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Apr 21st, 2010: Watching the Top

Posted by pugsma on April 21, 2010

6:07pm EST:  Time to simplify things again. I never should have entertained the P1 top was in place without a close under the 13-day EMA. The 13-day EMA is sitting at 1195.5, just under the 1198/1200 gap support. It will take a close under this area to get me more bearish for the near term. The trend reminds up until proven otherwise.

The primary count has been changed to what I was calling the 2nd alternate. However, there is a significant difference. I’m thinking the wave 5-[5]-P1 is going to be an ending diagonal (ED) after all. Long drawn out moves like the run from Feb 5th until now tend to terminate as an ED pattern as they reach the exhaustion point for new buyers. I thought we had a ED for wave 5-[5]-P1 when the 1214 high was formed last week. But if you remember it went just past the 1212.90 limit invalidating the ED. Well, now I think that might just have been wave (1)-5-[5] of the ED and the drop to 1183.68 was wave (2). We have been working on wave (3) the past three days. Each wave of an ED should count as 3-wave moves and that is what I see is going on here. Wave-a of (3) hit 1210.99 today. We are now falling back in wave-b of (3) that could be complete today at 1198.85 or might need a little more pull-back tomorrow to close the 1198 gap and test the 13-day EMA near 1195.5. Then we should get wave-c of (3) up towards 1220. And finally wave (5) of this larger ED projects to about 1225 to 1235 by early May. That will be the P1 top.  Also, the peak of P1 will likely show strong negative divergence on the RSI compared with the 1214 high, setting the SP-500 for a much larger fall to begin P2.

The 1st and only alternate count remains that 1214 was the top of 3-[5]-P1 and that we are working in 4-[5]-P1 back down. I have 4-[5] playing out as a 3-3-5 (a-b-c) wave flat. Waves-a and -b are complete and we are working on wave-c back down toward 1181 for the conclusion of wave 4-[5]. Then wave 5-[5] can begin and will project to new highs between 1235 and 1275 in late May or early June.  Also, not that this 3-3-5 flat option for wave 4-[5] would satisfiy the rule of alternation be waves 2  and 4, since wave 2-[5] was a 5-3-5 Zig-Zag.SP-500 60-min Chart (EOD):

SP-500 15-min Chart (EOD):

10:35am EST:  There was a pull-back reaction to the first test of the 1210/12 gap this morning.  The 1210.99 high of the day interestingly occured at the intersection of the long standing (since Feb 5th) light blue lower channel line and the more recent yellow upper channel line.  Watching for the pull-back toward the 1197/1200 gap, the reaction there should tell us which count is correct.

SP-500 15-min Chart (10:30am):

8:00am EST:  Futures hit 1209.40 (1212.40 cash equiv) overnight, so not new high but very close.  The have since back-of to about 1203.50 (1206.50 cash equiv.).   Watching to see the SP-500 challenges the 1210/12 gap in early trading today in a samll wave v, then backs off.  All 3 options are still valid.  For the primary and 1st alternate we are looking for a hard sell-off towards 1184 or below.  For the 2nd alternate we are looking for a sell-off to 1195/1200 and then a bounce to new highs above 1214.

SP-500 ES Futures 60-min (8:03am):

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