another interesting pattern that jumps out at you is the “broadening top” labeled as the red letter a-b-c-d-e on the chart below.  This broadening top indicates that wave [5] of P1 is complete at 1150.  The broadening top measures 105 points has a downside targert of 940.  This broadening top target agrees with my primary count that has us in a large A-B-C (in red) P2 correction with a retrace target of 38% or 966.

So to summarize we could have a broadening top that agrees with my primary count or an expanding triangle that agrees with my alternate count.  The broadening top projects a downside target of 940 and agrees with my large A-B-C P2 38% re-trace corrective.  There are two type of expanding triangles that agree with the alternate count with new high targets in the 1180 to 1230 area.  So which way does it break?  Well 2 of the 3 formations point to a new high.  And the McCellan Oscillator analysis last night indicates a big snap-back bounce is coming next week.  We’ll just have to watch the key 1085, 1105 and 1115 resistance points and see if the bounce can take them out or not.

Also, you should take a good look at the Aug 2007 correction and the ensueing Oct 2007 new high.  It is very similar to what has taken place thus far with this correction.  Will we get a new Mar/Apr 2010 market high?  Stay tuned.

SP-500 Daily Boardening Pattern (2-6-10):

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