Wednesday, May 26, 2010
Wave (ii) Has Two Equal Interpretations
The market rallied in the morning but had no follow-through, then reversed sharply into the close. Although the reversal has only created 3 waves from today's high, it definitely has the possibility of morphing into a larger 5 wave impulsive decline. Above are the internals that were flipped from very strongly bullish, to closing the day practically flat.
The above count suggests that wave (ii) is already complete after getting to the prior 4th wave area of 1090. This means that wave (iii) of 3 of  or C is now underway. There should no mistake about this wave as it should be practically a straight line down. Anything short of that type of behavior tomorrow would make this count highly suspect. The opportunity here is great for the bears with a great shorting opportunity for huge profits and minimal risk as stops can be placed just above today's highs. So the key to determining if this count is correct is if today's highs remain intact, and if the market undergoes absolutely fierce selling very soon. If not, then the short term bullish outlook below will be the most likely count.
The fact that the internals of the market still closed somewhat flat despite the big down move at the close makes me think this short term bullish count is also a strong possibility as well. This count also supports the time element associated with wave (ii) compared to wave (i). Since wave (ii) would have completed after about 1 1/2 days of trading for the bearish scenario mentioned earlier to occur, it weakens its probability a little bit. But since this is a wave 3 of  or C we're in now, that type of short rallying is quite possible. Regardless, the above short term bullish count is possible as well, and it will become my top count if the market doesn't tank hard tomorrow. This would suggest that wave (ii) is still underway, and after wave X bottoms, another 3 wave ABC rally will occur above today's highs, most likely well into the 1100s.
So there you have it. If the market just absolutely tanks tomorrow, then the bearish count first mentioned is the most likely scenario. But if the market doesn't tank hard tomorrow, then this bullish count will get priority.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.