SPX

S&P (SPX)

Hamilton

SPX Oct 2010

The S&P, actually the SPX, reached the perfect point today as well. The A-B-C corrective move has traced out a near perfectly symmetric pattern and has exceeded the target (see the World) calculated a week or two ago at 1144 ( the 61.8% retracement) by a relatively small fraction, and only for the second time for the past week. We will see if it holds and if it means anything at all.

The 20+ points up today was supposedly the result of the Japanese Central Bank lowering it’s rates, this time to zero. Why that is good is beyond me as they started this process 20+ years ago to no avail. Also the ISM services index was up a percent or two, barely above 50%. It was not that long ago that most of us had not even heard of this indicator, let alone assign any credibility to it.

The Russell 2000 is trading at 688, 2 points above the calculated target of 686. In the mean time the CAC, AEX and SMI are trading well below these values. Time will tell. Below is the TSE also completing a possible wedge.

tsx oct 2010

S&P (SPX) update

Hamilton

Just a quick update. If the bearish interpretation is correct then we should soon experience a rather dramatic drop in the S&P and many other indexes. Here is the chart;

S&P Aug 2010

dateline

The pattern is the same everywhere with just a few modifications, the exception being the DAX that made a new high. Basically there is a wave1 followed by a 62% correction wave 2(could be counted in two different ways but the end result is the same) and then a smaller wave 1 which we are in the process of correcting. This correction may ,or may not be complete, the usual 62% level is at roughly 1110, where a small c also more or less equals the a inside a a-b-c correction for minor wave 2. Next we should get a wave 3 down but as waves 2 often resemble the preceding wave 2 of higher degree, the process may take a little longer even though the level of 1110 should more or less do it.

DAX and FTSE

Hamilton

To elaborate (or add to the confusion) on the earlier S&P analysis here are both the DAX and the FTSE. Generally the FTSE , being English , correlates best with North American markets.

DAX july 21 2010 FTSE july2010

Both market have the same pattern as the SPX  leading into this latest down trend (an expanding wedge). Thereafter the similarities stop. The FTSE does precisely what it should do, which is retrace the entire territory of the wedge, pretty well precisely (the only one to do so). The DAX, on the other hand, does nothing of the sort, in fact after the flash crash it manages to double top (the tops in April and June are for all intents and purposes at the same level). The FTSE probable corresponds best with the red count on the S&P. If so both the FTSE and the DAX should have a big move soon. The DAX which is most confusing is about to complete a triangulation that has been going on for either 2 or 4 months depending how the triangle is drawn. If it is in fact a triangle it normally goes UP in a thrust, if it is not – that is if the triangle is in fact a series of 1-2s of different degrees (3 of them) it should go DOWN hard to at least reach the base of the wedge. All told , looking at all three, down is more probable!

You can click on the charts to enlarge and move them around. I have add the SPX chart below for completeness.

SPX JULY20 2010

S&P (SPX)

Hamilton

SPX JULY20 2010

EW is a rather difficult thing to use at times as there can be a multitude of possibilities. Apart from that we had the heretofore unheard of flash-crash right in the middle to confuse matters even more. In constructing the proper count, that is the MOST plausible one AT THIS TIME, all the rules have to be adhered to with respect to overlap, size etc. etc. and comparisons with other indexes can be helpful.

The pattern leading to this latest down trend is a “expanding diagonal triangle” a.k.a a flag or pennant which has the very predictable attribute that it will be retraced in its entirety, that is to somewhere between 990 and 1010. (see green lines) The flash crash almost reached that point but not quite, assuring any observer that it was not just a flash in the pan due to thick fingers , but the real thing, that would still go lower. That almost certainly had to be a wave 3, the remaining question was of what degree. I have drawn 3 different counts that are plausible; in the red one wave 2 is an irregular flat: in the blue one the correction is quicker and the down trend is continued earlier, now in the 3d 1-2 ; in the purple one wave one down continues a lot longer and the wave 2, a zig-zag, is not at all complete as wave c of 2 can easily retrace 50 to 60% or more, 1125 is a minimum.

Which one is correct, if any , remains to be seen but for the bears the purple one will be the most frustrating – which is what is usually in store.