Two Wave Counts on the Table, Both Overall Bearish

KEY SUPPORT AT 1040




Above is a daily S&P cash chart showing the fierce support at the 1040 level of the S&P cash index. Once this level is taken out, there is little left but a few speed bumps to support the index until it reaches 900. So the bears taking out 1040 convincingly will be big. The more attempts at taking out this level, the weaker it gets. It's like eroding a castle wall with cannon blasts. One or two blasts from a cannon may not take the wall out, but each blast weakens it more and more until eventually it collapses and the army charges through with no resistance. In the markets, each attempt at taking out 1040 gobbles up stop losses and profit taking from the bears. But the more it's hit, the more of that support dissipates until it eventually gives way. So I'm watching 1040 closely.

Another thing to note today is that although the Dow and S&P's headline close was quite strong, the behavior of the overall market was quite weak. The high risk Nasdaqs and Russell 2000 indices all closed lower on the day despite the blue chip indices' sharp rally, which a lot which occurred in the last couple hours of trading. Today was a shift out of higher risk stocks, and into lower risk stocks. That is not the behavior of a new bull market. It's the behavior of an unhealthy and fearful market. So today's behavior was not bullish to me at all. The market may certainly grind a little bit higher in the short term, but the larger trend is still clearly down in my view.


PRIMARY WAVE COUNT




Above is my primary wave count of the short term picture. For the longer term count, check out last week's post (click here). This count is desirable because wave (ii) was composed of overlapping waves which is conducive of a correction, and it was also composed of sharp bursts higher which is conducive of a wave 2. It was followed by a sharp 5 wave decline into a low established yesterday, with very weak internals conducive of a wave 3 at some degree. So the rally and decline are unfolding perfectly for EWP standards, and the internals and structure support the wave count as well. So this count looks very good for me right now. Under this count, 1105.67 needs to hold, and the next wave will be a wave iii of (iii) of 3 of [3] or C. Which means it will be very fast and ferocious unrelenting selling for days. If correct, it's a wave the bears don't want to miss.


ALTERNATE COUNT




My alternate count suggests that wave (ii) is still unfolding in the form of a "flat correction". This means that wave "b" of the flat occurred yesterday, and todays is the start of a strong and sharp wave "c" that should just exceed wave "a" at 1105.67 to complete wave (ii) and then give way to very heavy selling pressure. This count is rated as less likely than the first one I mentioned because in order for this to be a flat correction it means that the proposed wave "b" would look a lot like a 5 wave move which a wave "b" cannot be. "B" waves can only be composed of 3 waves, or a combination of 3 waves. It cannot be a 5 wave impulse. Also, the decline from 1105.67 was very sharp and the internals were quite bearish, both of which are also not conducive of a wave "b". So although this count is still quite possible, it's just not as likely as the primary count above.

So right now my two top counts are overall bearish with one count leading to extreme selling any time now, and the other about to get hardcore selling pressure after it pops to just above 1105.67.


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.