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May 25th, 2010: Wave (5)

Posted by pugsma on May 25, 2010

5:40pm EST:  I only count 3 waves down out of the wave (4) triangle. Yet SPX bounced hard and closed green at 1074. Now in after-hours it’s trading up another 10 points or 1084 equivalent and it looks like the we are breaking out of the down channel from 1174 to 1040. Plus with the VIX chart and SPX hammer candle chart I presented today, it sure smells like a near-term and maybe intermediate bottom was put into today. I’m going to move the wave (5)-[C]-P2 low to today’s low of 1040.78. I will leave the possible count of a wave-v-(5) lower, low in red on the chart, but as soon as 1078 is breached in the cash market tomorrow that count will be invalid. My primary count is that we are beginning wave (1)-1-[1]-P3 today. Specifically that we have put in waves i and ii and are in wave iii with a target near 1090 for the end of wave (1) tomororw. Then I think we’ll retrace 62% to about 1060 for wave (2) later this week, before jumping much higher next week in wave (3). 1090 is going going to be the neckline of a large Inverse Head and Shoulders that projects to about 1140 for the end of wave 1-[1]-P3. The alternate count is that wave is the [B] wave a A-B-C, 3-3-5 flat. We’ll need a more time and price action to distingish between these two counts. The main thing right now is both counts point higher and we need to the confirm the near-term and then intermediate trend change. Breaking above 1078 confirms the near term trend change and above 1115 confirms the intermediate term change.

SP-500 15-min Chart (EOD):

SP-500 60-min Chart (EOD):

4:15pm EST:  Hammer time again at 1040?  Today’s price action resembles the Feb 5th low at 1045.  Bulls need follow-through and/or consolidation above 1040 the next several days to confirm the near term and possibily interemdiate term trend change from down to up.  Lots of bullish signs on the daily candle chart below with MACD histogram turning positive and a bullish cross on the Full-STO.

SP-500 Daily Candles (EOD):

3:05pm EST:  Looking closer at the VIX (Volatility Index), we can observe some serious negative divergence between price and all three key technical indicators (RSI, MACD, and Full Sto). This is indicating a potential strong trend change with the VIX falling and in tern the SPX rising.  However in the bears favor, look how close the VIX is to getting the Golden Cross (50-day above 200-day). The last time Golden Cross this happened on the VIX in the Sept 2008 we had 6 months of selling pressure on the SPX to drive it down to 666. It’s just another reason the bulls must defend this 1050 area and keep the VIX headed lower.

VIX Daily Candles (2:05pm):

12:10pm EST:  Assuming we are nearing a tradeable bottom here in the 1010 to 1040 area, I can add my intermediate alternate count to the mix if primary wave 2 (P2) needs more time (i.e not necessarily price) to play out. So far we clearly have 3-waves down off the 1220 April 2010 P1 top. This could be a simple 5-3-5 Zig-Zag for P2, as I have it labed for my primary count. However, the end of this current move lower could be the [A] leg of a 3-3-5 flat. In which case we would expect 3-wave [B] leg move higher ending near the 1220 area by late July or early August. This would be back-test of the broken P1 channel line shown on my 60-min chart. Finally, there would be another violant 5-wave [C] leg down to this same area 1010 to 1040 area in the early fall. If the [B] leg of this flat were to exceed the 1220 P1 top, then we’d have an expanded flat and the [C] leg down in the fall would be considerably deeper than where we are now. For an expanded flat [B]=1.2[A] => 1256 and the [C]=1.62[A] => 964. The 956 area is the 50% retracement of P1 and would make a nice P2 target for both price and time.  There is also strong support in this 956 area on the weekly and monthly charts as discussed over the past weekend.   I like this flat or expanded flat idea for P2. So we’ll just have to watch the wave structure for any rebound from this 1040 area. If it takes the form of a 5-wave impulse up then it would be the beginning of the P3 wave which will last for serveral years. If it’s more of a 3-wave move then the flat or expanded flat for P2 could be playing out.

SP-500 60-min Chart (11:30am):

12:00pm EST:  It’s difficult to say if this is just the wave-iv bounce of (5)-[C]-P2 or if wave-v-(5)-[C]-P2 has ended.  Thus far the bounce is looking quite strong and has the potential to be a key reversal day if it continues.  There is a gap to fill between 1068 and 1073 so that could be the target if this is wave-iv-(5). If the SP-500 price moves above the wave-i-(5) level of 1078, then move lower has ended.  Here is the updated 15-min chart.

SP-500 15-min Chart (11:30am EST):

8:45am EST:  ES Futures hit a low of 1037 (1040 cash equiv).  There has been a bit of bounce up to 1047 (1050 cash equiv).  The 1045 level in the cash market will be a key level to watch.  A close above 1045 is important if this is going to be tradeable near term bottom.

ES Futures 60-min Chart (8:26am):

5:52am EST:  I said in the EOD update yesterday we should watch for clues in the ES Futures to futher confirm the primary count of iii-(5)-[C]-P2. Well, the ES Futures have left no doubt. ES Futures have traded down to 1041 (1044 cash equiv), On the ES Futures 60-min chart the channel indicates ES could drop down to about 1020 over the course of today. On my cash market 15-min chart the channel supports a drop to about 1040 at the open and drop to 1032 by EOD. I have targets for this wave (5) ranging from 1053 { (5)=0.62(1) }, 1032 { (5)=(1) }, 1021 { [C]=[A] } to 1010 { 38% of P1 }. Based on the ES Futures the 1032 and 1021 targets look the most likely. However, the 1045 area is very important as it’s the Feb 5th, 2010 low and the 50-month SMA.

ES Futures 60-min Chart (5:19am):

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