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May 6th, 2010: The Day After

Posted by pugsma on May 7, 2010

6:20pm EST:  In looking more at the alternate count where P2 would be the 1066 low from May 6th.  The  best labeling for this 3-wave [A]-[B]-[C] corrective is to have the P1 top at the Apr 15th peak of 1214.  If you recall at the time it looked like the move from 1166 to 1214 was an ending diagonal that just very so slightly violated the wave (5) maximum peak.  The rise up to 1220 can be labed [B]-P1.  This would mean that P2 lasted about 3 weeks or 16 trading days and retraced about 27% of P1.  Below are the updated 15-min and 60-min charts with the new alternate P2 lables.  I’m not highly confident in this alternate P2 count, as I think P2 will likely play out into July-August with a 38% retrace to about 1010 (17.3% correction) as per my primary count.  However is go back and look at previous secular bull markets (like years 1975 to 2000), there are very few pull backs deeper in price more that 10%.  In fact the the technical definition of cyclical bear is a 20% pull-back.   This 12.5 pull-back is the biggest one yet on the run from the 666 low.  So until we get a pull-back deeper than 20%, I’m inclided to consider a 12.5% pull back as a potential P2 candidate.

15-min SP-500 (EOD #2):

60-min SP-500 (EOD #2):

4:55pm EST:  The Primary Wave 2 (P2) correction is over.  The Primary Wave 3 (P3) bull run has begun.  Did I get your attention?  Read on…

Primary count is that we are in a contracting triangle for wave (4)-[A]-P2. Legs A-B-C-D are complete. Working on Leg E-up to 1120 area for Monday. There should be a trust down out of the traingle for most of next week. The triangle mesuares (1137-1094 = 43 points). The triangle target is 1094-43=1051. However, the SP-500 just needs to make a new low under the May 6th low of 1066 in order to validate this count. This would complete wave [A]-P2. Then wave [B]-P2 should retrace 50% to 62% back up towards the broken P1 channel line around 1140 to 1160 over then 2 to 3 weeks. From there wave [C]-P2 should head down towards the 1010 (38% retrace) to 943 (50% retrace) target area by the July-August time frame. And that would complete P2.

The alternate count is going to shock some people. It’s that Primary Wave 2 (P2) is complete at the 1066 low on May 6th, 2010. P2 began on April 26th at the 1220 high. So P2 will have ended in just 9 trading days or about 2 weeks time. P2 dropped 154 points or -12.6% from the P1 high. This is a retrace of 27.8% of the P1 bull run from 666 to 1220. This is the largest correction since the March 2009 low of 666. So far I only count 3-waves (A-B-C in purple) off the top.  If a new low below 1066 is not made in the next week or two, then I will get a lot more confident in this count.  Right now I’m not highly confident in this alternnate count, but it’s a definitely possibility.  Ironcially, just when the perma-bears are calling for a P3 down, we could get P3 up!!! And now that the Daily chart RSI is reset back to oversold at 30; there is plently of room to begin the next bull marktet rally.

Have a great weekend.

SP-500 15-min Chart (EOD):

SP-500 60-min Chart (EOD):

SP-500 Daily Chart (EOD):

1:25pm EST:  Looking at the 15-min chart and it sure feels like a contracting triangle (A-B-C-D-E) for wave (4)-[A]-P2 with a drop for (5)-[A]-P2 yet to come down slightly below 1066. I have legs A-B-C of the triangle complete and we are working on D-E to finish out near 1115/20 before the drop down to new lows. But also, it could be a simple A-B-C up to back-test the broken channel line at 1143 for wave (4)-[A]-P2 or wave [B]-P2. Either case we will get a significant drop once this wave completes.

SP-500 15-min (1:15pm EST):

9:15am EST:  My thinking this morning is that the drop to 1066 should be considered as legit. Consequenlty my view is that P1 has topped at 1220. I have updated the 60-min chart from the EDO to show the 1067 as the end of [A]-P2. I have the drop from 1177 to 1067 as a wave (5)-C. Wave (5)-C is a severe extention and wave (3)-C is not the shortest, so it can work within E-wave rules. So the bounce we are working on is [B]-P2. B waves are very irrelgular 3-wave moves and can retrace from 50% to over 100% (flat option). I have some fib targers of 1143 (50%), 1162 (62%), and 1182 (78%) for this wave [B]-P2. I think wave [B] will complete in the next few days to about 3 weeks, before wave [C]-P2 drops down to the 1010 level to completed P2 in about the July-Aug time frame. Of course P2 could drop further into the fall and I have some out fib levels for P2 if it wants to exend lower.

The alternate (purple) count I have right now is that 1220, was only the top of wave 1-[5]-P1 and the drop to 1066 was 2-[5]-P1. In this scenario 2-[5] was about a 85% retrace, which is excessive by allowed for wave 2’s within E-wave rules. This count works as long as the Feb 5th, 2010 low of 1045 is not breached. Obviously, this count in implies that we are already in wave 3-[5]-P1 and are headed to new highs above 1220. The bounce from 1067 to 1137 late yesterday was the start of wave (1) of 3-[5]-P1. I don’t have any targets for alternate count yet, but will be working some up today.

SP-500 60-min Chart (Updated from EOD 5-6-10):

SP-500 Daily Chart (Updated for EOD 5-6-10):

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