Laser Focus on an Imminent Top ~ The Risk Averse Alert

Thursday, October 22, 2009

Laser Focus on an Imminent Top

Let's zoom in even closer and analyze wave v of 5 of C of (B). This wave — itself subdividing in five component waves — marks the stock market's advance since early-October ... and presently is thought leading to top of the counter-trend rally since March '09 bottom.

(The Elliott wave count labels shown below should have been underlined were they to conform with $SPX Elliott wave count shown over the past couple days. My bad.)

SPX 5-min

The first wave up is seen beginning Monday, October 5, 2009. The greater bulk of wave 1's advance occurred the next day, 10.6.09 (the first day you see above).

Wave 2 unfolded in simple, zig-zag form. Thus, by the Elliott Wave Principle's "rule of alternation" wave 4 can be expected to take a complex form.

The component waves of wave 3 (i.e. waves i, ii, iii, iv and v) unfolded textbook Elliott Wave Principle. When you look at the next chart note the range in which wave iv of 3 traded. This is the "fourth wave of one lesser degree" and is the area to which wave 4 can be expected to fall.

SPX 5-min

Precisely what happened this morning...

This notwithstanding, though, it is not yet certain wave 4 has ended. Nevertheless, wave 4 has taken a complex form, as expected.

To summarize, then, $SPX 1080 was not the "critical support" it was thought yesterday. And top to the market's counter-trend rally off March '09 bottom still appears imminent.

The S&P 500's final leg should carry the index no higher than the near vicinity of $SPX 1110 (for the reason mentioned Tuesday, given my presently favored Elliott wave count warning of an imminent top). Likewise, look for accompanying volume to come in lighter than last week's peak volume (at the conclusion of the third wave of five waves higher since October 5th).

... Or look for accompanying volume to exceed anything registered since March '09 bottom. Given the trend during the entire counter-trend rally wherein volume has spiked at the conclusion of third waves, an extraordinary volume spike might be registered at top. After all, a C wave (such as the one right now seen nearing completion) is an Elliott corrective wave's third wave. A volume spike, then, likely would clinch my conviction top is in.

Fast Money
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