Tuesday Should Not Be Another Snoozefest; Let's Look at the Potential From Here

Today's internals don't tell us much of a story here in my view.  They were slightly bearish along with price, so everything matches up well.  Volume remained light at 919 million shares, which is about 100 million shares less than Friday's big rally.  So aside from the sharp selloff looking impulsive, I doubt it means any trend change took place today.  I think that when the bulls saw they couldn't get any continuation to Friday morning's rally they just decided to take some profits.  So the market is probably just taking a breather until moving higher into the 1173 -1181 range I mentioned in Friday's "Morning Update" post. 

So in just looking at the evidence in front of us and nothing else, it seems the market will continue higher in the coming days.  But when stepping back and thinking realistically, I think we should also recognize that for those looking for the Minor wave 2 top of intermediate wave (1) (Elliott Wave Tutorial, 1.7), that it will probably occur by surprising us somehow.  So despite the market lulling us into a complacent mood where the evidence suggests higher levels, I think it's important to still be vigilant and aware that minor wave 2 can top at any time.


ELLIOTT WAVE PRINCIPLE

The above 10min chart is one interpretation of wave subdivisions.  Since today's selloff CAN be considered a 5 wave decline, the S&P is definitely at levels where it can actually mean a top is in.  But I have low confidence that this is the case.  Regardless, it's still a possibility so we need to be aware of it and know what to look for.  So I thought I'd post the topping potential here with a wave count to support it.  It shows that minor wave 2 of intermediate wave (1) of Primary wave ((3)) has topped today and has completed Micro wave ((1)) down into the close.  This is supported by the slow choppy sideways grind from Friday into this morning which is often a characteristic of a 4th wave. As a guideline, 4th waves are usually a flat, triangle or flat combination correction (Elliott Wave Principle, p. 86), and the action you see from Friday to this morning fits into those characteristics.

Above is a 3min chart of the S&P which highlights the magnitude and structure of the late day selloff.  This is very speculative since it can easily subdivide lower from here, or it may just be an A wave of a zigzag correction, or any other number of possibilities at this point.  But as I've said many times, at this juncture we need to pay close attention and respect ANY signs of a top we find.  If the above count is correct then we should have a pretty good clue of it early tomorrow.  Any rally tomorrow should be very short lived and remain below today's high, and I would expect to see sharp selling to new lows from here quite quickly.  Anything short of this behavior would lessen the probability that any significant top was in and that this very small impulse decline above was just part of a larger corrective pattern and that the alternate count below is probably taking place.


ALTERNATE COUNT

Above is an alternate count (Elliott Wave Tutorial, 7.6) which is practically just as likely as my preferred count above.  The only reason this is an alternate is because the chances of a top occurring at any time are high, so I have to respect the bearish potential first when an impulsive wave down occurs.  This alternate count above tells us that today's late day selloff was part of a Submicro (A) wave.  It means that we should do at least one more up-down sequence to complete Micro wave ((2)) before charging higher.  So both the bullish and bearish counts have about equal weighting at this point, and hopefully tomorrow we'll get some movement in the markets to help us determine which count is more likely.

So what do you think about my charts, counts and analysis?  Which count do you think is more likely?  We'd like to know.  Visit my new Elliott Wave Forum and speak out.


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.