Chart of the Day: SPX Waves

Before we get into today’s post, an apology to readers – those few who still visit this space. With a heavy schedule of commitments, time just hasn’t permitted me to do the amount and quality of writing I would like to do. It isn’t likely to get lighter soon. The weekly column at Seeking Alpha is about all I can fit in.

Now on to the post. Here we have a chart of the SPX with waves drawn at minimum 7% corrections. The 7% figure is a “soft” stop loss recommended by Investor’s Business Daily founder William O’Neil in his books, and I have found it to be very useful in identifying corrective phases in the markets.

The chart shows a five wave move off the March 2009 bottom, followed by a five wave correction which retraced 38% of the move, and another five waves up to the April top. The current correction has retraced 31% of the second up move. In the always subjective task of counting waves without the benefit of hindsight, the current market phase could be a sideways correction…or the early stages of a second wave bounce in another five wave correction.

(click on chart to enlarge)

Approximate Fibonacci retracements of the June 2010 to April 2011 move would be:

1,233 – 38%
1,191 – 50%
1,148 – 62%

My most recent weekly outlook anticipated a short squeeze rally this week and possibly another leg down in the correction. Elliot wave and Fibonacci analysis suggest that is a probable scenario. My suspicion is that the 50% retracement, representing a return to the congestion area from November, is a likely target.

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2 thoughts on “Chart of the Day: SPX Waves

  1. Harry,

    Thanks for this post. It is very comprehensive. And also thanks for including the Elliot Wave. I will be keeping an eye on your analysis, in that it is highly possible.

    That you are so busy, I am grateful that you maintain this blog.

    Aloha,
    Shirley

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